Q3 2022 Enfusion Inc Earnings Call
Good afternoon, ladies and gentlemen, thank you for standing by welcome two infusions third quarter 2022 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.
I would now like to turn the call over to Ignatius Njoku Hot Investor relations to begin.
Thank you.
Before we begin I'd like to remind you that today's call may contain forward looking statements.
These forward looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the SEC.
Now available in the Investor Relations section on our website.
Actual results may differ materially from any forward looking statements we make today.
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, todays call may include non-GAAP measures. These measures should be considered as a supplement to and not as a substitute for GAAP financial measures.
Reconciliation to the nearest GAAP measure can be found in today's earnings press release, which is available on the company's website.
Hosting today's call are OLED motion infusions.
<unk> interim Chief Executive Officer, and Steve Dorton, Effusion, Chief Financial Officer, with that I'd like to turn the call over to <unk> to begin.
Good afternoon, and thank you all for joining us today to discuss our third quarter 2022 results.
I'm delighted to be here speaking with you in my role as the company's interim CEO and I'm honored to have received the confidence of the board to lead infusion.
First let me introduce myself.
Im a founding investor in infusion and had been on the Fusions board for over 10 years.
<unk> also worked with the company in multiple capacities for more than 13 years.
Since my appointment as interim CEO I've been focused on engaging with our clients and employees for downhole virtual and in person meetings.
The more time I spend in the day to day operations of the business. The more I appreciate the talent and experience of our team.
If the strength and depth of infusion Sterling pool that gives me the utmost confidence, but we will continue to deliver innovation and the rapidly changing investment management industry.
Stepping back for a moment since the first time I was introduced to infusion over a decade ago, the company's vision and determination to achieve this vision has been unwavering.
<unk> has always been to transform the investment management industry with our cloud native technology and product driven service.
The ultimate outcome of this transformation for our clients would be reduction of operational inefficiencies.
Cost effectiveness and ability to focus on enhancing the investment process and generating alpha.
Currently we're focused on building our top notch client experience across Onboarding implementation support and managed services.
Excellent customer service is foundational to the way our clients experience infusion technology and serves as a critical component of our overall strategy to expand our footprint in the institutional asset management segment.
Our focus on quality of services and support continues to differentiate infusion from our competitors.
As you know I'm currently serving infusion CEO on an interim basis.
<unk> priority is to recruit the next permanent CEO .
The board has retained an executive search firm and is currently reviewing a number of high caliber candidates with terrific background and strong leadership capabilities.
As the search continues the board is looking for a CEO with strong leadership skills and deep experience in scaling high growth SaaS businesses with focus on product excellence is the foundation of delivering superior client service.
We're convinced that the strength of our brand execution record and the tremendous growth opportunity in front of us will attract high caliber executive talent that will lead the company towards its next stage of evolution.
I am extremely excited by what the future holds.
We're executing against our strategy of moving up market unlocking new adjacencies and expanding our global footprint we.
We have the momentum to continue generating strong topline growth, while maintaining healthy profitability.
As you have seen our results this quarter demonstrate that investment managers continue to embrace the cloud based digital transformation.
The result will continue to extend our leadership position as the industry replaces our data and disjointed legacy systems with our superior software and the service offering.
Now, let's turn to third quarter results.
We're pleased to report another strong quarter.
Our execution efforts to maintain momentum.
Revenue grew 35% to $39 2 million.
Reflecting continued demand for our product and services adjust.
Adjusted EBITDA was $5 4 million, including CEO transition costs of $670000, which represents margin of 13, 9%.
During the third quarter, we generated <unk> of <unk>.
$158 7 million, which represents 33% growth year over year. This growth was driven by strong sales execution and client adoption across all of our product capabilities and managed services. The ongoing durability. If our business is reflected in healthy net dollar retention of 116, 6%.
Included in voluntary churn the endear was 112, 7% our healthy net dollar retention and strong ADR growth underscore the durable and resilient structure of infusion financial profile.
In addition, we signed 43, new clients this quarter and in the quarter with a total of 810 clients. We've made material progress with larger investment managers as we signed another seven figure deal in the quarter.
We further penetrated the large institutional fund manager market by signing eight new institutional asset managers half of which were conversions.
Despite the market volatility and perhaps because of it.
We see ongoing strength in conversions, which accounted for 60% of new client wins in the quarter.
Now, let me discuss several new latest client wins that demonstrate our continued sales momentum.
In the Americas revenue again grew 33% year over year, driven by broad adoption across all our products I am excited to announce that we signed another seven figure deal with a well known multibillion dollar New York based family office.
The family office invest in a wide variety of strategies and asset classes, including public and private equity fixed income credit currencies and commodities.
The fund manager was seeking to replace its front middle and back office capabilities that consistent of a combination of complex in house systems, and disparate legacy vendor solutions, which resulted in menu and cumbersome processes.
Attesting to yet again to our core value proposition by selecting infusion declined significantly streamlines workflows reduce operational risks and increase efficiencies.
As a result, the family office is better able to meaningfully reduce overhead costs as well as lessen the burden on their internal resources.
We're extremely pleased with this partnership not only does it demonstrated our ability to win larger and more complex clients, but also validates the strength of our product offering.
In EMEA revenue grew 41% year over year this quarter.
The record bookings level in the quarter and for the region with strong double digit growth.
I'm pleased to announce that infusion one of London based multibillion dollar family offs. This client employees multiple strategies, including private equity credit and public equities.
In this competitive takeaway our fully integrated end to end solution, including portfolio management system order and execution management system and data analytics are replacing the clients front middle and back office technology, which was pieced together from disparate vendor solutions and an obsolete homegrown system.
They selected the infusion because of our cloud based technology and its ability to streamline workflows.
As a result, the investment manager drastically reduced total cost of ownership, while creating an opportunity to reallocate resources towards the investment process now.
Now turning to APAC, we grew revenue by 35% year over year as we continued to see healthy demand in the region.
I am excited to announce that we entered into an agreement with a Hong Kong based alternative investment manager.
The investment manager was seeking to replace its 10 year old provider with a robust cloud based technology platform that supports compliance requirements and new features like mobile delivery.
By partnering with infusion the manager adds more functionality.
<unk> reduces the technology footprint and significantly improves productivity at a considerably lower cost.
Finally, I am thrilled that FX group selected infusion to deliver Middle office services to its global Fund administration client base.
This win represents another example of infusions continued global expansion beyond our core market segments and exemplifies our revenue diversification strategy.
This group will utilize infusion for cash and position reconciliation.
Corporate actions processing trader formation shadowing any calculations in our reporting we're.
We're excited to align with apex to serve their global clients and look forward to our share growth.
Turning to product and technology.
We rolled out more than 480 features and enhancements for our portfolio management system and Oems our ongoing focus on expanding our API driven technology stack and opened in data and analytics architecture allows us to drive efficiencies and scale.
This framework gives our clients the flexibility to leverage infusion platform and develop their own proprietary customization and integration capabilities.
Notable enhancements this quarter include the improvements of our API technology to support corporate actions to reporting enhancements to Oems compliance and support for listed and OTC Securities transactions.
We're also launched a new call in future for Oems, which helps and debug and order tickets.
Innovation remains a key pillar of our success and sets us apart from our competition.
The breadth and depth of our platform as well as fast pace of product development and system upgrades and allows us to maintain our competitive edge and expand our malls.
We'll continue to win in competitive situations, we're differentiated technology capabilities matter to our prospects and <unk>.
We will remain focused on sustaining such competitive edge going forward.
Now, let me briefly comment on the market dynamics, the simultaneous and precipitous decline in both equity and fixed income markets.
Rising inflation and macroeconomic and geopolitical uncertainties are causing the industry, yet again to reexamine its investment processes and business models.
Although we see decrease in hedge fund launches the number of Cashman closures remains moderate base historical standards.
While we expect this uncertain environment to persist we believe our business is resilient and will continue to see strength in conversions as a result of industry focused on digital transformation and shift away from outdated legacy systems to cloud native integrated solutions and.
In fact, we have seen this environment play out several times during infusions history.
Aam's come down and performance delivered it becomes more challenging investment managers tend to question the cost effectiveness of their status quo technology infrastructure.
Such setups historically presented the broad opportunity set for infusion as a go to partner displace an expensive.
Technology stacks.
Additionally, and such in certain market environments asset allocators tend to emphasize alternative investment strategies of our passive exposures, which falls squarely within our core and adjacent addressable market segments.
Our healthy conversion pipeline supports growth opportunities similar to what we saw in the past.
As we prove our value proposition.
And win larger and more complex clients, we expect our revenue mix to continue to shift towards conversions.
Finally, I am keeping infusion is increasingly recognized as the leading software provider within the financial technology industry.
One Testament to our industry standard infusion was once again included in Idc's financial insight top 100 Fintech list.
In conclusion, we delivered solid third quarter results driven by ongoing sales momentum strong bottomline and broad adoption across all products and managed services.
Our ability to deliver high revenue growth with an attractive profitability profile speaks to the strength and durability of our business and consistency of strategy execution.
To that end I'd like to thank all of our employees for their hard work dedication and passion for our brand. Our team demonstrated once again that infusion is laser focused on executing and delivering outcomes for our clients at the highest level.
By the same token I would like to thank our clients for their trust with our most sensitive and mission critical operational capabilities.
I will now turn the call over to Steve to discuss our financials.
Thanks, Alex and thank you everyone for joining us today.
We are happy with our performance in the third quarter, we continued to see broad adoption across product lines and across customer segments. This reinforces the revenue growth opportunity, we continue to see in our business.
In the third quarter, we generated total revenue of $39 2 million.
An increase of 35% year over year.
We made good progress across all product lines and delivered a solid financial performance.
Recurring revenue was up 33% year over year to $38 5 million third quarter <unk>. Our annual recurring revenue was up 33% year over year from the year ago period to $158 $7 million.
Net dollar retention, excluding involuntary churn was 116, 6% compared to 125, 9% in the year ago period.
Net dollar retention, including in voluntary churn was 112, 7% compared to 122% in the year ago period.
Sequential decline in net dollar retention was driven by challenging prior year comparable.
We signed 43, new logos in the third quarter, ending the quarter with 810 total clients.
Third quarter gross profit increased by 30% year over year to $27 2 million, which includes $406000 and stock based compensation compared to gross profit of $21 million.
In the year ago period.
Third quarter gross margin was 69, 4%, including stock based compensation compared to 72, 1% in the year ago period.
Income from operations was $2 9 million for the third quarter compared to $4 9 million in.
In the year ago period.
Third quarter income from operations includes stock based compensation of $833000 and $670000 and CEO transition costs in the quarter.
Adjusted EBITDA was $5 4 million in the third quarter compared to $6 3 million in the year ago period.
This represents adjusted EBITDA margin of 13, 9%.
Third quarter, adjusted EBITDA was above our expectations driven by expense management and cost efficiencies, we remain committed to prudent management of our cost structure as we continue to grow our business.
GAAP net income for the third quarter was $2 6 million, which includes $833000 of stock based compensation as compared to $3 3 million in the year ago quarter.
We ended the quarter with $63 5 million in cash and cash equivalents.
As discussed in previous filings in October we issued approximately one 4 million shares to former holders of award units and a nonexecutive employee <unk>.
Including these shares a total of approximately $18 6 million shares will be distributed prior to October 22023, and one or more additional tranches.
Finally, let's turn to outlook for the fourth quarter.
Let me briefly comment on our updated Q4 guidance given that we are operating in an environment of greater market volatility driven by macroeconomic and geopolitical uncertainty. We are seeing some reductions in hedge fund launches and a more measured approach and client purchasing behavior.
As such we are taking a more prudent approach to our fourth quarter expectations.
Based on current business trends, we are narrowing the range of our full year 2022 revenue and adjusted EBITDA outlook.
For the fourth quarter, we expect revenue to be in the range of $39 $5 million to $45 million, which represents 26% growth at the midpoint.
We anticipate adjusted EBITDA to be in the range of five $5 million to $6 million.
Representing an adjusted EBITDA margin of 14, 4% at the midpoint.
For the full year 2022, we expect revenue to be in the range of $149 $3 million to $153 million.
Which represents 34% growth at the midpoint.
We expect adjusted EBITDA to be in the range of $18, one to $18 $6 million.
Representing an adjusted EBITDA margin of 12, 2% at the midpoint.
For modeling purposes, we expect CEO transition expense of $300000 for the fourth quarter.
We also expect stock based compensation of $4 7 million for the fourth quarter.
Despite the challenging environment, the increased market volatility encourages investment managers to reexamine cost effectiveness of their legacy technology infrastructure.
This creates a broad opportunity for infusion conversions similar to what we have seen in the past.
We continue to carefully monitor the current and long term economic conditions to understand possible impact of our business model and future projections.
To summarize we are very pleased with our business performance in the third quarter.
The fundamentals of our business remains strong and our business model is durable despite market volatility.
We have built a leading cloud based <unk>.
<unk> investment manager platform, and we have the momentum to continue generating high growth and profitability.
With that wed like to open up the call to questions. Operator. Please go ahead.
Okay.
Thank you we will now begin the Q&A session.
If you would like to submit a question. Please press star followed by one on your telephone keypad.
For any reason you would like to remove that question. Please press star followed by two again to ask a question Thats Star one as a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
We'll pause here briefly ask questions are registered.
Okay.
Our first question comes from Kevin Mcveigh with Credit Suisse. Kevin Your line is now open.
Great. Thank you so much and congratulations on the results.
Hey, I want to start.
You gave some really really good context around seeing different cycles things like that I wanted to try to get a sense of the.
The environment we're in.
What do you is there any way to think about what the most parallel.
Kind of time period would be in the past.
Wanted to start on that if we could.
Sure.
I'll, let probably compared to couple of periods that infusion sort of exists right. So.
Janet.
JFC global financial crisis so.
2008, 2009, 2010, then to sellers.
11 through 14, and then I'd say.
The situation around Covid, which basically came to a screeching halt which by the way.
When the Covid broke out we essentially froze.
Our entire hiring.
Process for like a month or quarter to quickly realize that it was a mistake and we kind of restarted all again and so what typically happens is of course.
People start tapping the brakes.
Hedge fund launches.
Either stall because investors thats committed capital of a kind of don't follow through on their commitment that there was a special acute as you probably remember in 2008 2009.
Of course, the similar stuff happens in private equity World, where Lps simply withdraw the commitments as well.
What typically happens in the past with us and I have no reason to expect anything different going forward is.
Despite slower launches.
Okay.
The larger more complex.
Clients, both hedge funds sort of enterprise clients that's wrong.
Bill and plus type of M. A.
We typically look to not just stay alive, but in general optimize their costs. So they immediately the first thing. They do is to look around and see where they can cut costs and kind of streamline the operations. Yeah. This is where we come in so in the way our business has been relatively convex to the downside.
Things like this occurred and we were able to sort of demonstrate our total value proposition replace all their disjointed systems.
Streamline their workflows and really allow people to reposition their workforce as well right.
To the extent that the fund until recently, even could not pass through the expenses to the investor.
The investment management company that was a big burden so.
We're seeing the same thing again, except I guess, what's different for US now is that the overall proportion of our revenue is much more heavily tilted toward conversions.
Larger more complex clients that typically take a bit longer to assess to lend to align with to identify a functional gaps and once this is done.
We're kind of all good to go but so that shift away from in a way finding startups, which what hedge fund launches are to be partnering with more mature organizations.
We think will provide additional downside protection for those business if you will.
Super Super Helpful. And then just one quick follow up if I could it looks like the OEM bookings were 32% of total in the quarter versus 44% in Q2.
I guess, just trying to understand what drove that delta.
So that is typically from quarter to quarter as we have the bookings it's more in line with the clients and the types of clients that are actually signing in that quarter and so overall all of our clients approximately two thirds of our clients are utilizing our OEM.
Yes.
<unk>.
Platform attribute and so that we don't really look at it on a quarter over quarter basis. It just occurs as those new clients are joining.
I would echo that out Kevin.
The ultimate proof is in the pudding.
Our ability to both science and.
Implement Oems on a time efficient manner.
As our focus.
<unk>.
We do see sort of prevalent utilization of Oems and <unk> capabilities by institutional investors Thats kind of a must and a wave and we consider it as such.
And so it will maybe be up or down but the overall trend is definitely up in terms of Oems subscriptions, we do.
You know, we don't typically positioned the platform in piecemeal fashion. So we don't just sell Oems or don't just sell portfolio management system, although sometimes clients are in the market for that kind of functionality in that which is okay and once we sort of land and we.
<unk>, we partner on one side of our Valley Chandler portfolio management system and clients at the time use some other third party Oems solutions, which we integrate with almost all of them over time, it's almost inevitable one they have to ask themselves. The question why do we need all of that.
And then they kind of revert back to our or EMS. So yes, it's important for us to look at the dynamics of Oems.
Bookings in conversions more important to live in bookings in my mind.
But that just how the business operates nowadays if that makes sense.
Totally thank you so much very helpful.
Sure.
Thank you.
Our next question comes from.
Gabrielle aboard with Goldman Sachs Gabriele Your line is now open.
Hi, This is Kelly of Lindsay on for Gabriela Congrats Macquarie. Thanks for taking my question.
So far we've been pretty impressed with the durability of the hedge fund market you talked about the lower hedge fund launches, but are there any other notice with pockets of weakness or strength either by size or <unk> type of fund.
Okay.
I would say, yes, what we've seen in the list.
Three to six months is that investors tend to allocate capital to much more stable.
Much what people tend to call multi manager platform some of them are in our top.
Clients.
Favorable favorite at clients of ours, which kind of plays to our strengths.
The investment management platform has multiple what I would call risk taking units portfolio managers of our portfolio management teams on the platform and then they need to have a holistic view on.
The entire risk an entire P&L as well as the risk in P&L of each unit and so that's what I see the business and the model evolving towards I think large capital.
No.
All of those players.
<unk> become successful overtime on millennium and all the way down.
And this is where we will find most most of opportunities where the system fits really well because it's sort of like Lego.
Business. If you will we can service its unit on a standalone basis, but we can then service the entire enterprise and scale.
Both up and down of some teams leave and then all the others.
The team's expense an entire business expand we typically have capability to grow with the clients that the way.
I would say from launches perspective, that's another interesting source.
Source of launches were.
Larger platforms like you know the.
Lister Elliott and some others portfolio manager becomes becomes.
Tom.
Successful for one reason or another.
He decided to go on their own and that's another source of capital.
That is the rate in another source of lunch.
Great. Thank you that was super helpful. Just one more follow up.
How has the initial traction been with E&ps and express product and then how does sales efficiency at this lower end of the market compare to the rest of the business and then just kind of in that same vein. How is the momentum of the product relative to your initial expectations.
Great. Thank you for the question. So we're still evaluating express I feel it's too early to draw any kind of conclusions.
I think that's.
One reaction when I did a deep dive into the product is that.
The desire and ability to respond to that sort of quote unquote, Laura market is looking for three <unk> functionality.
What we shouldn't be doing I think we shouldnt be selling our system short Ian provide and just.
So little functionality that it doesn't really capture the full benefits of what the system can do for the for the customer right. So the balanced in the comps.
How do we work with our distribution partners on one hand, and what kind of commitments related to support.
Both the distribution partner <unk> infusion can make so that it becomes economically feasible for the target market. It makes sense for us commercially as well and so.
I cannot.
Sit here illustrates face and tell you. This is all figured out to still work in progress and we will update you hopefully next quarter once we dial things in a negative old archived.
Great. Thank you for the detail and congrats again.
Sure.
Thank you.
Our next question comes from <unk>.
James with Betsy <unk> with Morgan Stanley James Your line is now open.
Thank you very much.
Just a few questions on bookings and directional trajectory right now.
I guess maybe first.
Yes.
Well, let me ask the question this way.
Can you give any color on.
On sequential deceleration, we saw in conversion as a percentage of bookings in the quarter or is this just kind of the.
The pause that you are alluding to and how should we think about <unk>.
Conversions as a percentage of bookings kind of going forward. What do you. What do you think that sales cycle is going to look like.
We continue to see a majority of our new bookings are conversions.
And that really has started in 'twenty, one and into 'twenty, two and we continue to see that going forward and so one is as we've moved to a resilient client we are still working and continuing to add on launches of new clients.
But we are seeing opportunity with conversions and we're seeing as conversions come on the attributes that they are taking on more and more of the platform itself and so continues to be.
A vast majority of our new clients that were adding on quarter over quarter.
Got it and then.
Separately it looks like at least on our calculations that <unk> growth helped to offset it.
The slower rate of new logo additions, how should we think about the forward mix of logo growth versus <unk> growth.
And kind of what in particular, that's driving that <unk> change.
I think it's probably I would say, it's probably a focus.
We try to make sure right now like in terms of bookings themselves right.
From a tactical perspective, not necessarily from a strategic perspective, right I would prefer everything else being equal I would prefer a lower number of bookings.
Lower number of bookings actually high quality bookings.
Yes.
I can spend hours to define what that means but in general it means much better product clients hit from fusions perspective.
Functionality fit.
And our ability to deliver value to the clients.
While in our sort of keeping the layer of the edit to ourselves and generate a return on equity.
And in fact.
The paradigm that I'm trying to establish the company really has to do with upfront understanding.
Of course, each potential clients.
Their needs, how we can respond to their needs both in terms of productivity abilities and in terms of services, they provide which by the way. This is what we are increasingly seeing the larger and more complex clients, especially institutional clients that have both sort of long only passive traditional investment management capabilities.
And.
People typically call liquid alts or multi strategy flexible absolute return time type businesses.
They increasingly want not just software, but the one call it white glove.
Continues dedicated support teams.
Thats really not all of them.
Soup to nuts, they know the client really well the expert in our product and they can provide that ongoing support 24 seven.
Timely thoughtful and.
And.
Burton and level right and so this is the ultimately whats.
What conversions are all about and that's why we sort of take take time to make sure we perfect that combination with perfect.
Combination of client services with the product that is targeted to those conversions and so thats in <unk>.
That's kind of a term that we're trying to use it that infusion, which is where being sort of labeled as a SaaS company, which is software.
Service, but what we're really our sell in and how those large institutional clients are experiencing us is software and service.
And so.
That understanding that paradigms, what's helping us to actually when those conversions.
Okay.
I appreciate that thanks.
Of course.
Thank you.
Our next question comes from.
Parker Lane with Stifel.
Sir Your line is now open.
Hi, This is Matthew kicker Entre Parker.
Thanks, a lot for taking my question and welcome to the team.
What are some of the changes you.
Your team has made since you joined as CEO you.
Do you think any of those might lead to an increase in efficiency.
Go to market motion over time.
Yes, I would hope so the biggest the biggest change I made which was my top priority after I had the chance to.
Doug.
What I would call goal at during the warm up in a hockey rink.
Kind of really had a chance to breathe and understand what's going on.
Quickly realized that the top priority to tactically not strategically tactically is to really step up and improve our client services experience so to that extent, what we've done is we.
But really redesigned the entire workflow, okay, and we did it by the way not just in isolation the right way.
Very deep dive globally, we had a town hall with input from all our key stakeholders from EMEA from APAC and from U S.
We aggregated that input with synthesizers and it resulted in what we believe state of the art client services architecture.
But really addresses deficiencies that infusion, we believe that I strongly believe infusion.
<unk> previously, which really revolving around.
Traditional process when sales and solution engineers.
Design a solution.
They close a sale and then just handed over to Onboarding implementation and product and then from there and new people show up they don't necessarily have a nuance and deep understanding of our clients' requirements are and then from there once implementation is over the.
The client is on handed over to technical account technical account management and so during this process.
And a lot of client specific knowledge is lost and so what we've done is we created a structure where.
Onboarding and product.
Are involved very early in this solution engineering process and in the sales process in a way where.
There is really no handover process the client upfront knows exactly the team that is going to implement them. There is going to go.
Going to onboard them.
Technical account management team is involved precisely at the same time, so by the time the client is live.
The same technical account team that played a key role in Onboarding is going to continue to support the client going forward.
So essentially we eliminated this gaps that exist in handoffs from one stage like client's journey.
To the very last stage when clients as life and of course things happen in real time, we have a very talented technical account management team.
That is now getting their feet under under them and really responded in a timely and effective manner like I said thoughtful.
And in timely manner too.
Back to the clients and so that's in my mind.
Is that priority tactically.
From a strategic perspective, it's all about the product okay infusion since inception of the <unk> product centric product driven.
We have best in class technology platform and as we grow.
The top priority for us to make sure that the technology is viewed internally and externally as a centerpiece of the hearts and the brain of infusion of that organization right and so that and we whatever investments through are going to make over the next 12 months, we will accentuate the product as much as we possibly can.
And then where Accenture client services because this is from my perspective is the highest return on equity we can possibly generate for the shelf for the shareholders.
And from a technology perspective, I'm not just talking about.
Phil and functional gaps that we currently see with our current clients. It's also innovating and anticipate and certain things that we know today that institutional investor investment managers need like for example, some nuance comply.
Compliance logic during the process of order management and execution management order allocation there was a <unk>.
For example, there.
And.
At the end of the day.
Those are kind of tactical and strategic product capabilities, but also we need to prepare the system to become more scalable and more robust more resilience. So that we can start process in Midland through the day. So that we can start supporting our clients that have.
Hundreds of thousands of accounts and manage.
Hundreds of funds with model portfolios with flexible allocation schemes.
With very sophisticated compliance rules and those are the things that will really cement our position and with upmarket.
Got it that's very good.
And then secondly, I'm curious if you've seen any uptick in clients wanting to adopt managed services maybe is there potentially trying to run leaner.
Et cetera macroeconomic conditions, what does the traction looked like for managed services and where does that fit into your strategy going forward.
Thank you we did and unfortunately I don't have the number in front of me right now maybe Steve kind of shell, but I think we'll have about 15% now of overall revenue.
It was like single digits, just like two or three quarters ago Timken, Steve can confirm the numbers, but it's about 15%.
<unk>.
Obviously being cognizant of.
The profit margins on itch, which is again.
Going back to this whole concept of us being very thoughtful of climb.
Clients that we're onboarding not just in terms of the revenue, we're bringing in the door, but which is the numerator right, but what is the denominator how much it will cost us to support the client right. What is the return on capital what are the return on our time and is it adequate to actually give the client the best part.
<unk> value that they're asking for.
Alright, and so managed services is a big part of it now after this restructuring that I described managed services are squarely fit in within overall client services, but then some very direct way.
<unk>.
It's more or less like a standalone self sufficient business units you can look at it this way and in fact, we have an interest in.
Potential clients in the pipeline, who came to US specifically it is not an up sale or anything like this this client to multibillion dollar player. They just came to US specifically for our managed services that was very explicit ask we're going through a proof of concept is going very well.
Excited to see if we can perfect that model.
And then scale it and scale it not just with this client but scale it through and then the really deploy the same model globally.
And if I could a clarification. So in September of 2021, we had 14% of our clients were actually using managed services today, it's at 15%, but we are seeing significant growth in our revenue overall, and we're seeing more and more of those conversations are happening while we are.
While they are in the pipeline and while we're looking at closing those clients and continuing to happen.
As more of our existing clients are adopting that as we go forward and so today it creates a great opportunity for for some of our conversions to really kind of lower their total cost of ownership by using our managed services and.
And in my mind, that's a logical extension to what we do by the way apex partnership is a similar you can think of it as the same way we're sort of provided the engine for them to perform their managed services and our survey services no different which is don't have this kind of intermediate layer, we just kind of.
Up into their client base and directly if you will but in general <unk>.
Managed services should thoughts.
As product centric without our product the way, we service our clients and that kind of format. We just wouldn't be able to do that so again, just going back to the philosophy and positioning product first evidence announced revolve in the round at every single person on the client services team Super technical.
<unk> product expert we're doing.
A lot of work internally to make sure not only we not only with hire the right talent, but we are putting a lot of effort in making sure that <unk> is being properly educated trained on boarded.
Spend a lot of time and effort over the last three months, creating the knowledge base educational program for our employees globally from <unk>.
India to London to Dublin to Hong Kong, and Singapore to make sure everybody is speaks the same language.
There is a knowledge based online that's.
Really covers basic fundamentals of capital markets infrastructure capital markets in general financial instruments as well as <unk>.
<unk> infusions capabilities at the very deep level and ultimate idea is to actually have this knowledge base and potentially.
Open it up to our client base, so that we actually become partners with our clients and actually teach them how to fish.
And make sure that whatever whatever tasks are possible to do buy them themselves. They can do and of course, we will be there to catch whatever its fallen through the cracks.
Yeah.
Terrific. Thank you very much.
Okay.
Thank you.
Our next question comes from the line of Kodiak heater with Bank of America. Your line is now open.
Hi, this is not only how long for Toby congrats on the quarter, you mentioned that EMEA had record growth, which is great to hear how would you characterize the demand environment, we're seeing a different geography.
And yet.
Sure.
Yes.
EMEA for quite.
Quite some time has been sort of a for lack of a better analogy that beth their child.
The APAC has been growing at incredible pace, and I think that growth will slow down, but it's still well.
<unk> will be one of the leading growth engine for us.
Troll for whatever geopolitical issues, we may see in China, Taiwan, and Hong Kong, which we by the way monitoring very carefully.
Our team on corporate development team is actually tasks to make sure we have ear on the ground there.
We're working on sort of contingency planning to make sure.
Something Kevin God forbid.
We have redundancies and we can move the team.
To a safe location to Singapore to make sure that of course first and foremost team members are safe and second our services to our clients uninterrupted.
<unk>.
So it's one of the reasons I think marginally that area will probably slow down however to somewhat compensate for it we do see some opportunities in <unk>.
Places like Japan, and Australia, which by the way challenges our system capabilities like in Australia. There is.
A lot of institutional clients that have interest in our system, but we frankly lake and some of the nuances that are typical.
So that market by the way we are very very good at that we're very good at sort of zooming in figuring out what are the specific.
Regional specific or region specific.
Technology and functional requirements, we've done it in Brazil, who have done it in Hong Kong and we are going to do it in Australia as well so we're going to execute on that and that becomes however, small that nuance is it typically becomes the tipping point for clients to actually engage with us.
So APAC has been growing but I think.
We need to sort of diversify away from sort of Hong Kong mainland China.
Singapore type region and go a little outside and see what's possible in Japan, and EMEA really continues to grow at a really nice pace.
Both.
Year to date as well as this quarter as well and so EMEA is continuing to grow at a very fast pace as we move forward.
We are very hopeful that EMEA will reach its full potential and we will operate at par with APAC and the U S and we see really positive performance from the team.
I am going to India.
Couple of days, but London and Dublin is my next stop is to make sure that we're all aligned and.
We capture the opportunity to set as much as possible.
Great that's all for me.
Thank you.
Okay.
Thank you.
Our next question comes from the line of.
Dylan Becker with William Blair.
Your line is now open.
Yeah, Hey, Alex.
Maybe kind of double click on some of the commentary on maybe on a prior question as well too how much does the compliant.
Side of things play into their Decisioning right I'm not sure I'm sure. There's an evolving landscape, that's kind of handicap, especially within those larger institutional managers by those legacy tool, but how much of that pipeline momentum you guys are seeing is kind of driven by the complexity on the compliant.
Standardize some of those operations.
I'm not sure.
The pipeline momentum driven by compliance, but I will say that it's definitely importance for institutional clients managers remember just.
I guess 10 minutes ago, I alluded to some of the EMS capabilities that are like really specific to the way.
Institutional managers handle.
Handled their orders as you know they have typically model portfolios and then they have relatively sophisticated allocation schemes out of this model portfolio across different portfolios that are client specific and have specific constraints that are specific to the particular client that actually owns those portfolios and so sometimes it just one exam.
There is a slew of them, but often times they tend to want to.
To modify allocation scheme. After the order is placed which is not something we've been seeing in hedge funds. So this is just one example, where.
This change in order allocation of what it actually does it trips the subsequent compliance check compliance check and compliance rules engine and so thats sort of a breakthrough workflow that exist at the infusion today.
We have a life client that we're working on with.
To address this precise problem, which seems to be sort of universal across.
That layer of clients and the list goes on so to speak with compliance is absolutely important.
And we're maniacally focused on it.
Got it.
And then maybe.
As you think about kind of some of the partnerships you've announced a handful here in the last couple of quarters. How should we expect this channel to continue evolving over time, given you, maybe some incremental shots on goals and customer overlap.
But what can this unlocked from a customer perspective relative to what you guys can kind of currently offer around around that mission of unifying the front front middle and back office systems.
Okay.
Great questions. So just starting from the and I think they like apex partnership as a sort of exemplary situations, where we have.
Potential to just leverage our core this is something we would do that day in day out not much needs to be changed.
Their benefit and because.
They can rely on our system day in and day out to solve their client's problems. They just support that is robust it works.
And for US the benefit is indirectly our technology is just sit in on top of excuse me in front of their pretty extensive client base and then potentially results in them.
Buying our software and actually using it not just for middle and back office, but actually operate their entire.
Run their entire operating operating cycle. Some other partnership will include you will see hopefully in the next quarter things that actually relate to to what our institutional clients.
As we see now asking for which.
Which is relatively new to infusion new as in.
Our typical user is either execution trader that sort of pilots or MSA MFS.
Typical user has middle or back office operating professional that reconcile the trades.
Rounds.
Different back office processes <unk> calculations operates in.
In the world between Prime brokers and custodians and the actual fund.
And what we're seeing increasingly institutional clients want want to put this <unk>.
System in front of the decision makers.
<unk> traders and investment managers, so what does that mean.
So then you need enhanced analytics, if it's <unk>.
Relatively simple long short equity or just simple long short fixed income portfolio that is managed against the benchmark correct all of a sudden you need something like.
Standards you name it.
<unk>.
Equity data science, North field typical comprehensive multifactor risk model framework, where you can slice and dice your risk calculated value at risk do performance attribution using factors do risk attribution and this is what <unk> typical won't want to see on that front.
This is where we will try to partner with.
No.
Some of those.
Businesses that actually have a great reputation that have great systems I myself used almost all of them in my previous career as a risk manager and I think it behooves us to focus on.
Roto development, because if we really that's kind of a missing piece, if you will as far as our targets.
So on that.
We sell our system too because then PM puts a lot of pressure on all of the processes that happen behind just to make sure that the picture. He is looking at what she is looking at is airtight and consistent and actionable and then the idea then after that tool is in front of them.
They can then close the loop and from that screen and from that report start, making and executing business decisions, which we should take them right back into order management and execution management.
So the workflow becomes completely closed does it makes sense.
It makes perfect sense. Thanks, a lot I appreciate it.
Thank you.
There are currently no further questions in queue. So again to submit for a question Thats Star one on your telephone keypad.
There are currently no further questions in queue.
So I will pass the conference back over to Jeff for any additional or closing remarks.
Thank you for taking the time to join US today. We appreciate your support and continued interest we look we look forward to continuing the dialogue.
And have a wonderful evening. Thank you. Thank you. Thank you all fair questions.
This concludes todays <unk> third quarter 2022 earnings call. Thank you for your participation you may now disconnect your line.