Enfusion Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2023

There are 9 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Infusion's Third Quarter 2023 Earnings Conference Call. At this time, all lines have been placed on mute to prevent any background noise. Following the speakers' remarks, we will open the lines for your questions. As a reminder, this conference call is being recorded.

Operator

I'd now like to turn the call over to Ignacio Njoku, Head of Investor Relations to begin.

Speaker 1

Good morning, and thank you, operator. We welcome you to Infusion's Q3 2023 earnings conference call. Hosting today's call are Oleg Mopsin, Infusion's Chief Executive Officer and Brad Herron, Infusion's Chief Financial Officer. Please note, our quarterly shareholder letter, which includes our quarterly financial results, have all been posted to our IR website. I would like to remind you that today's call may contain forward looking statements.

Speaker 1

These forward looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the SEC and are available in the Investor Relations section in our website. Actual results may differ materially from any forward looking statements we make today. These forward looking statements speak only as of today And the company does not assume any obligation or intend to update them following today's call, except as required by law. In addition, today's call may include non GAAP measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures.

Speaker 1

Conciliation to the nearest GAAP measure can be found in today's quarterly shareholder letter, which is available on the company's website. With that, I'd like to turn the call over to Oleg to begin.

Speaker 2

Good morning, and thank you for joining us today to discuss our results in the Q3 of this year. I'm pleased to announce that Infusion Business delivered another solid quarter for both revenue and profitability. Our value creation engine has gained momentum. Our disciplined go to market strategy is validated by persistent market capture And expansion across target segments in the face of ongoing macroeconomic uncertainty. We continue to execute against our large market opportunity, Take market share, expand our global footprint and improve our profitability.

Speaker 2

Our value proposition remains intact, Validated by healthy client additions, improving net dollar retention, increasing average contract value and expanding margins. I'm very excited about the formal launch of Portfolio Workbench, which empowers portfolio managers to seamlessly integrate portfolio construction processes With operational workloads, innovation is embedded in our culture and is at the core of our strategy. This product release not only represents a pivotal moment in our journey to support the largest and most complex institutional clients, That also underscores our commitment to technological development and a best in class client experience. I will share more details on this in a moment. Although we're not immune to macro headwinds, I'm more optimistic than ever about our future.

Speaker 2

We continue to grow above market rates And taking business from resource intensive, fragmented and expensive solutions. Infusion continues to prove It deserves to be a platform of choice for investment management organizations of any scale and complexity. Ultimately, our results are the evidence that Infusion's business model is truly global, scalable and adaptable. Infusion remains well positioned to benefit from secular industry tailwinds, while increasing its resilience to macro uncertainty. Regardless of market environment, we will continue to operate from a position of strength and iterate towards recapturing our unique growth and profitability profile.

Speaker 2

Now let me walk you through some of our key financial metrics in the Q3. Revenue grew 13% to $44,400,000 as we continue to execute on our go to market strategies and product roadmap. Adjusted EBITDA was $8,200,000 and represented an 18.5% margin. We continue to improve our margin profile, Benefiting from strong expense control and operating leverage, we added 37 clients this quarter, bringing the total client count to 842 It increased our ACV to $217,000 representing 2.4% quarter over quarter and about 8% year over year growth. Brad will discuss our financial results in more detail in a few moments.

Speaker 2

Now I would like to share a few notable client additions, validating our execution framework as we expand across geographies and market segments. In the Americas, revenue grew 10% year over year reflecting ongoing market share gains With larger fund managers despite macro headwinds, I'm thrilled to share that Infusion signed a Boston based Alternative Manager with approximately $2,500,000,000 in AUM. The firm opted out of upgrading its legacy OMS given the resource challenges. As a result, the system became obsolete after several years. Unlike the legacy provider, our team was able to understand the complexity of the client's workloads and design a well suited solution.

Speaker 2

Notably, this conversion resulted in infusion providing both software and managed services As a much more cost effective alternative compared to using in house resources. Infusion also signed a New York based loan only asset manager Focused on emerging and frontier markets. In this competitive takeaway, Infusion is consolidating the investment manager's patchwork of disparate solutions, which required manual processes for communication between systems. As a result, the in house solution became exceedingly complex, We implemented Infusion's platform, the asset manager benefits from our fluid front to back solution, Inclusive of the new launch portfolio workbench tightly integrated with both Golden Source of Truth datasets and Workflows resulting in minimized operational risk and material cost reduction. In EMEA, revenue grew 29% year over year As the market continues to embrace our differentiated offering, we're excited about our momentum in the region As we diversify our revenue portfolio, we move into larger and more complex markets and expand into new regions.

Speaker 2

For example, we signed with another London based multi $1,000,000,000 global institutional asset manager. The fund manager outgrew its legacy incumbent provider And faced multiple challenges, including manual trade allocation and inadequate cash reconciliations. They selected Infusion because of their robust Welcome to their platform, allowing them to streamline and automate their workflow and scale as they grow. With Infusion, The client now has a unified view across all funds and products, can execute swift trade instructions and benefits from our multi asset class NAV generation capability. We also signed a large newly launched distressed debt manager, The largest distressed specialist launch in recent history, demonstrating our ongoing success with credit strategies.

Speaker 2

They selected Infusion platform because of its flexibility to support the company's future growth and robust major support across various asset classes as well as workflow automation. Importantly, we continue to expand our geographic presence in Europe. I'm thrilled to announce that we entered into an agreement with Oslo based investment manager that runs a loan only equity strategy. The manager is part of a newly formed entity with a large well known team with a significant track record. This particular client will be leveraging Infusion Software and managed services offering.

Speaker 2

We also won a mandate from a South African based loan only fund. This client plans to leverage Infusion software and services to streamline their workflow and realize cost savings. In APAC, we grew revenue by 13% year over year. We're seeing early signs of improvement in the launch market and getting traction with our upmarket motion. For example, we signed a phone point based global macro alternative manager.

Speaker 2

The fund manager was looking for a platform to enable them to launch quickly with robust end to end architecture and a single scope of truth for data and operations. Additionally, by partnering with Infusion, the fund manager leverages Infusion's value at risk and other risk measurement and reporting capabilities. Finally, we entered into an agreement with another recent fund launch, an Australian alternative asset manager based in Sydney. The fund manager chose Infusion because they were looking for a flexible platform that would facilitate a timely launch and set up the company for future scale from day 1. Let's move to some updates on the product front.

Speaker 2

As I've said many times, innovation is one of our core values This has always differentiated infusion from our competition. It is embedded in our culture and permeates throughout everything we do on a daily basis. I'm thrilled to announce the recent formal launch of our portfolio workbench, a highly intuitive capability that enables investment managers to rebalance their portfolios Across multiple strategies and investment vehicles. By leveraging in grid portfolio editing and an intuitive user interface, Portfolio Workbench works in concert with our OAMF functionality and allows PMs to easily manage performance and risk against the benchmark. As a result, PMs can test free trade compliance rules, monitor upholstery compliance and model upcoming subscriptions and redemptions The Portfolio Workbench is a strategic product launch for several reasons.

Speaker 2

First, Portfolio Workbench is a critical component In our stated strategy, we move up market to larger and more complex asset managers. It expands our traditional operational capabilities Into the decision making segment of the workflows in a way that is tightly integrated with decision implementation. 2nd, it's an intermediate step to support investment managers that deploy both proprietary and third party risk models, Facilitating their portfolio optimization and the risk management frameworks. It has important implications for both passive managers That are tracking benchmarks with periodic rebalancing and active managers focused on outperforming benchmarks by taking active positions. This will drive more quantitative and systematic portfolio construction in addition to heuristic and manual portfolio adjustments.

Speaker 2

3rd, Portfolio Workbench continues to build on Infusion's all in one product philosophy, Where we insist on eliminating fault lines across all segments of investment management workloads. It's just another set of functionalities That is a fluid and natural extension of the existing platform. Lastly, it further expands our competitive advantage By widening our mode from legacy competitors, responding to market demand, increasing client retention and expanding Infusion's value proposition. Here is just one of many examples of how our portfolio workbench allows us to expand into the loan only segment. It was a key element It helps convert a large emerging markets equities and credit focused manager that initially went with 1 of our competitors.

Speaker 2

In addition to Portfolio Workbench, Infusion rolled out 366 additional enhancements and features across our portfolio management and OEMS. The frequency and scope of the software updates is an important dimension of our competitive advantage and value creation mechanism. With that, I would like to highlight 2 other important enhancements the team released this quarter. The first is Bloomberg Real Time Mobile Support, Which connects Bloomberg's real time pricing in their terminal with 3rd party applications, so that the investment team can stay connected leveraging Infusion's mobile app. The other is native support for an OTC product, iBox Total Return Slot, which provides investors with a cost effective and optimal way To obtain data exposure to corporate bonds and leverage loan markets.

Speaker 2

Infusion's full front to back platform remains well suited to support complex instruments And so for simplicity that legacy vendors simply cannot. These new features are the result of long term efforts by our product and engineering teams Now moving on to market dynamics. We see some green shoots in managers planning to launch new hedge funds. However, the overall launch dynamics remain the law historic. Be that as it may, while we continue to successfully protect and expand our hedge fund home term, our book of business is increasingly less dependent Importantly, Infusion continues to benefit from secular tailwinds as the entire investment management industry is reevaluating It's software stack, workflows and related costs and risk.

Speaker 2

Our up market motion keeps gaining momentum As we continue to scale our technology, execute on our product roadmap and listen to our clients. All of this is reflected in our recent robust market share gains and continued shift in the revenue mix away from launches towards conversions In the way from pure hedge fund managers toward institutional investment managers. As I have said multiple times, Infusion is a pain killer, not a vitamin. As a side benefit of killing our clients' pain, we inflict an increasing amount of pain on our competition. Now let me review some key elements of our long term strategy.

Speaker 2

Our strategic position continues to evolve as we unlock new market opportunities And diversify our client base toward institutional asset managers and asset owners. Infusion is a business in transition And we continue to improve our business model as we optimize our go to market strategy, shorten the sales cycle and increase velocity of our onboarding process. Measurably, all of that drives TAM expansion, improvements in durability and speed of our growth, Margin expansion and client retention. Importantly, this framework is designed to protect our business economics from excessive macro headwinds. As evidenced by our performance over the last year, we continue to spread our growth rates globally, shifting our book of business away from money centered cities And targeting regions where competition is thin.

Speaker 2

We continue to maintain our focus on returning to infusion's historical financial profile. Infusion value creation machine is back to its normal virtuous cycle as we exercise surgical precision in our pipeline generation, operational excellence of our client services, product innovation, optimization of our revenue strategies and relentless fiscal discipline. In conclusion, we delivered solid 3rd quarter results. We remain focused on sales execution, moving up market and expanding our global footprint. I'm very grateful to all my Infusion colleagues for hard work, passion and focus on our clients.

Speaker 2

I will now turn the call over to Brad to discuss our financials.

Speaker 3

Thanks, Oleg, and thank you, everyone, for joining us today. Speaking on behalf of the Hi, Infusion management team. I'm glad to report yet another quarter of top line growth combined with strong profitability and cash flow generation. For the Q3, we generated revenue of $44,400,000 an increase of 13% over the same quarter last year. Just as we reported last quarter, these results represent a slowdown in our historical growth rates.

Speaker 3

However, we're seeing some Positive indicators in our underlying growth algorithm. 1st, bookings in both new fund launches and conversions continue to be strong As the sector continues to look for effective and efficient solutions to manage back office tasks. 2nd, The quality of our pipeline continues to improve as we expand our market opportunities by deploying new product features such as portfolio benchmarking And additional capabilities around credit. Finally, we are starting to see some favorable trends in the underlying revenue drivers within our back book. Specifically, we are seeing both improvement in net organic growth as well as lower churn.

Speaker 3

3rd quarter ARR was $177,900,000 up 12% year over year and 4% higher than what we reported just last quarter. As a result of the trend improvements in the back book I mentioned, net dollar retention in the quarter, excluding involuntary churn, It was 107%, while net dollar retention, including involuntary churn was just over 102%. For both NDR measures, this is the Q1 in the previous 4 where we've seen NDR increases, Which leads to confidence that the headwinds related to the macro challenges facing the sector are either stabilizing or modestly reversing. Adjusted gross profit increased by just over 9% year over year to $30,200,000 This represents an adjusted gross margin of 68%. As we've talked about in previous earnings calls, we expect adjusted gross margins to remain between 68% 70% for the next several quarters As we continue to invest in our client onboarding and servicing capabilities in support of our growth strategy.

Speaker 3

Adjusted EBITDA for the quarter was $8,200,000 up over 50% compared to Q3 of last year. Against current quarter revenues, this represents Adjusted EBITDA margin of 18.5 percent, up 4 60 basis points from the same period a year ago, And this is largely consistent with what we reported in Q2. Our end quarter results represent a 53% pass through rate on incremental revenues. For the quarter, we generated adjusted free cash flow of $9,500,000 compared to $6,900,000 in the same period a year ago. Cash flow conversion in the quarter of 116% was higher than normal due to the timing of various cash inflows and outflows It is somewhat typical for the Q3.

Speaker 3

While the quarterly conversion rates will fluctuate, we remain confident in our ability to convert approximately 50% of our adjusted EBITDA into free cash flow on a rolling 12 month basis.

Speaker 2

GAAP net income for the

Speaker 3

quarter was $2,700,000 compared to $2,600,000 in the same period last year. Against our fully diluted share count of 100 27,800,000 shares, our current quarter net income results in a GAAP EPS of $0.02 per share. With respect to our balance sheet and capital considerations, there are a few items from the quarter to discuss. First, we ended the quarter with approximately $32,000,000 in Cash and cash equivalents and no outstanding debt. 2nd, through our partners at Bank of America, we have recently secured A revolving credit line of $100,000,000 with an additional $50,000,000 available contingent on certain conditions.

Speaker 3

This line was exclusively put in place to provide access to liquid capital should we identify strategic targets that could help accelerate our growth trajectory. Finally, we are pleased to say that we completed the distribution of shares to holders of our management incentive units that were connected to our 2021 IPO. The most notable impact of completing these distributions is that all tax withholding obligations related to these shares are now fully satisfied. Moving on to guidance, we are reaffirming the revised revenue and adjusted EBITDA figures that we provided in our Q2 earnings discussion. Just to confirm, that was a range of $170,000,000 to $175,000,000 for full year 2023 revenues In a range of $30,000,000 to $32,000,000 for full year 2023 adjusted EBITDA.

Speaker 3

With that, we'd like to open up the call to questions. Operator, please go ahead.

Operator

Thank you. We'll take our first question from James Faucette at Morgan Stanley.

Speaker 4

Hi, everyone. It's Michael in Fontaine on for James. Thanks for taking our questions. I wanted to ask on Portfolio Workbench. Obviously, currently in beta, expected to go GA by the end of the year.

Speaker 4

Oleg, I think you called that out as a driver of a win or 2 in the quarter, but I'm curious how you would characterize the early feedback thus far from clients and Perhaps how it's priced in the potential uplift from an NDR perspective over the medium term? Thanks.

Speaker 5

Thanks, Michael. Great question. So This is one of the products. I just want to emphasize it again. It's not something that we went to the Our design lab and created without consulting with our customers, actually it's a result of Many conversations.

Speaker 5

We're simply responding to what market is asking us to do. And on one hand and on the other hand, it's a Part of our deliberate and purposeful strategy to create a product offering for institutional asset managers and move Our traditional portfolio that is a mix, as you know, between middle and back office offering more toward Investment decision making as opposed to investment decision implementation part. And so that's the strength of the product where It doesn't stand on a stand it doesn't exist on a stand alone basis outside of the core system. Then there is another layer of integration That brings those orders into overall core. It's actually part of the Fluid Infusion ecosystem.

Speaker 5

And so once the decision is made, which is what Portfolio Workbench is all about, it's been seamlessly executed within our OEMs. So it's basically again, it's a response to what market has been asking us to do and a result of multiple iterations That the product team and the technology team has performed with our clients. Naturally, it will we believe it will Make a serious impact on our client retention capability. I mean, look, the reality of it is Infusion is becoming as opposed to just operational support platform, it's also becoming a collaboration platform We're portfolio managers, the very people that think about how to position the portfolio, allocate capital, allocate risk, Continue to interact with analysts, continue to interact with Fronotos team's portfolio excuse me, water management Capabilities, traders and so on and so forth. And so that part is facilitating that collaboration.

Speaker 5

That part is facilitating that interaction And therefore, reinforces the quintessential nature of the platform and thereby translates into the high retention rates.

Speaker 4

Got it. Makes sense. Maybe just on some of the strategic commentary you made. Obviously, Good to see the incremental credit facility, the health of your balance sheet and the free cash flow generation that you guys are having. But how are you thinking about The capacity for near term M and A and I'm more curious about the types of assets and or geographies that you would be interested in.

Speaker 5

Sure. Great question. So we have I mentioned a couple of quarters ago, First of all, we're very deliberate in what we're looking at as far as our M and A targets are concerned. Our thesis All in one system, fluid, one fluid, coherent set of code, Framework, workflows remains intact. Therefore, the bar for finding something where we have Blind in the obvious value creation proposition, technology, stack compatibility and of course culture fit is pretty challenging, Right.

Speaker 5

On the other hand, because of our system is so open and so flexible, it does facilitate interest in place, both in terms of scale where we can bring something on board that will simply Either accelerate our travel from growth perspective within the core product strategy Or from Skol perspective, where we would position the business within areas where simply not, such as private equity markets or private Credit markets. But from that perspective, it's not so much geographical approach. We're global. We're looking at things Both in Europe and in U. S.

Speaker 5

Of course, in U. S. There is plenty more to look at, but it's more related to a choice, whether it's a Kale deal where we look along our vertical and see what our technology platform allows us to bring on board Well, we'll look at this from a Skol perspective where we're seeing what's available from modern technology perspective that would Allow us to get into areas where infusion is not currently Represented or doesn't have capabilities to sell.

Speaker 4

Got it. Thanks, Alex. Of course.

Operator

We'll take our next question from Faith Brunner at William Blair.

Speaker 6

Hey, guys. Thanks for taking my question. Wanted to start on the international side. You guys are seeing strength, especially in EMEA. And I was just wondering how you're thinking About this opportunity, how you guys are thinking about allocating resources and your competitive positioning to sustain momentum in these areas?

Speaker 5

Well, big focus for us. Thank you for the question. I mean, as you've seen For the last couple of quarters, it's been a strong driver of our growth, 29% year on the year growth this quarter. We see a lot of opportunity there. People typically think about EMEA as one monolithic market.

Speaker 5

From our perspective, it's anything but Every country in Europe is relatively unique in terms of go to market strategy, in terms of how people think about Technology, how people think about buying decisions, who are the gatekeepers in the industry and so on and so forth. And so our strategy is Nuance and I have to give credit to our both revenue team and product team thinking through those nuances and designing that go to market Those markets also from our perspective tend to be Less competitive and less crowded, more stale, slower and therefore, in some sense, ripe for disruption By companies like Infusion, they still either relying on a lot of legacy systems, legacy infrastructure, Homegrown proprietary or relying on relatively clunky Obsolete legacy providers where people are still babysitting capabilities and spending tens of 1,000,000 of dollars without Significant ROI. So we're very excited about the opportunity, both Europe and Middle East, very interesting. And As you've seen, we're gaining traction in multiple countries, France, Norway. Of course, we're seeing opportunities In U.

Speaker 5

K. As well, it's still our home turf. We still are obviously controlling pretty large market share around Mining center cities like London, yes, and of course outside EMEA like Hong Kong and New York. But again, our strategy is very deliberate To rebalance portfolio mix away from those centers toward markets where we're much less represented and where our competition is not as high, But also rebalance our book of business as you if you track our performance over the last 3, 4 years, this is why the revenue is so stable. Sometimes When Asia doesn't work, U.

Speaker 5

S. Picks up slack. When U. S. Is slowing down, we're rebalancing towards Europe, and we will continue To do that going forward.

Speaker 6

Okay, cool. Thanks for the color. And if I could sneak one more in here. Just a lot of strength in my strategy to it. You guys are a beneficiary of capital flows.

Speaker 6

So wondering how you're thinking about these

Speaker 5

I'm so sorry, I did not get the first part of your question. Could you repeat that?

Speaker 6

Just as you're continuing to see strength in multi strategy asset managers, how are you thinking about

Speaker 5

I got it. So that's an interesting one because The multi strategy, multi manager businesses, to some extent actually Represent the challenge for us because they have very custom blends of different things and actually to the extent that they're competing for talent, Oftentimes, it's nearly impossible for them to impose specific system requirements on people that are coming in with People coming in with a team that has some kind of history with another system, some kind of a preconceived notion how they like their workflows to be organized. And The platform has to be dynamic and flexible enough to absorb the team without necessarily imposing those technical or workflow constraints. On the other hand, precisely because they captured such enormous economies of scale, they have virtually unlimited technology budgets and therefore Their ability to run a lot of proprietary things to satisfy to develop and run a lot of proprietary things to satisfy their firm wide Requirements is also much higher. And so the cost pressures are in some sense are secondary there.

Speaker 5

From my perspective, it's much more driven by what makes sense for the business. On the other hand, those firms have become big magnets For Talendin, therefore, they actually pressing down on the number of launches naturally. As PMs who are looking to launch, they make a choice whether they They go it alone and they launch a fund or they go on a platform like one of those multi manager platforms and they just get a seat and get capital allocated And just begun trading. And so from that perspective, we have a pretty strong new class of clients like that. But in some sense, This is not a market where we see unlimited growth.

Speaker 5

What is interesting though, when you see some recent announcements on the More traditional fully integrated asset managers typically Start competing with those and actually allocate capital internally. And this is where we come in. This is where our blend of multiple capabilities, middle, back and front office actually matters Because those guys care about costs and they care about scale and they actually start coming into those markets With much more palatable cost structure that makes more sense for investors.

Speaker 6

Okay. Awesome. Thank you, guys.

Speaker 2

Sure.

Operator

We'll move next to Alexey Gogolev at JPMorgan.

Speaker 6

Hi. This is Elise Kanner on for Alexey Gogolev. So my question was, talking about your average onboarding period, Kind of how you plan to reduce this to better compete with other players in the space?

Speaker 5

Yes, big area of focus for us. We think about that part as not just cost structure part or pulling revenue forward part, but also the competitive advantage. Typically, our framework and onboarding cycle is much shorter than that of our competitors in that space, Specifically legacy providers that have on prem installs. And so even if we mentioned capabilities, we typically win business Precisely because our on boarding is much more reliable and much shorter than that of our competition. Yes.

Speaker 5

In terms of leveraging that, there is only one way to do it. You design the organization the right way and you build Technology capabilities around that so that your team is much more effective and efficient. So that's what drives the cost down. This would And cancel the velocity of the process.

Speaker 6

Great. Thank you so much. And then real quick, on EBITDA margins, so I know your guidance remain the I was wondering if 20% plus EBITDA margins are sustainable for the next 2 years and where you see the trajectory of margins going perhaps back to 40% some bit? Yes.

Speaker 3

This is Brad. I'll take that question. We've talked about expanding margins. It's also why we mentioned I mentioned the pass through rates, when we talk about incremental revenues, how much of that is flowing through in EBITDA. So we've targeted a 45%, 55% pass through rate.

Speaker 3

So what that translates And into certainly is margin expansion. So we've targeted exiting this year around 20%, And we certainly see those numbers not only sustainable, but also show the ability to expand those margins Both in the near term and in the long term, we're not setting necessarily targets to say when we'll get to 30%, 40% margins From an outlook perspective, but we certainly have the ability to take where we'll exit this year and expand those further into 2024.

Speaker 6

Got it. Thank you so much.

Operator

Our next question comes from Parker Lane at Stifel.

Speaker 3

Hi, guys. Thanks for taking

Speaker 7

the question here. Nice to see the reiterated guide and the improvement in MDR quarter over quarter. Brad, Curious as we head into the Q4 here and into 2024, what are your expectations around that trend line Of NDR, do you think we get back to the levels we were at last year? You talked about quality of the pipeline improving and maybe some Stabilization out there, just curious where we should expect that to go?

Speaker 3

No, it's a great question. We spent a lot of time looking at it. Just like you, I was very pleased to see that NDR trajectory return in the quarter to start kind of flipping the other direction. We posted the 107 number when you exclude NVOL. We targeted that number getting back at least to 110.

Speaker 3

I think reality is, it's probably a number that stabilizes in the 110 to 115 rate over time. When it gets there is going to be an interesting question. I certainly am appreciative to see the trend going in the right direction. I think it's probably going to hover around these levels for the next maybe quarter or 2, but I do think that 110, 115 number is a sustainable target once we get past that.

Speaker 5

Parker, Oleg here. Thank you for the question. I just wanted to pile on Brad's comments. So another Fin, it's important to think about is we try as hard as we possibly can to control what we can control. And you're absolutely right.

Speaker 5

Big driver here is that we and again, I have to give credit to our revenue organization and client services organization about This maniacal focus on disciplined execution of the sales, making sure we understand the client's problems. We our solution engineering team involved at early during the early stages, client services team involved Gets involved in early stages and therefore not just the velocity back to the previous question by Alexei, not just the velocity of our onboarding It's higher, but the quality is higher. And therefore, we continue to reignite this virtuous cycle of creating happy clients and therefore retention is higher.

Operator

We'll go next to Crispin Love at Piper Sandler.

Speaker 4

Thanks. Good morning, everyone. Appreciate you taking my questions. Just first on revenue growth, which has decelerated recently in just a challenging landscape here. Curious on your views for near to intermediate trends and if you think that Growth may have bottomed in the Q3 and could begin to inflect higher in approach and perhaps surpass 20% in 2024, Just given your comments about optimism for the future here.

Speaker 5

Thank you for the question. We're pretty constructive. I mean, we think that the bottom is probably we've seen this. Again, we don't have a crystal ball. I don't know what the macro environment is going to look like in 2024.

Speaker 5

What gives me comfort personally is our ability to pivot. As you know, you can grow or sustain this growth rates From multiple sources and we all know that the asset management industry at large, right, is going to grow In single digits and maybe at best it's going to be anywhere between 4% to 5% depending on the segment. So how do you grow? How do you grow at 20% plus? So you can do it 2 ways.

Speaker 5

You can either create very aggressive market share capture, which is precisely where we're focused today, Which is also precisely where Infusions' sort of what I would call downside convexity has been when Macro headwinds are strong. We always rebalanced and took business away from competition, thereby sustaining the growth and actually capturing market share. And when market is Really good again. Assets are flowing and the returns are high. Funds are launched.

Speaker 5

We are back to our hyper growth stage again. And so this is sort of our tactical solution number 1. Technical solution number 2 could potentially be an M and A strategy. Again, as I said before, we are very careful in surgical about that aspect of growth. Jens, at the end of the day, it also is about profitability from our perspective as much as it is about growth.

Speaker 5

I understand your question is about top line, But what we are trying to do is balance both top line and bottom line and oftentimes as you know those 2 are connected.

Speaker 3

This is Brad. Let me just add a little bit of ways of the way we look at our growth algorithm. If you think of Even if we bottomed out here and call it the mid teens from a kind of market share and macro level growth rate, Which I will kind of chime in is still substantially better than our competition because of our share grabs. So start off with mid teens, You pick up another 300 to 500 basis points out of NDR because we've mentioned we're running a little bit lower on NDR than we would have historically. And then tack on another 300 to 500 basis points for additional product capabilities and additional market opportunities that we're expanding With things like portfolio workbench, with things like credit, with things like new geographies we're going to go into, you compile those numbers, you can easily get back into This 20% sustainable growth rate.

Speaker 3

So that's kind of the way we dissect it and the way we look at it.

Speaker 4

Thanks. I definitely appreciate the color there and just balancing the top and bottom line. Second question from me is just can you give an update on Net incremental seat license trends at current clients, are they positive but slowing here? Just curious what you're seeing in the current environment and the drivers there?

Speaker 3

Yes, this is Brad. I'll take that one too. So this is kind of supporting my commentary about a little bit of a trend shift we've seen in that net organic growth. So we actually are starting to See, a term we use called upsells where our existing clients are adding seats at a faster pace than they are declining Over the last couple of quarters, when we saw those reductions in NDR, we saw that trajectory flip a little bit as most of our customers were resetting their cost base. We are starting to see on a net basis that organic growth number is turning substantially more positive than it has in the last couple of quarters.

Speaker 3

So They're not necessarily massive increases in seat counts, but we certainly are seeing As clients are expanding their own fund capabilities, they are picking up seats at a much faster pace than they are declining So that's a nice trend that we saw and it's representative in that NDR number picking up 100 basis points.

Speaker 4

Great. Good to hear. Appreciate you taking my questions.

Operator

We'll move next to Gabriela Borges at Goldman Sachs.

Speaker 8

Hi, this is Callie Valente on for Gabriela. Wanted to start on kind of how you feel about your current investment levels and What kind of macro signals would lead you to increase investments potentially? Or are you just comfortable with your current investment level In a world where macro increases and you feel like you can take advantage of that opportunity?

Speaker 3

That's a great question, Kelly. So it kind of Ken, just back to Oleg's comment a minute ago about balancing top line growth and profitability. We always have a list Investments that we feel like we could prioritize should the economic environments present the opportunities. The good thing about the growth rates that we're able to put out is it allows us to make not only sustaining the investments we make, but it does allow us to make incremental investments in our P and L, both flowing through OpEx and as well as CapEx because as you'll know, some of our investment flows through is CAP software. So we do plan, in fact, as we're building out our plan for 2024, we still have meaningful investments that we are targeting to make in 2024 Based on the growth trajectories we're seeing in the macro environment.

Speaker 3

So those two things to your point are very intertwined, and we pay very close attention to them. And Candidly, if the economic environments accelerate, that allows us the opportunity to make even more investments. So they work pretty close in tandem.

Speaker 5

And Kelly, I just want to echo what Brad said and also make another point, which is, the good news for us is that we still have a lot of white space In front of us to make investments that actually are here clear and present, not like A lot of people follow this hype with AI and machine learning and kind of having a lot of solutions Out there in search of problems, so to speak. We have very specific targeted product roadmap. Again, credit to our engineering team and product team thinking through it in a very disciplined and careful way where we again, we'll listen to the market Therefore, those investments that we're making have very high ROI. So it's not just about making investments in our mind, it's looking for investments with highest Potential return on equity and you can look at our return on equity as you know that's north of 30% This is what we're thinking about every time we deploy dollar. We think about what we're going to get back.

Speaker 5

And again, like I said, the good news for us at this point in time is not What to do with capital, it's there is a lot of clear and present product opportunities that would It will help us capture both growth and market share.

Speaker 8

That makes sense. Thank you. And then second one for me, Quik, is just Wanted to hear anything about kind of how you're thinking of the portfolio workbench pricing and how that compares to your other modules?

Speaker 5

I think we still Here's an interesting conundrum. So Portfolio Workbench is not something that we sell separately, right? As you know, we don't have Pricing package where we sell an order management system separately from PMS, from accounting and GL capability And portfolio workbench is something that is just part of the overall platform right now. Going forward, We are working on different bundles, if you will, that will allow us to Maximize commercial relationship with our clients. Right now, Portfolio Workbench is in this sort of it's a Green shoot of our overall product strategy and we will think through how to optimize that entire package.

Speaker 5

So the point is we're not thinking about product portfolio Workbench as a standalone product at web pricing, but we're definitely, definitely Thinking about number 1, how it works as overall in the context of the overall package that our clients to buy And also how that pricing will be driven as a function of what the portfolio workbench is going to work in conjunction with. Because remember, At this point in time, it's just a tool, it's just an environment, it's just a framework, right? It still has to be, if you will, parameterized And enriched by benchmark data, by risk model data, by market data and those partnerships in turn they drive the pricing And so there's a lot of dimensions here and rest assured, Brandon

Speaker 2

and his

Speaker 5

team are hard at work and talking to our revenue team thinking about How to capture that the best possible way.

Speaker 8

That makes sense. Thank you.

Operator

We'll take our next question from Koji Ikeda at Bank of America.

Speaker 6

Hey, this is Natalie Howe on for Koji. On ACV, so on an absolute basis, it grew this quarter more than it did last quarter, which is good to see. But Overall, the past few quarters, the growth rate has been decelerating a bit. Do you see that potentially stabilizing or holding in the upcoming quarters? And what could help drive growth there?

Speaker 5

Well, it's a natural, again, extension of our strategy. We're Lending bigger clients, longer contracts, bigger tickets, and we expect this trend to continue. Again, we play Very well in lower market segments. In very low market segment, just for clarity, We don't conform to price driven competition. We still compete on capabilities, not on price.

Speaker 5

But we keep We've seen a lot of interest and opportunities in this higher ACV space and saw Our overall ability to lend clients $300,000 $400,000 $500,000 $600,000 type range is much stronger than it's We've been before and we have an interesting opportunities in pipeline that is already in 7 digit type territory. And so as we move slowly, As I said, Infusion is a business in transition. This is precisely where that transition is happening. So as we move towards that segment, You will see more and more of that.

Speaker 3

Natalie, I only add, you might see some quarterly fluctuations in that growth rate just depending on when clients are on So on a quarterly basis, you could see some bouncing around.

Speaker 2

I would push you

Speaker 3

to probably steer a little bit more toward looking at it kind of on a year over year basis, you'll get a better number.

Speaker 6

Got it. Thank you. That's all from us. Thanks.

Operator

That does conclude today's question and answer session and today's conference call.

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Key Takeaways

  • Revenue up 13% YoY to $44.4 M in Q3, with adjusted EBITDA of $8.2 M (18.5% margin), ARR of $177.9 M (+12%), net dollar retention at 102–107%, and reaffirmed full-year 2023 guidance of $170–175 M revenue and $30–32 M EBITDA.
  • Infusion’s value proposition is bolstered by the formal launch of Portfolio Workbench, integrating portfolio construction into the front-to-back platform alongside 366 feature enhancements like Bloomberg real-time mobile support.
  • Go-to-market strategy delivered 37 new clients (totaling 842), a 2.4% QoQ increase in ACV to $217 K, and notable wins with large alternative and institutional managers despite macro headwinds.
  • Global footprint expanded as EMEA revenue grew 29% YoY, Americas 10%, and APAC 13%, with new mandates in the UK, Norway, South Africa and Australia, reducing reliance on hedge fund launches.
  • Robust cash flow and capital position with $32 M in cash, zero debt, a $100 M revolving credit line for strategic M&A, and 116% free cash flow conversion in Q3, targeting ~50% 12-month conversion.
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Earnings Conference Call
Enfusion Q3 2023
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