Enfusion Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2023

There are 9 speakers on the call.

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Infusion's First 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 questions.

Operator

As a reminder, this conference call is being recorded. I'd now like to turn the call over to Ignatius Jokou, Head of Investor Relations to begin.

Speaker 1

Good morning, and thank you, operator. We welcome you to infusion's Q1 2023 earnings conference call. Hosting today's call are Oleg Mompchin, infusion's Chief Executive Officer and Brad Herring, 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'd 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 intent to update them following today's call, except as required by law. In addition, today's call may include non GAAP measures. These GAAP measures should be considered as a supplement to and not as substitute for GAAP financial measures.

Speaker 1

Reconciliation 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 all for joining us today to discuss our Q1 2023 results. I'm happy to announce another strong quarter for infusion. Our business performed in line with our expectations for both revenue and profitability despite ongoing macroeconomic and market uncertainty. Infusion continues to capture hearts and minds of both new and existing clients across all investment strategies, asset classes and regions. We are focused on enhancing and protecting our unique competitive advantage centered around the best in class software and services offering.

Speaker 2

This motto is the strategic foundation of our ability to unlock new and adjacent market segments within alternative investment space, increase our market share with traditional investment managers and expand our global footprint. Despite historically extreme negative performance across all asset classes last year and ongoing macroeconomic uncertainty. Our business has delivered strong outcomes this quarter. However, we are seeing now In real time, a more challenging environment for the investment management industry as it's dealing with unique market dynamics. Predictably, the managers are recalibrating budgets, reviewing technology spending and delaying their purchasing decisions.

Speaker 2

As anticipated and discussed on the last quarter's earnings call, all these factors contributed to some short term headwinds in our business. Importantly, however, This market environment is not unfamiliar to us. It is precisely during times like this when Infusion's business model Tends to prove its flexibility and resilience and we tend to use these situations as opportunities to amplify growth and accelerate market share expansion. This year is no exception. We'll continue to take business away from stale, inefficient and expensive legacy technologies in competitive situations.

Speaker 2

We're doubling down on scaling our competitive edge by delivering unparalleled technology and best in class client experience to the investment managers and asset owners globally. Our ability to execute on the strategy will unquestionably drive exceptional shareholder value for many years to come. Now, let me walk you through the key highlights of our financial performance for the quarter. Revenue grew 20 percent to $41,000,000 reflecting resilient client demand for our software and services. Adjusted EBITDA was $5,700,000 and represented a margin of 13.9%.

Speaker 2

ARR grew 21% year over year to $167,000,000 I will let Brett Herring unpack our financial results and provide more color. I'm especially proud of our team's focus on driving operational excellence, optimizing operational efficiencies and ongoing expense discipline. All these efforts combined with the built in business flexibility enabled us to maintain our strong margin profile. Now I would like to highlight a few strategic new wins that bring our vision to life across all regions. In the U.

Speaker 2

S, revenue grew 16% year over year, which reflects the market dynamics outlined above. I'm delighted to announce that we signed an agreement with a multibillion dollar new hedge fund, one of the largest hedge fund launches year to date. The firm was looking for a technology platform that supports its unique special situations investment framework, which includes strategies Such as loan origination and direct lending, it involves equities, equity derivatives, corporate debt and credit derivatives. The fund manager partnered with Infusion Because of our ability to support the investment mandate across a broad set of asset classes and instrument types, Platform flexibility and its comprehensive and fully integrated end to end architecture. This partnership delivers more evidence of our ability to win large and complex hedge fund launches in this environment.

Speaker 2

In EMEA, revenue grew 37% year over year, driven by solid sales execution and aided by ongoing strength in the region, particularly in Middle East. I'm excited to announce that we signed a marquee deal with a London based investment management arm of a well known global venture capital fund. This alternative investment manager with over $20,000,000,000 in AUM manages multiple portfolios of late stage private and public companies. In this conversion, infusion is replacing the pieced together outdated technology mix with our fully integrated and robust cloud native offering that supports all front, middle, back office requirements of the client. The fund manager selected infusion because of our ability to support both public and private investments, cloud capabilities and managed services offering.

Speaker 2

In addition, I'm also pleased to announce that we entered into an agreement with a newly launched global macro and credit fund to provide a powerful solution that offers a complete set of front to back functionality. We're particularly excited about this deal because it was the 1st fund sourced through a broader relationship with a dedicated managed account platform, Innacap Global Investment Management. Innocap is another example of how dedicated separately managed account platforms can quickly and efficiently launch new alternative investment vehicles using Infusion's scalable and flexible cloud native end to end technology. As a result, the client can focus on generating alpha and Innocap can direct their efforts on investment sourcing and structuring, portfolio construction, risk management and dedicated account management. We believe this is one of many investment managers that will be sourced through our relationship with Innocap, and we continue to see investor demand for scalable, In APAC, revenue grew by 20% year over year.

Speaker 2

We continue to see success across the region. For example, we signed 1 of the largest Asian longshore equity hedge funds in Singapore to update their legacy platform with Infusion's software. The investment manager was using an incumbent legacy provider with limited functionality, which resulted in the use of manual and error prone processes. This win demonstrates our continuing expansion into the APAC region and highlights the value our clients see in Infusion's best in class software and services. Shifting to product strategy, I'd like to share with you how we have continued to broaden our partner ecosystem and in doing so We allowed our clients to use our platform as an operating system to access unique software capabilities of our technology partners and drive meaningful improvements in how clients interact with our platform as a result.

Speaker 2

Specifically, I'm thrilled with our new strategic partnership with Quantigo to deliver Infusion's clients, Quantigo Axioma Risk, an enterprise level risk management solution. With Axioma Risk, our clients can benefit from multi asset class risk capabilities, including exposure management, multi factor risk models, Scenario Analytics and Risk Attribution. As a result, fund managers of all sizes can make better investment in portfolio construction decisions informed by a comprehensive view of their risk profiles. With Axioma's robust and comprehensive risk capabilities, Infusion further enhances the value we delivered to our clients. Importantly, this partnership showcases Infusion's ongoing commitment to leverage our open architecture and make our offering a ubiquitous platform for the investment management industry that facilitates not only operational workflows, but also investment decision making.

Speaker 2

We continue to invest in developing the best in class enterprise grade SaaS platform. For our clients, that means continuous improvement, lower cost of ownership, increased productivity and ever expanding functionality. In the Q1, Infusion rolled out 3 20 enhancements and features. For example, we added support for order entry We also added a new enhancement for clients that trade credit, both cash bonds and credit derivatives. Our team developed a new tool that supports fixed and floating rate bond trading.

Speaker 2

For Infusion, it's just another day in the office. We continue to deploy these enhancements and new capabilities on a weekly basis and to improve client experience at the highest rate in the industry. Now let's turn to market dynamics. While our team continues to execute at a high level, the sustained macroeconomic headwinds have challenged the investment management space. However, we remain encouraged as we see signs of stabilization and expect the reduction in macro uncertainty to drive materially better dynamics in the back half of the year.

Speaker 2

For instance, recent industry data suggests a significant uptick in new hedge fund launches year to date. Given our differentiated offering, we have an opportunity to capture a significant share of upcoming new fund launches. In fact, We have won an outside share of the largest hedge fund launches so far this year. Further, we see several themes that will position us to emerge from this current market environment in a stronger competitive position. 1st, secular tailwinds remain in our favor.

Speaker 2

The industry is in the early innings of digital transformation from disparate legacy systems to robust end to end client native solutions. 2nd, our qualified pipeline for conversions and upmarket opportunities remains healthy. Recent market volatility has pushed Fund managers to reimagine their technology infrastructure. As a result, these managers look at Infusion to help optimize their cost structure and improve productivity. 3rd, we continue to focus on our strategy to increase the share of our customer wallet.

Speaker 2

As our clients are realizing the value added And lower cost of the fully integrated solution, we are capturing this opportunity to expand our client relationships from PMS only to OEMS, NGL and Accounting capabilities. Along the same lines, we see tremendous potential for expanding our managed services offering in conjunction with our core software offering. Importantly, not only does it drive a better economic relationship with our clients on a win win basis, but also enhances durability of our financial profile and makes Infusion more competitive when it comes to complex conversions for larger hedge funds and institutional managers. Finally, we're investing in the future readiness of our business by bringing more scale and robustness to our core platform, introducing new functionality and streamlining our onboarding, client support and managed services. We view these investments as critical to sustaining and expanding our competitive advantage and generating exceptional growth rates and profitability profile of our franchise.

Speaker 2

To conclude, Despite market challenges, our business fundamentals remain strong, durable and scalable. Infusion continues to demonstrate exceptional product differentiation that drives value creation for our customers and our shareholders. Since infusion was founded, we have navigated several challenging market environments And economic cycles. Even still, we grew through them and came out stronger, better, more resilient and impossible to kill. This current climate is no different.

Speaker 2

And today, we leverage and grow what made us good in the 1st place, unique technology, Passion for our clients, pride in our brand and our 1 infusion culture of integrity and operating excellence. Infusion continues to create unparalleled value for our clients. From new hedge fund launches to large complex multi manager platform, Institutional Investment Managers, Wealth Managers, Family Offices and Asset Owners, we remain convinced that our clients, Both current and future, we'll see in crystallize Infusion's undeniable value proposition, which will translate into accelerated and durable long term value creation for our shareholders. I will now turn the call over to Brett Herring to discuss our financials.

Speaker 3

Thanks, Oleg, and thank you, everyone, for joining us today. I'm pleased to report yet another solid quarter for Infusion An increase of 20% over the same quarter last year. As Oleg discussed, these results were in line with our expectations and consistent with the guidance commentary we provided on our last earnings call. Revenue growth was driven by new sales as well as further penetration into our existing customer base as made evidenced by our NDR of over 100%. 1st quarter adjusted gross profit, which excludes stock based compensation, increased by 19% year over year to $27,900,000 This represents an adjusted gross margin of 68.2%.

Speaker 3

These results include previously mentioned investments in our onboarding and client services capabilities targeted to deliver a best in class and scalable client experience. As we continue to make prudent investments in our client facing activities, We expect adjusted gross margins to remain between 68% 70% for the next several quarters. Adjusted EBITDA for the quarter was $5,700,000 Up over 200% compared to Q1 of last year. Against our revenues of $41,000,000 this represents an adjusted EBITDA margin of 13.9%, up over 8 50 basis points from the same period a year ago. Year over year margin expansion was generated by a combination of high pass through rates on incremental revenues matched with prudent expense management as we continue to balance our long term vision of delivering superior revenue growth and expanding profitability.

Speaker 3

For the quarter, we generated adjusted free cash flow of $4,500,000 compared to negative $9,400,000 in the same period a year ago. Current quarter results represent an 80% conversion rate against our adjusted EBITDA. GAAP net income for the quarter was $4,700,000 up from negative We ended the quarter with approximately $55,000,000 in cash and cash equivalents and no debt. This cash position combined with ongoing positive free cash flow production provides us with a number of options to fund our portfolio of strategic initiatives. On to some of our operating metrics.

Speaker 3

1st quarter ARR was $167,000,000 up 21% year over year. Net dollar retention excluding involuntary churn was 111%, down 490 basis points from the previous quarter. Net dollar retention, including involuntary churn, was 106% in the quarter. As I discussed on our last earnings call, we expect Short term volatility in net dollar retention as participants in the Investment Management sector remain focused on optimizing their cost structures in reaction to macro level forces. We signed 27 new logos in the Q1, exiting the quarter with 813 contracted clients.

Speaker 3

As Ulrich mentioned, Q1 saw an increased number of hedge funds wind down without the typical launch that would redeploy those assets. Based on the 1st few weeks of Q2, however, hedge fund launches have picked up and launch counts have accelerated. Finally, the average size of our customers has increased approximately 10% compared to the same period last year, a reflection of our continued strategy to move up market. Now let's turn to our outlook for 2023. First and foremost, we are reaffirming our previous guidance of $185,000,000 to $190,000,000 for full year revenues and $32,000,000 to $34,000,000 for full year adjusted EBITDA.

Speaker 3

Let me take a minute to provide some color on our position. To start, we've talked about how continued volatility within the financial markets creates a challenging environment for our clients as they look to realign their expense structures to their current levels of fee generation. This has a dual effect on Infusion's business. First, as our back book of existing customers work through their expenses, Fees from our customers may decrease, putting near term downward pressure on reported revenues and NDR. On the other hand, with respect to our front book or prospective clients, current market conditions provide a significant tailwind As this environment has created a catalyst event for asset managers to explore reductions in the total cost of ownership of their infrastructure.

Speaker 3

Our proven software and servicing capabilities combined with a lower total cost of ownership puts us in a unique position to win new clients as these opportunity arise. This is evident by our healthy pipeline of qualified leads and subsequent win rates. The timing of monetizing these tailwinds, However, tends to be measured more in weeks months as we work through sales cycles and the onboarding process. Lastly, for modeling purposes, we are revising the projection of Stock based compensation for the full year to approximately $10,000,000 from $12,000,000 as previously mentioned. With that, I'd like to open up the call for questions.

Speaker 3

Operator, you may go ahead.

Operator

Thank you. We'll pause here briefly as questions are registered. The first question and comes from the line of Dylan Becker with William Blair. You may now proceed.

Speaker 4

I think, Oleg, you mentioned it and Brad, you highlighted it as well, but kind of some of the customer segmentation, some of the trends you're seeing, The move up market is reflected in kind of the customer spends. We're starting to lap kind of maybe some of those optimizations, reiterating guidance here, But wanted to kind of go back through some of those tailwinds and drivers that kind of give you the incremental confidence in the 2 half and kind of the overall kind of broader tailwinds to or kind of broader industry digitization as well. Thanks.

Speaker 2

Sure. So kind of the theme Continues to be the same. We're observing purchasing patterns. We're observing, we're talking to our clients All the time, we're talking to prospects, of course, and the same underlying theme. So it's a balance between People tapping on the brakes after 2022 and people thinking about how to Reduce the costs and scale into what they see as potentially uncertain environment going forward.

Speaker 2

On the other hand, it is a balance. And so from pipeline perspective, we see a lot of opportunity for us to capture market share and actually Another thing, I think it's interesting As far as churn is concerned, it gives you a little insight into how we're positioned in the business, which is most of that volatility comes from U. S. And in fact, in APAC and EMEA, we see stability. And this is where we're focusing our efforts going forward and we think that if you think about regional breakdown of our position in Versus sort of core and adjacent markets as we go high up the chain In a way from U.

Speaker 2

S, we expect our business being rebalanced toward more stable profile, And this is where we're focused. Of course, U. S. Is our backyard, our core area. We play in both defense In offense properly, but there is some sort of beta component to the market that we cannot control and That's reflected in our kind of flexing our muscle with respect to operating expense control.

Speaker 2

So that's kind of a high level summary.

Speaker 3

Hey, Dylan, this is Brad. I'll add one thing to that. Olga and I were pretty active in the Q1 out talking to investors. And as part of those conversations, we have a unique opportunity to kind of probe on investors to test some of these hypotheses around the decision making processes within the investor base. So everything we've said around Customers looking for opportunities to kind of revisit their infrastructure spend, their infrastructure to run their businesses It's all been confirmed through those conversations.

Speaker 3

So I give you that context that it's not just kind of anecdotal, here's what we feel, we've been able to observe it firsthand and that's another Big point of confidence for us. Yes. And just one touch point, Bjorn,

Speaker 2

we also are focused on upsells Yes. Most of that success also comes it's counterintuitive maybe, but as people are thinking about Reducing total cost of ownership at the same time because they're already our clients, we do see some In capturing both OMS and the back end GL and accounting from just pure PMS clients And that results automatically or semi automatically in cost savings for our current client base.

Speaker 4

Got it. That's super helpful. It makes a ton of sense. Maybe even like some of that platform standardization playing out too. I guess maybe If you're having these conversations, right, like companies, your customers are trying to figure out the best way to operate kind of going forward, It's new AUM afforded by kind of the visibility of unifying some of these systems as well.

Speaker 4

Thanks.

Speaker 2

Ulf, that's an excellent question. I think for let me think about it for a second. I think for launches, it's a bit more important. We become we're looking around competitive landscape and talking to PB consultants and just consultants to the asset management space. It seems to be somewhat more important For launches, we are in many cases, especially given our latest success in winning large launches, We're sort of one of those boxes that investors check.

Speaker 2

You have Infusion in place, so you're operating Standards must be high and everything is good. For large institutional clients, I think there are a couple of things there. Number 1, I would say the costs and efficiencies are probably top considerations. However, as I mentioned earlier, the new recurring theme here is that while our Sort of prototypical user persona, if you will, is sort of middle to back office Operator or CFO or COO, we increasingly see the demand from institutional investors to actually put the system and the related analytics in front of the portfolio manager. So people actually that are making investment decisions.

Speaker 2

Yes. And that is an interesting thing for us because it allows us to complete the loop of the Decision making process and back to the app. So from data to decisions to decision implementation from that portfolio construction environment back to our OMS And the sort of rinse and repeat, and we are in that particular context, we are revamping our product strategy for the infusion analytics side, which sees increasing demand as well. And it's really in its, frankly speaking, infancy. But We have quite a few large clients on it and we see a lot of potential there and it's a very high margin business for us.

Speaker 4

Got it. Thank you, guys. Appreciate you taking the time.

Speaker 2

Of course. Thank

Operator

you, Mr. Becker. The next question comes from the line of James Faucette with Morgan Stanley. You may now proceed.

Speaker 5

Hey, thank you very much, Dylan. I appreciate the color on your outlook. I'm wondering if you can speak a little bit to the visibility you have With some of the recent conversion wins, which obviously take longer to monetize, at least uniquely, and particularly as it relates The timing of the flow through to revenue post implementation. Just trying to understand Your level of confidence and visibility into what appears to be a pretty sizable back half acceleration in terms of your full year outlook.

Speaker 3

Hey, James, it's Brad. I'll take that. So fair question, and it's also it's why we tried to provide some color in the So just to kind of expand on a little bit. 2 things are really happening. 1, we are seeing hedge funds pick up.

Speaker 3

We saw them kind of slow down. We talked about in Q4, we saw a little bit of slowdown in Q1, but in the back half of Q1, toward the end, we did see hedge funds starting to pick up. So we do have Visibility and we're starting to see the counts of those funds pick up getting back to more normal levels as The funds from those unwound hedge funds are now redeployed. So that's one element that gives us confidence As we look through Q2 through Q4, the other one is we do have a much better pipeline In terms of quality today than we've had historically and that pipeline is a byproduct of us scrubbing through it, But it's also a byproduct of us spending more time out on the road, Generating leads not only as part of investor conversations, but also generating leads in terms of a sales effort. So When we look at our pipeline, it's in the best condition it's been in, in quite some time.

Speaker 3

To get back to your question on timing, It really depends, right, on some of the, I'll call them, more vanilla type launches, Those are measured in weeks and short months. If you get into the much more complicated large hedge funds, you certainly could be talking several months out before modernization takes place. But keep in mind, the first thing that will go live is PMS. That will always be the first revenue stream. Once we board that, then there's typically a couple of months before you get into OEMS and the ability for us to drive all the connections through.

Speaker 3

But if you look at the back half of the year, when you combine hedge fund launches With a really robust and qualified pipeline that is mixed between short term monetization In medium and long term monetization, that's where we get our confidence.

Speaker 2

Jim, just to supplement this. So just generically, We actually are heavily investing in that particular area. We view the us being able to onboard our clients Quickly and smoothly is one of our sources of competitive advantage. Of course, we can never and will never stop improving. For us, it's just a simple strategy thing.

Speaker 2

It's a switching cost element and we're going to we will never stop until that Switching costs is as close to 0 as possible. And competitively, especially as we move up market, That becomes actually, it's not just a nice thing to have, but also a source of competitive advantage against incumbents such as A lot in SimCorp, which take years to onboard clients of similar profile. And so we're really focused on

Speaker 5

Got it. And then I know you touched on This whole thing in your prepared remarks and the response to that question around, particularly involuntary churn among hedge fund clients. But It seems like I think that the Q1 since you've been public at least where your total client count has actually contracted. Can you speak to if there was any voluntary churn or the mix of voluntary versus involuntary churn in the quarter, Especially given that it appears to be having some impact on NDR performance.

Speaker 3

Yes, it's a great question, Jeff. So when you look at our voluntary churn, It still remains to be an insignificant number. If you look at the number of clients that actually churned off of us and Think of that as a deconversion rather than unwind, it's low single digits in terms of accounts even. It's percentage wise, it's even less than that.

Speaker 2

Yes, I will just say a couple of things. I alluded to when Dylan was asking questions. So it's we're tracking it very closely. So the beta components of the market is quite high. Actually, we had a churn as high as 6% to 8% at the end of 2019.

Speaker 2

Right now, that figure is roughly Six ish, as you see in our results. The voluntary component has been stable for the last 3, 4 years. The lowest it's been is Just under 1%, now it's hovering around just below 2%. It has been stable over the last year and a half.

Speaker 5

Great. Thanks a lot, Brad. Thanks a lot.

Speaker 2

Yes. And I just Jim again to reiterate what I said to Dylan before, Just the business rebalancing both from downstream to upstream and away from U. S. Globally, It's just going to make it stable and it's a strategic thing for us.

Speaker 5

Got it. Got it. Thanks.

Speaker 2

Sure. Thanks.

Operator

Thank you, Mr. Faucette. The next question comes from the line of Parker Lane with Stifel. You may now proceed.

Speaker 6

Hi, guys. Thanks for taking the question. In this more challenging environment, are you guys Seeing as organizations recalibrate their budgets, pricing becoming much more and more of a dynamic in the deal discussion. And I guess, What sort of tactics are you deploying on that front? Are you looking to get more aggressive to get your foot in the door with some of these customers and seeing an opportunity if pricing is one of the centerpieces of the discussion?

Speaker 3

Yes. Hey, Parker, this is Brad. I'll take that. We are actually not Seeing a whole lot of pricing topics come up. I think for us it's about We're not a price sensitive provider.

Speaker 3

We go in and put our solution in front of some of our competitors that may or may not be more price sensitive than us, But we're not seeing price compression. The uniqueness I think that we have is because we come with that full stack. It does certainly give us more latitude in how we go to market And how we can bundle up the entire kind of end to end solution between PMS and OEMS and analytics and accounting and everything else That gives us more latitude, but we're not seeing a general price compression even though the environment's been pressured.

Speaker 2

Yes. So Parker, just one element to it. There There's a market segment. It's always it's not so much price compression related Recent environment has just been price competitive over the last several years and some of the incumbent players And also some of the new entrants that are just much, much cheaper, their capability set much more narrow. When launches are concerned within a very price sensitive low AUM launch type segments, Think $25,000,000 $50,000,000 debt launches, even $100,000,000 launches.

Speaker 2

We're playing defense there, but we Strategically and tactically refuse to compete pure land price. We compete on capabilities. And if those Startups decide to go away and take a much more limited capability set for $20,000 less, We have no problem with that. And as they grow, we typically see them when we convert them 2 years from now, Even when they are successful and when they are not successful, we don't really care.

Speaker 6

Got it. Understood. Very helpful. And then Brad, if I think about the metrics of clients and average contract value and We've that in with your commentary about hedge fund closures. Curious if you could characterize or give us a sense of the scale of those hedge funds that closed From an average contract value, did these tend to be smaller customers, whereas was it a pretty solid mix there?

Speaker 6

Just any color on that would be really helpful.

Speaker 3

Yes, that's fine. Yes, those are the small ones. Certainly, the ones that are closing, typically the ones that are unwinding are going to be on the smaller side compared to our average book.

Speaker 6

Perfect. Got it. Thanks again, guys.

Speaker 2

Yes.

Operator

Thank you, Mr. Lane. The next question comes from the line of Koji Ikeda with Bank of America. You may now proceed.

Speaker 7

Yes. Hey, guys. Thanks for taking the questions. I wanted to ask a question on ARR and more specifically, how We should be thinking about ARR growth for the rest of the year. So the question is, how do you guys think about or maybe How we should be thinking about when we should anticipate ARR growth to trough this year?

Speaker 7

When I look at the model, the ARR growth comps ease in the second half, but the 1Q kind of the net new ARR was 2,300,000 So even if we increase quarterly net new ARR every quarter from here on out for the rest of the year, ARR growth can slow quite a this year. So just trying to reconcile how you guys think about ARR growth for this year? Thanks.

Speaker 3

Yes, Koji, I'll take that. Yes, I think you're going to continue to see ARR grow. It's a byproduct of a couple of things, obviously. One is, like I mentioned before, you're going to see some short term pressure on a couple of elements within ARR on our back book. So I think in the near term, you're going to see probably a little bit slower growth.

Speaker 3

But then as those clients we're boarding Start to monetize, you're going to see that ARR start to accelerate. So I don't know that I'm going to see it necessarily a trough As much as you might see some variability in the growth rates between first half and as you get into the back half of next year and even more importantly probably as you get into

Speaker 7

Got it. That's actually very, very helpful. Thank you. And just a follow-up question here. I think in the prepared remarks, you mentioned that you guys are seeing data out there that the end markets may be stabilizing And even with prospects of improving later this year.

Speaker 7

So the question is on your reaffirm guidance today. Are there any assumptions of an

Speaker 3

Sure, Koji. When we gave the guidance and even when we talked about it last quarter, we had mentioned we expected the first half to be a bit slower than the back half. So we're not seeing necessarily any changes in that as much as more reaffirmation that we're starting to see it play out that way, especially as we got toward the end of Q1. So It's not an update in necessarily our philosophies or our own internal models. It's just it's playing out as we somewhat expected it to when we provided the guidance Last quarter.

Speaker 7

Got it. No, no, that's really, really helpful. Thank you guys so much for taking the questions. Appreciate it.

Speaker 2

Of course, Koji. Thanks.

Operator

Thank you, Mr. Akita. The next question comes from the line of Gabriela Borges with Goldman Sachs. You may now proceed.

Speaker 8

Hi, this is Cali Valente on for Gabriela. First one for me. Understand that NRR I appreciate the color you gave on existing customer behavior on the call, but any expectation that NRR would improve in the back half as well as just seeing more of those conversions?

Speaker 3

Yes, this is Brad. I'll take that. Yes, that's exactly right. I mean, we mentioned Last quarter, we expected some near term volatility on NDR. And think of it primarily as the difference between the timing of the back book Like I mentioned in my remarks, the short term impact is more of the back book impact, which We'll drive NDR down, which is what drove our NDR for our Q1 results.

Speaker 3

But as the front book starts to board with PMS, And then for example, like we've always talked about kind of a land and expand model where those customers then bring on the different modules over time, they'll be bringing on OEMS, they'll be bringing on analytics, they'll be bringing on managed services. You'd see that NDR start to recover back to more normal levels probably in the mid to upper But in the near term, yes, you would expect to see exactly the way this has played out.

Speaker 8

Okay. Thank you. That makes sense. And then, what have you been seeing in terms of sales productivity kind of how that trended in 1Q and how you're seeing that trend post 1Q, are you seeing a step up in sales productivity that's giving you confidence in the guide?

Speaker 2

Yes, we do. So it definitely while this trough Can maybe extend itself, so it's not a V shaped recovery, it may be L type recovery. We definitely see the pipeline getting richer. People are more engaged and we're having pretty deep conversations there. But As we said before, we cannot predict how much I'm sorry, how much time the recovery will take, how much time the step Tapping breaks we'll take, but we definitely see some positive signs in the cadence of the conversations and people's focus and our ability to close deals.

Speaker 2

So that's another data point that gives us confidence in the back end of the year, including an upsell conversation. So it's not just the new conversations and our conversations about other verticals with cell, OMS, GL and Accounting and Managed Services upsells as well.

Speaker 8

Okay, great. Thank you.

Operator

Thank you, Ms. Borges. No further questions have been registered. So at this time, I'll pass the conference back to management team for any additional remarks.

Speaker 2

Well, thank you all for all the questions. Look forward to reconnecting with you all shortly. Thank you investors for their trust and we'll continue to

Operator

That concludes today's conference call. Thank you for your participation. You may now disconnect your line.

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Earnings Conference Call
Enfusion Q1 2023
00:00 / 00:00