Q4 2022 Enfusion Inc Earnings Call
Speaker 1: That.
Speaker 2: Good morning ladies and gentlemen and thank you for standing by. Welcome to Infusions 4th 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.
Speaker 2: As a reminder, this conference call is being recorded.
Speaker 2: I would now like to hand you over to our host Ignatius Njoku, Head of Investor Relations. Please go ahead.
Speaker 3: Good morning, and thank you, operator. We welcome you to Infugia's fourth quarter 2022 earnings conference call.
Speaker 3: Posting today's call are Oleg Mokchian, Ephesians Chief Executive Officer, and Brad Herring, Ephesians Chief Financial Officer.
Speaker 3: Please note, a quarterly shareholder letter which includes a quarterly financial results have all been posted to our ILO website.
Speaker 3: I'd like to remind you that today's call may contain forward-looking statements.
Speaker 3: These forward-looking statements are subject to numerous risks and uncertainties, including those set forth in our parliaments with the SEC.
Speaker 3: available in the Investor Relations section in our website.
Speaker 3: Actual results may differ materially from any forward-looking statements we make today.
Speaker 3: These four 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.
Speaker 3: In addition, today's call may include non- GAAP measures . These measures should be considered as a settlement suit and not as a substitute for GAAP financial measures.
Speaker 3: Reconciliation to the nearest dot measure can be found in today's quoting shareholder letter.
Speaker 3: which is available on the company's website.
Speaker 3: With that, I'd like to turn the call over to Oleg to begin.
Speaker 4: Good morning and thank you all for joining us today to discuss our fourth quarter 2022 results. I'm happy to be here and I'm honored to be addressing you today formally as a student CEO . I would like to first thank all of my colleagues for the warm welcome that I received in this new role.
Speaker 4: I'm looking forward to leading infusion and I'm energized by the opportunity to set that infusion is facing today.
Speaker 4: I am also thrilled to welcome Brett here and as our Chief Financial Officer, who brings a long and impressive track record as a public company CFO . I look forward to working with him to position Infusion for scale as we go through the next stage of our growth.
Speaker 4: 2021 was a successful year for infusion, despite market volatility and changing the openTime education of mental health and human rights and
Speaker 4: We ended the year in a position of strength, demonstrating that infusion continues to be a unique combination of high growth and profitability within the vertical SaaS space.
Speaker 4: We delivered strong revenue growth, maintained our focus on profitability and margins.
Speaker 4: expanded into new adjacent markets, and won numerous mandates from our key hedge fund managers, institutional investment managers, and asset owners.
Speaker 4: where we focus capital allocation toward technology, product, and client services.
Speaker 4: to prepare the company for scale as we continue our global expansion towards larger and more complex institutional opportunities.
Speaker 4: Our fiscal discipline in the second half of the year resulted in margin expansion and enabled the company to generate positive adjusted pre-gash flows.
Speaker 4: This outcome underscores the durability of our business model and demonstrates our ability to deliver exceptional value for our shareholders.
Speaker 4: With this momentum, getting into 2023, we're going to maintain an enhanced rate in the growth and deliver a stable and expanding margin profile.
Speaker 4: We remain laser focused on delivering exceptionally positive client outcomes, powered by the best-in-class software and services offering.
Speaker 4: Now let's turn to four quarter results. We're pleased with the squatters performance, delivering strong growth driven by discipline capital allocation. Revenue grew 27% to $40.5 million, reflecting ongoing, healthy demand in solid execution.
Speaker 4: adjusted EBITDA was $6.8 million and represents a margin of 16.7%.
Speaker 4: This outcome reflects our progress in further improving the company's margin profile and are focused on returning Infusion to its historical profitability.
Speaker 4: We generated ARR of 165 million or 30% growth year over year.
Speaker 4: We continue to see strength in new sales across all our products and services.
Speaker 4: Excluding involuntary churn, net dollar retention was 115.4% as we continue to have meaningful commercial expansion within our existing client base. Including involuntary churn, the NDR remained at a healthy rate of 111.5%. This time including our new clients in the quarter.
Speaker 4: and in the quarter with a total of 819 clients.
Speaker 4: Convergence accounted for 51% of new client wins.
Speaker 4: As with the slight uptick in win rate for hedge fund launches, the launches remained overall down from previous year.
Speaker 4: Now, let us move to client wings that highlight the powerful value proposition we delivered to the global investment management community.
Speaker 4: In the Americas, revenue gained between 19% year over year.
Speaker 4: driven by ongoing client demand in the region.
Speaker 4: One of our new clients we're excited about is the North Carolina-based University in Unknown.
Speaker 4: This asset owner is seeking to relate to the outdated legacy system with the more efficient and to end platform that supports all asset classes and reduces total cost of ownership. By partnering with Infusion, the investment manager includes its manual workflow and compliance capabilities.
Speaker 4: In EMEA, revenue grew 54% year over year. We had a record bootleap level for the region and expect this positive momentum to continue in 2023 as well.
Speaker 4: I am pleased to announce that Infusion won an EMEA-based, multi-billion dollar long-short equity hedge fund.
Speaker 4: This new hedge fund launch is a spin-off from one of the biggest well-known global hedge fund platforms.
Speaker 4: The manager was seeking a bot cloud native platform, which would allow them to accelerate the goal life process and support anticipated AEM growth.
Speaker 4: as well as increased complexity. Infusion was chosen for its flexible, comprehensive, and modern technology stack couples with its advertisers.
Speaker 4: In addition, this client was particularly interested in our robust reporting framework and API technology to provide them with flexibility to integrate with third-party vendors.
Speaker 4: I am also excited to announce that we are partnered with a newly launched Fetch Fund based in the Middle East.
Speaker 4: This investment manager is supported by a notable silver and wealth fund and will employ multiple strategies, including equity, exchange and global macro.
Speaker 4: The fund selected Infusion because of its global reach and differentiated software and services, particularly our cloud-native end-to-end platform, single data set, and robust API WHITE Analytics.
Speaker 4: Together, Infusion will enable this fund manager to scale and deploy efficient workflows. This one is significant because it demonstrates our success in expanding into the Middle East, an important destination for both capital allocators and hedge fund managers.
Speaker 4: Now turning to A-PAC.
Speaker 4: We agree revenue by 36% year over year as it was to help the demand in the region.
Speaker 4: And to real to announce that we entered into an agreement with a multi billion dollar Tokyo based alternative investments manager.
Speaker 4: This client was seeking to modernize their efficient on-premise technology stack.
Speaker 4: which consists in a disparate, outdated, and complicated abilities.
Speaker 4: The investment manager selected Infusion because of our fully integrated, end-to-end platform and our deep understanding of region-specific functional requirements that continue to drive our success in APAC. Infusion will replace our manual, error-prone infrastructure with our OIMS, data analytics and accounting capabilities as a direct product of such digital transformation.
Speaker 4: The client significantly reduced the need for internal technology and operational resources and compressed total cost of ownership.
Speaker 4: This exciting global win further validate our ability to move upstream across all regions.
Speaker 4: Win more conversions and expand it to new adjacent markets, all during times of significant market uncertainty.
Speaker 4: Finally, let's talk briefly about a new customer that went live on our platform in the fourth quarter, which is Panagora Asset Management. With over 30 billion dollars in asset under management, Panagora is a quantitative investment manager that deploys multiple strategies.
Speaker 4: including active equity and multi-asset quantitative investment strategies. After extensive diligence, Panagora selected Infusion to replace their long-time OMS vendor with an objective to reduce their in-house technology footprint and improve their functionality for the growing business.
Speaker 4: Infusion and Panagora partnered during the onboarding to streamline legacy workflows and enhanced Infusion API capabilities.
Speaker 4: Now live on the Infusion platform, Panagora benefits from frictionless upgrades and a scalable technology that will afford flexibility to continue evolving their business in the years to come.
Speaker 4: Turning to product and technology.
Speaker 4: Innovation is the key pillar for our success, and we are committed to deploying new products and next-generation solutions by listening closely to client demands and moving steadily to the adjacent portion of our total addressable market.
Speaker 4: During the quarter, we're all about new enhancements and features across our platform to continue improving stability and scale and expand functionality.
Speaker 4: For example, we release the self-surface general ledger posts and workflows, so the clients have control over closing their books at their own discretion.
Speaker 4: We'll also continue to develop APIs to allow our clients to quickly and easily integrate with our platform.
Speaker 4: APIs to allow our clients to quickly and easily integrate with our platform.
Speaker 4: We have made a series of enhancements to our API capability suite to support creating and updating many trade types within our platform.
Speaker 4: The API and Keynesians were made over the last few quarters. They brought our API capabilities more in line with our UI capabilities and support our system-medically inclined clients to really drive scale and efficiency for the platform at large volumes.
Speaker 4: Another notable enhancement for this quarter is the new framework for handling bank debt and credit facilities, as well as support for initial drawdown logic for evolvers.
Speaker 4: Now infusion is one of the few platforms that truly models the long-earned asset class properly.
Speaker 4: from the global amount down to the positions. And we can support many of the complex edge cases, including but not limited to delayed comps, cost of carry, drawdowns and paydowns, both pro rata and non pro rata.
Speaker 4: In aggregate, we are well positioned to support our clients trading and leverage credit strategies, and this has been driving our success in this segment.
Speaker 4: All in all, we deployed 361 enhancements and new features across our platform during the quarter, further demonstrating our ongoing innovation.
Speaker 4: Moving to market dynamics.
Speaker 4: The macroeconomic uncertainty has driven multiple trends to play out in the market.
Speaker 4: First, we continue to see global asset managers embracing our fully integrated, cost-effective and our both capabilities.
Speaker 4: The industry is increasingly shifting away from on-premises sets of disparate pieces of software, either homegrown or pitched together by competitor acquisitions.
Speaker 4: Additionally, asset managers are focused on outsourcing both middle and backwater separations in trade.
Speaker 4: As a manager, the focus of outsourcing both middle and backward operations is in trading. This is where infusion comes in.
Speaker 4: with our cost-effective and operationally efficient front-to-back scalable technology coupled with the best-in-class client services.
Speaker 4: We believe our business is well positioned not only to weather the ongoing electric and climate issue but also the Moreau Sea—a each year around April 12, 2021.
Speaker 4: but also benefit from it. On one hand, the reduction in the number of hedge funds launches.
Speaker 4: delays in purchase decisions by existing investment firms could reduce our opportunity to set an L&D sales cycle. On the other hand, in terms of the upside.
Speaker 4: Large alternative investment platforms and traditional asset managers are optimizing their cost structures by converting their legacy system to infuse and suffer and relying on our services to support their business.
Speaker 4: The off-space canary is what we typically saw throughout the history of the firm, and are seen now as we continue to win conversions in competitive situations.
Speaker 4: Importantly, we'll continue to see capital shifting away from hedge fund launches and smaller hedge funds toward larger multi-manager platforms and separately manage the account structures. As investors are looking to attain better performance, reduce operational and keep person risks.
Speaker 4: and access the diversified portfolio of alternative strategies. This is where we see our current multi-strategy and multi-manager clients growing rapidly and where we see outside the men to remain strong and in their future. Subsequently, a touch platform continues to spin off and keep various teams that have been successful internally. Infusion continues to benefit from such backdoor launches.
Speaker 4: technology familiarity in operational transition become natural.
Speaker 4: Now, let me turn to our key focus areas for 2023.
Speaker 4: We plan to build an element to create value for our clients, partners and shareholders.
Speaker 4: As such, we focus our capital allocation on technology, product, and client service organization.
Speaker 4: Courts are a competitive advantage. Driving innovation and responding to our client technology in a timely and thoughtful way.
Speaker 4: By investing in our technology stack and expanding our product portfolio and system functionality, we're able to deliver new capabilities and services.
Speaker 4: enhance our competitive mode.
Speaker 4: capture more market share and drive upsell opportunities. Next, Infusions best in class client service underpins our overall strategy to win new clients.
Speaker 4: We are focused on enhancing our onboarding and implementation process to improve converging experience. Additionally, we will work on making our account management and managed services teams more operationally efficient by investing in related technologies.
Speaker 4: This will enable us to support larger and more complex investment first while improving our margins.
Speaker 4: This investment will bolster our competitive stance and will continue to position infusion to deliver high quality software and a service to our clients.
Speaker 4: As importantly, we are also committed to maintaining an infusion's path towards marginal expansion and operational efficiency as witnessed by this quarter's results.
Speaker 4: High margins coupled with high growth rates have been a staple of our business model.
Speaker 4: and the management team is focused on the bottom line more than ever. In summary, we are pleased with our execution in the fourth quarter and how the company is set up for success in 2023.
Speaker 4: team is focused on the bottom line more than ever. In summary, we are pleased with our execution in the fourth quarter and how the company is set up for success in 2023. All of the buyer schemes and all of the vendors Sadhguru are trading in business 3ially posts
Speaker 4: Every new technology capability. Every new future in our system.
Speaker 4: and every support ticket resolved by our team, only reinforced the magnitude of the opportunity set in front of infusion and our unique position.
Speaker 4: I'd be remiss if I didn't acknowledge our talented employees globally for their hard work and selfless focus on our execution.
Speaker 4: I'll result the squirt our simple-air reflection of the calmer of our team.
Speaker 4: Their passion, dedication, and creativity continue to solve the most challenging problems our customers face and enable our clients to generate superior, risk-adjusted returns for their investors.
Speaker 4: Before I turn over the call to Brad.
Speaker 4: I would like to highlight the steps we made to further strengthen our board with the addition of two new independent directors.
Speaker 4: We are pleased to welcome the Adrian Stomers, who sits on the audit committee and the nominated and governance committee and Michael Spellis, who is appointed our board chair. I will now turn the call over to Brad to discuss our financial results in more detail.
Speaker 4: Thanks, Howard, and thanks everyone for joining us today. I'm happy to speak with you today. My new role is the CFO of Intuition.
Speaker 4: I look forward to working with OLIGS, the executive team, and all of our employees here to help lead infusions to its next stage of growth.
Speaker 4: working with Olig's executive team and all of our employees here to help lead infusions to its next stage of growth. Now on to the numbers.
Speaker 4: In the fourth quarter, we generated revenue of 40.5 million, an increase of 27% over the same quarter last year. Growth was driven by continued sharewinds and client demands for our comprehensive solution.
Speaker 4: Fourth quarter adjusted gross profit, which excludes stock-based compensation, increased by 25% year-over-year to $27.5 million.
Speaker 5: This represents an adjusted gross margin of 68%.
Speaker 5: It's worth noting that these results were impacted by a change in cost allocation methodology, which lowered Q4 adjusted gross margin by approximately 150 basis points.
Speaker 5: Excluding this methodology change, adjusted gross profit would have been 69.5%.
Speaker 5: Adjusted even up to the quarter was $6.8 million, up 112% year-over-year.
Speaker 5: Against in-quarter revenues, this represents an adjusted EBIT demargin of 16.7%.
Speaker 5: up 670 basis points from the same period a year ago.
Speaker 5: Year-over-year margin expansion was the result of the scalability of our SAS model, combined with prudent cost discipline in the quarter.
Speaker 5: One of the changes we're making in our earnings discussion is the inclusion of an adjusted free cash flow metric. A reconciliation of adjusted free cash flow is included in the appendix of our shareholder letter.
Speaker 5: For the fourth quarter we generated a just a three cash flow of $3.6 million compared to a negative $3.1 million in the same period a year ago.
Speaker 5: Current quarter results represent a 53% conversion rate against our adjusted EBITDA.
Speaker 5: Free cash conversion was slightly higher than expectations due to the deferral of some cat-ex items that will push into 2023.
Speaker 5: We exit at the fourth quarter with an ARR of $164.7 million, up 30% year-over-year. The healthy ARR growth reflects ongoing strength of our customer additions and our ability to win share despite a challenging 2022 for our customers.
Speaker 5: Net dollar retention, excluding involuntary churn, was 115.4% down to 120 basis points with 5½ Rebrux.
Speaker 5: The sequential decline is driven by ongoing volatility in the market as the sector increasingly focuses on right-sizing their cost structure. Net dollar retention, including involuntary churn, was 111.5% relatively flat from a year ago period.
Speaker 5: We signed 39 new logos in the fourth quarter ending the quarter with 819 total clients.
Speaker 5: It's worth noting also that the average size of our customer is increased approximately 13% compared to the same period last year as we continue to execute on our strategy to move out market.
Speaker 5: Net income for the fourth quarter was $788,000, which includes $4.2 million of stock-based compensation.
Speaker 5: We end of the year in a strong cash position with approximately $63 million in cash and cash equivalent and no debt. We believe the strength of our balance sheet gives us considerable flexibility to execute on our long-term strategy. Now on to guidance.
Speaker 5: Before we get too deep, I want to comment on a change we're making to our guidance practices. After discussions between OLAG, myself, and our board, we've had decided to shift from forward quarter guidance to providing annual guidance with updates during each of our quarterly earnings calls.
Speaker 5: Where relevant, I will also be providing insights on the anticipated pacing of our results throughout the year.
Speaker 5: This change was based on two distinct factors. First, we wanted to improve the alignment between our financial practices and the philosophies we use to run the business. Our approach has always been to deploy capital to create long-term value for our shareholders and the practice of discussing quarterly guidance is not aligned with that philosophy.
Speaker 5: Second, given the combination of macro level uncertainty in the current scale of our business, the practice of providing quarterly guidance is simply not prudent.
Speaker 5: While we are removing our forward quarter guidance, we are adding information in our quarterly earnings materials that we feel will be more relevant. Notably, you will see in our recently revamped 8K filing the addition of adjusted free cash flow and cash flow conversion metrics.
Speaker 5: All of that said, let's turn to our outlook for 2023. I'll start with making a few comments to position the year. As mentioned earlier, our clients face considerable challenges in 2022 with underlying markets down significantly and sustained volatility within financial markets.
Speaker 5: Given these dynamics combined with macroeconomic uncertainty, we anticipate that asset managers will continue to look for opportunities to right size their cost structures into the first half of 2023.
Speaker 5: This has several short-term impacts on our business. First, it provides us with considerable market advantage to gain share by providing the market with a premium solution with a lower total cost of ownership.
Second, we expect new fund launches will continue to lack historical levels until markets stabilize. And finally, we anticipate continued volatility in our net dollar retention rates as our current customers continue to monitor their spend in the backdrop of the uncertainties I've mentioned. Thank you.
We are investing in two prime areas in support of our overall growth strategy.
First, we are making investments in our client services function to provide a scalable and sustainable servicing model that meets our customer's high expectations.
Second, we are adding R&D capacity to our product and software development teams to both strengthen our current market leading position as well as open up new addressable market segments.
Combined, these investments will put slight short-term pressure on margins, however, we feel that funding needs initiative to push our growth trajectory and position the business for improves margin expansion going forward.
Based on all these inputs, we are introducing full year 2023 revenue and adjusted EBITDA outlook as follows. We expect revenue to be in the range of $185 to $190 million, which at the midpoint represents year-over-year growth of 25%.
Referring back to my comments on the uncertain market conditions facing the segment, we anticipate revenue growth rates to be slightly higher in the second half of the year.
We expect adjusted EBITDA to be in the range of $32 to $34 million, which at the midpoint of our ranges represents an adjusted EBITDA margin of 18%.
We project adjusted EBITDA margins to be lowest in the first quarter, before steadily expanding throughout the year and exiting 2023 at approximately 20%.
For modeling purposes, we project stock-based compensation of approximately $12 million for the full year. In summary, we completed 2022 with strong results despite headwinds in the segment. Moving on to 2023, we are building on that foundation to enhance our market leading cloud-based end-to-end investment management platform.
Now making strategic investments in both our product and service and capabilities.
I have great confidence in the long-term trajectory of our business and our ability to deliver strong revenue growth while continuing to expand margins and grow free cash flow. With that, I would like to open up the call to questions. Operator, please go ahead.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you'd like to remove your question, it is star followed by two. As a reminder, if you are using a speaker phone, please remember to pick up your handset before asking your question. Again, it is star one to register your question.
So our first question comes from the line of James Borset of Morgan Stanley . Your line is now open. Please go ahead.
Thanks very much. Firstly, we appreciate all the disclosure provided in the Chairholder letter. Really helpful to...
on the conversion statistic you gave in the deck. How should we think about what appears to be a little bit of slowing conversion momentum given that the statistics looked to be around 50% relative to 60% last quarter and 64% year ago. Because that indicative of that sore case of decision-making at some of your larger clients and...
And should we expect that kind of sales cycle to persist? Hi Jim, this is Oleg. I appreciate the question. Actually it's twofold from my perspective. This particular number is not indicative of any trend that we expect to persist going forward as a company.
as far as our business is concerned. We believe we can easily be at what we've seen historically over the last couple of years. We're shooting for probably something like 60 to 65% on conversion side on average.
As far as delay in purchasing decisions, I don't think this is something that will impact that rate of our wins as a percentage of the overall book. Yes, overall, that definitely has an impact on, you know, it could have an impact on the overall growth.
But as far as percentage of our overall book, I think we will continue to see very stable to increase and share of our business in conversions.
Got it, got it. And then, you know, I know you touched that.
that dollar retention, kind of being volatile, et cetera. And it's really pretty constructive, at least from our perspective to see, you still be able to deliver strong revenue performance even when we saw a little bit of a decline there. How should we think about the drivers of net dollar retention and where should that metric be, at least from your perspective in the next one, three, and five years?
And I guess as part of that, I know you're not guiding to specifically NDR, but what's the level that you think you roughly need to be at in order to achieve your revenue outlook? Thanks.
Sure. So I think a couple of things. So technically and strategically so let me answer this.
the following way. So the volatility that we expect, it is driven by the current.
macro economic environment, right? And as you know, our formula allows us to scale in and out with the clients. You know, clients come in and they reduce the number of licenses and they increase the number of licenses. So that's part of, you know, you want to call it down grades and then upgrades. It's something that we've typically seen in our business and actually from our perspective increases.
long term, I don't know, one year or three years, four years, I think that on us as a company, both in terms of technology capabilities and client services to get there, right? That's what I hold in myself accountable to, and this is what I'm holding my team accountable to. I think this is best in class platform, and our customers deserve nothing less than world-class customer service.
in addition to the technology. So in terms of drivers that you asked about, I think there will be a balance.
between sort of this, you know, call it downgrade and people trying to scale out and be a little more conservative with what I mentioned in my prior remarks related to the actual growth in institutional market segments, growth from our perspective.
and growth within multi-manager and multi-strategy platforms. And we're already seeing some green shoots of our ability to expand our relationship with the clients commercially, very deeply, which I think historically, we haven't really done a good job at. And this is something we're paying very close attention to, looking at our client base, very careful, and creating value.
and expanded the footprint. Thank you very much.
Thank you. Our next question comes from the line of Kevin McVey of CreditSwiss. Your line is now open. Please go ahead..
Great, thanks so much. And just to follow up on my question, I'll look in again, congratulations on the results. Really, really, good outcome. Is there any way to think about kind of like dormant clients in terms of is there a certain percentage of clients that are active at different times in the year?
You know, is it just head count? Any way to think about maybe a lower end of the range where that is today and where that's been historically and does that flex back up just to see we get a sense of...
… where the optionality sits maybe within existing accounts if there's a way to frame that. I don't know if there is any seasonality to it. I will say that some of the volatility that Brett mentioned in his remarks, definitely clients are coming off.
you know the whole industry is coming off of a difficult year. I mean they you know both equities and bonds are down you know dependent on you know which currency in country are looking at anywhere between 20 and 25 percent. So you know AMs are down accordingly management fees are down accordingly you know people are not even talking about their foreign fees and in many cases so there is just the economics of the business are changed right so it's not about like time of the year right it's about.
That's what I call downside convexity in this business. This is what we're seeing playing out today. On one hand, people are reimagining and trying to reexamine what tech debt they're sitting on today. $10, $20 million budget, 100 people staff that's supporting the disparate legacy systems. They're coming to us to help and this is where we come in.
And the sort of hedge fund, small hedge fund launches, we've seen counterbalanced with some of the capital, actually significant amount of capital, that is going into multi-strategy funds and multi-manager platforms. And this is where we find...
Our sweet spot were good with service and the clients' scaling as they scale. Then subsequently as they speed off and seed managers that have a chance to access on their platforms, they're right there to get them as they launch. What I call that door launches.
So again, just to summarize, it's not about seasonality, so to speak, or dormancy. It's really about us getting through this little trough related to 2022, which is again arguably worst performance year for core asset classes in 40 years, and positioning ourselves for further growth for this business.
That makes a lot of sense. And then as you think about the low end versus the high end of the range on the revenue and the need, but that any thoughts, puts and takes will get you to that high end above the range as it kind of client wins or just any thoughts around the guidance, which obviously looks really, really good. Hey, Kevin, this is Brad. I'll take that. Yeah, I'm ready.
you know we felt like the guidance was uh... was a good balance you know i think there's a couple of things that'll play out uh... over the course of the year we've talked a couple times about kind of the condition of the of the segment
So, you know, obviously some better stability in the markets, I think it push us up toward the high end of that. You know, that tends to drive some of the hedge fund launches we talked about that if
that it's kind of slowed down a little bit. We think that could pick back up with stability coming into the market. We also think some of the product capabilities we're gonna be putting out in the next three to six months put us in positions where we could get higher bookings this year. It doesn't have a huge in-year impact, but certainly the sooner we get those out that puts revenue on the table for the current year.
opportunities for, you know, some enhanced tools that improve our scalability. I mentioned that in our expense efforts on client services. A lot of that has to do with spending some money in 2023 to create some very strong scalability in the next year. It could be some a minute impact for that as well.
Very helpful. Thanks so much.
Thanks Kevin.
Thank you. Thank you.
Our next question comes from the line of Dylan Becker of William Blair, your line is open. Please go ahead. Yeah, hey, good morning guys. I'm going to congratulate the results here. Maybe all of a sudden with you, there was a lot of talk around going to software and service evolution in the shareholder letter.
I wonder if you can elaborate again on how you see that kind of client service piece benefiting not only the overall adoption framework efficiency in these models, but but how that can speak to maybe what what Brad was just talking about on kind of the pipeline innovation as well feeling that our active and that
Great question. I'm afraid I might deffor that as the whole call talking about the topic. So a couple of things here. Brad would say that we end the adoption of managed services business. And I just want to make the difference between the client services as a whole, which is us supporting the clients on an ongoing basis.
you know, resolve an issue and customizing the technology and all of that with, you know, managed services as a business of, you know, doing things for clients on an ongoing, consistent basis like trade affirmations, confirmations, you know, racks and things like that.
And so as far as overall client service is concerned, that just, you know, as you know, it's one of the things that I've done, the first thing that when I came in is really revamped and the structure that part of our business to make sure that it's aligned much better with our sales process.
And it's aligned much better with how each client experiences infusion. Right, so as one of our recent clients said last week, and I will never forget that, is, you know, what's the point of having good software if your client services?
is not good. And I'm taking this to heart. This is just way more important for us now than ever. Because historically, you might remember, we've been really focused on smaller players.
and they support it themselves effectively. And software has been so powerful and still so powerful, and customers really love using it and torturing it and customizing it, so that we did not actually have to do much, which actually as a result drove economics. Now as we go upstream and, you know.
service much larger and complex managers by default they're looking at us as extension of their operating.
teams. And therefore they actually expect many of them, especially larger one, they expect some kind of wide-cloth service. And so we're designing our business to actually accommodate that. You know, we feel it's just, if it has to happen, and therefore number one, we have to make sure we have the team aligned. And number two, we make sure this team is operational efficient.
So we actually use technology to scale and maintain economics of the business. So our gross margins are 70% plus. This is our target.
Our net margins as a result are conforming to what we think this business could be long-term. The second part is, you know, in here we'll call Brad, you know, manage services business. You know, we ended up in this business by default rather than by design. And we're currently looking at that very careful and see if we can...
really position it in the marketplace as a separate line of business, which is where our clients, our incumbent client base is coming to us and asking us to do that for them as an extension of our relationship today. So the question for us is, what can we do? What should we do?
how we priced it properly so that we deliver value to the client and we create value for the share folders as well. But, you know, we have right now...
about 820 clients in the roughly
what roughly 120 clients today actually use in managed services. So it's a huge portion of our entire client base actually using that part of our capability. And so it behooves us to look deeply and see if we can actually expand that relationship. Thanks again.
This is this duality between pure SaaS model and software and the service model where we go and serve this institutional client like I just mentioned, Panagora, where there is this assumption. It's a partnership and they expect us to provide a certain level of service as a support.
as a partnership on an ongoing basis. And two, other clients expect us to perform, or asking us to perform ongoing daily tasks like any managed services organization would. And there is some interesting economic opportunities for us there. I hope it makes sense. Yeah, it makes total sense and I appreciate it.
as the industry moves kind of more towards real time processing capabilities.
Thanks. Again, this is one of those big opportunities for us. We have a lot of conversations on the subject. The clients are actually looking to contribute to the discourse. And so we were internally looking at different ways to address it.
And I think we have very well positioned to do so given our software capabilities. So all this regulatory changes before, market microstructure changes, method before compliance, which is another area of us of great importance both in terms of software functionality on OAMF side as well as regulatory reporting. And this is where we...
We think we are responding pretty well to the market demand. So of course, we will definitely be there to accommodate. Our next question comes from the line of Koki.
Ikeda of Bank of America, your line is now open. Please go ahead. Hey, Oleg and Brad. Thanks for taking the questions. First one from me is, as you head into 2023, how are you thinking about your go-to-market strategies and focus? Maybe either from a…
a geography or product perspective that could be different this year when compared to last year. I don't think there is any difference. We do want to refocus our effort, for example, on regional competitive advantages that we have. I will just actually highlight the media.
as an example where the business is getting to the point where it's becoming actually relatively, or I expect it to become relatively stable, 20% of our overall revenue mix.
And there's a ton of opportunity I highlighted before. We're seeing a lot of opportunity in the Middle East. And, you know, that part we're doing a lot of work on the subject.
Just like any other region in the world, it has its own nuances. It has its own operating nuances. It has different nuances related to trading and risk functionality that are specific to the region. And in fact, this is how we historically won in ADPAC. We had different capabilities within our software. We had a lot of work with that.
Client actually valued and we did it exceptionally well, head and shoulders above our competition, and that's how we want. It's not just overall generic value proposition, the fact that it's sort of a traditional position in where cloud native, front end integrated software, but really thinking about how we can differentiate ourselves.
taking into account what I would call local or localized competitive advantages. And so that's what I'm thinking as far as global expansion is concerned. But one...
Also, the client that I mentioned, one of the largest Japanese sketch funds, we've had some success in Australia. And of course, Hong Kong and Singapore continue to be relatively active, both as far as launches and conversions are concerned.
And, you know, US is, you know, this is where we see most of the larger institutional asset managers are and we're continuing to position the business, you know, in that segment in a more aggressive way in a testament to that our recent wins.
For example, the endowment that we recently closed in a couple of other interests and multi-strategy, multi-manager funds that, you know, again, taking into account and capture the various sense of what infusion is all about, which is ability to bring together front end, OEMS with portfolio management, with the risk management for the backend.
and create the framework where people just worry about trading, people worry about risking capital allocation, and they don't worry about technology or operations. So the go to market strategy I would say, there is no really – there is some overarching position and messages that I would send to the market and say, you know –
It remains the same with more focus and continued focus on larger institutional complex clients, but as far as actual nuance, I would highlight really figuring out what actually works for that particular local market and really zeroing on that and executing against that relentlessly and winning on that basis. Got it. Now that is super helpful. Thank you.
And I wanted to ask the follow-up question on Met Dollar retention. It sounds like with the commentary from Brad, that the involuntary revenue term was about 4.5%, but customer-turn might have been a bit higher than that. Is that the right characterization on how customer retention shaped out in Q4? And then just thinking more forward, how should we be thinking about involuntary revenue
and customer churn assumptions that are embedded in the 2023 guidance. Thanks guys. Hey, Cody. This is Brad. I'll take that. Your numbers and presumptions on churn are right. As I kind of mentioned in the back half of 2023, we did see churn pick up slightly. You know, when you think about how we projected 2023 to play out.
We've anticipated a little bit of a residual into 2023 off of those same numbers, but we do think it's going to improve back to kind of more normal levels by mid-year. And that's a byproduct of the conversation I had a minute ago around the...
The stability that comes into the market that kind of draws up that turn. So, you know, we expect a little bit of increased turn for the first half, but we do think it returns back to normal for the back half. Got it. Thanks so much, Brad. Take you guys for taking the question. Thanks, Koji.
Thank you. Our next question comes from the line of Parker Lane of Stifle. Your line is now open. Please go ahead. Hi, this is Matthew Kickert for Parker. Thanks a lot for taking my questions. To start, what have you learned a successful go-to-market pitch looks like with a larger pitch?
skills, upon conversion. Are these customers landing with just portfolio management system? Are they adding a whole suite of solutions up front as well? What have we learned? So definitely the holistic approach. I mean, we have seen some situations where we are successful in land and expend, sort of thing in terms of.
sell and piece of functionality and then expand it into overall stack. We're also more naturally fitting into what you would call multi-asset strategies or liquid outs that those large institutional players actually offer on their platform.
As you are sure know, in the recent, I don't know, 10, 15 years, the trend has been to become sort of the supermarket of different strategies and any institutional manager of substantial size they're trying to offer everything from, you know.
S&P 500 index tracking ETF for two basis points or one basis point to very complex strategies from quant to global macro CTA and real estate and private equity. And so we typically fit.
into that bucket where they actually offer liquid elves and some systematic and important data strategies. And then as we build more footprint within the organization that manages, I don't know, $152,200 billion, we expand that relationship in a lot of other things. And some of the functionality I can highlight to you is just...
from product driven expansion of product driven growth perspective, some of our product initiatives include creating capabilities around benchmarks and enabling the managers to rebalance their portfolios either to match the benchmarks.
or to take active risk with respect to benchmarks as those investors are trying to beat those. And so some of those things related to portfolio construction on Monkiant and then translating those active bets or hedging strategies into actual trades, including that loop, sending that vector of trades orders into our OMS and...
Then going back and the re-instment repeat, this is where we think the strength of our offering will really shine. So this is a high level comment, but as far as that particular market segment.
we still have a lot of wood to chop. Complexity of their business is very high and almost, I can say, if you think about hedge fund universe, you can sort of stratify it and think about every segment. Therefore, the Shedia, the
Those funds are more or less similar. They're not of course the same, but they're similar.
every one of those is unique. And we will learn quickly and we adapt and we see what they need from workflows perspective. And some of them are very, very different from what cash funds are actually doing, both in terms of how OMS and compliance works.
in terms of what they're looking for in the backhand, in terms of risk requirements, we're actually looking to...
expand that offering as well, where almost all of our institutional clients want some kind of not just the powerful of the course but relatively sophisticated risk management and risk analytics capability.
that offering as well, where almost all of our institutional clients want some kind of not just the powerful the core but relatively sophisticated risk management and risk analytics capability.
Yeah, understood. That's great color. And then secondly, how large do you envision scaling your management solution segment over the next year? What impact do you foresee this having under ability to sound pantsley to expand margins? Right, so that's sort of asked two questions and one.
And that's going to be the second part of your question is going to drive the first. So as I mentioned, when Dylan asked the question,
We ended up in this position where we have pretty large portion of our business and managed services and I keep highlighting that. This is one of those from my perspective, under appreciated assets that this business is sitting on. We have very similar economic relationships with other firms that are providing managed services and we sell our software to them.
We ended up in this position where we have pretty large portion of our business and manage services and I keep highlighting that. This is one of those under, you know, from my perspective, under appreciated assets that this business is sitting on. We have very similar economic relationships with other firms that are providing manage services and we sell our software to them. Right? And so...
while looking at this positioning both tactically and strategically, trying to figure out how to expand our footprint there, and be there, again, quotes and Brad, by design as opposed to by default. Now, the trick is in that second – from our perspective, the trick is in that second part of your question, of course, how to do that.
without diluting margins. And that's a big deal. And we actually have done it before. We did identify some product gaps and functionality requirements that we actually need to execute on.
to continue to grow that business without diluting pure sats.
growth margin, so to speak. I'm absolutely convinced it's possible. Everybody is challenging me on that. We have a lot of conversations, both externally and internally on the subject. Everybody sort of knows that we're a stand-alone business.
is lower margin than pure SaaS business. I'm also aware of that, but this is where we, I think, will win, because if we figure out the formula that actually has been driving in Fusion's growth all this year, prior to their IPO, and enabled the company to be a not just a row of 40 companies, but a row of 80 companies.
becomes the sort of final icing on the cake where when we replace the sort of this piecemeal technologist stack which is our sort of bread and butter conversion setting and you know we replace a competitor up front where for example where a portfolio management system we replace OMS complex we replace back end
And then all of a sudden, you know, we're all in that entire stack. And so they, for example, in this case, they actually use another managed services organization to support that former legacy disparate stack with fault lines in between. But once we're replaced,
Who is the better, who is the best company to actually service and support that technology stack that is infusion other than infusion. So what happens is we actually have won, as we win competitively those technology replacements.
it's a natural extension of the business to actually supplement with managed services. If this set of economics works, what happens is a side effect. The stickiness of the clients also increases, and that's right back to the NDR questions that Koji and Dylan asked. Does it make sense?
Yeah, that makes sense. And thanks for asking to answer my questions and congrats on the quarter.
Thank you. Our final question comes from the line of Gabriella Brogues of Goldman Sachs. Your line is now open. Please go ahead.
This is Callie von Diong for Gabriella. First one for me is just with the average contract value growth of 13% in the quarter in the NRR 115, how should we think about the impact that NRR is having on an average contract value versus the impact of new customers.
So this is Brad, I'll take that. I think, you know, we'll talk about the growth in the customer size first, and that's completely a byproduct of what OV just walked us through in terms of as we move up market, you know, in that whole stack becomes available. That's obviously going to increase contract value, especially as we move up market, this is bigger asset managers. You know, as it translates.
In DDR, I think there's a couple of key points there. One is that entire management services discussion we had. I think that was a really key point to make in terms of how that plays into contract size, but then also it has a ripple effect into NDR. And I think that kind of facilitates, oh, a gold standard of 20% of NDR. Some of that is going to come from things like...
adding managed services to that stack. So I think they're very intertwined, but they're not necessarily mutually exclusive. We've also got scenarios where we go out into a market and our initial contracts may not include the full stack, but because the asset managers are in the much larger scale size, you're still gonna see an overall increase in contract size. Yeah, just want to compliment that. We don't want to make it sound like managed services is the only way for us to
expand their relationship with the client. I mean, we recently have done a lot of work and I cannot give enough credit to our technology team to actually, sort of in the real time, expand our product portfolio and respond to client demands. And as a result, expand commercial relationship with the client. So this is not just, you know, manage services driven. But, you know, to Brad's point, those are in some sense. Those are the two, two, uh...
On one hand, two sides of the same coin and those two drivers of NDR and Stiggenus of the business are number one, us getting into larger clients just because they take the sizes a bigger and two going deeper within the current client base.
You know, it's just really creating value for the customer. I mean, there's still situations, frankly, where, you know, customers are using some other capability. That...
It's not that we don't have it, but they just don't know that we do. It makes my blood boil in those situations. So this is what we really – 2023 is really about that, folks. It's about not just focusing on the outside, not just being aggressive.
growing the business, it's not just about bookings, it's not just about going to, you know, whatever name it's signaled to Dubai or Tokyo, it's about really, really making sure that every single client that we serve today is referenceable, making sure that we raise value every day, making sure that, you know, even clients that do not hear from are happy.
and continue to proactively engage with the current client base and create real and capture some of it. Okay, thank you. And then just as a follow-up, any nuances to the environment that you've seen in the start of 2023? We've heard some companies talking about a stronger January and February . I'm curious what you've seen at the start of the year for customers. Yeah, again, I will defer to Brad to comment from his perspective about this fierce quantitative...
The fact that risk assets have been behaving well in the left.
You know, a couple of months, you know, makes people feel better, makes people breathe better. That's fine. I know we don't have a crystal ball. We don't know what the markets are going to go today or whatever in two years. But you know, we definitely see so that behavioral change, you know, that I mentioned, but one hand people are just in this weight and sea mold sometimes. On the other hand, there's just being active.
In some interesting sense, for us, this uncertainty is a K, but it does result on either side, that actually is where we really come in with a sort of convexity strategy. If things are really not as good as people expect, this is sort of up to cost optimization and reposition. If things are great.
we will see more launches and more expansion and more budgets being allocated to our customers. But we are not thinking about our business within the time horizon of a couple of months. The focus is long-term shareholder value creation, and we just simply technically...
tactically well positioned to get your whatever opportunity is will be created in 2023. Now I'll just add to that kind of getting very specific on your question. We're seeing certainly some flight improvements coming out of key four. As the segment kind of corrected itself in the key three key four time frame. We anticipated like I mentioned in my mind.
Pre-recorded remarks, those trends to extend a little bit into Q1. We're saying that continue about what we thought. But then at the same time, we're also seeing things like our pipeline pickup. Our pipeline has improved significantly from where we were a couple of months ago. So to always point, I think it's a natural diversification in this business. If times are great, we do well. If times are tough, we do well as well. So I think it's just a great hedge that's kind of built into the inherent business.
Thank you. And congratulations. And the next one. Not to better digest this question on the call. Just one more real quick addition.
We will see some balance as we go with children to loan only strategies. There might be some potentially additional data in this business, if you will. Typically, we have seen performance degradation of our clients. We have seen performance degradation of our clients.
Right, we are seeing, you know, that hedge fund managers in our platform are actually doing really well given the volatility. Right, some are not doing so well, some are doing well. Right, but also interestingly enough, because of this compression of risk premium, right, oftentimes people are redeeming from the funds that they can, not from the funds that
they should. And typically you have situations when somebody used to manage $10 or $15 billion in all they managed to read or form. So all of a sudden the economics of the business especially sometimes given high watermarks are different.
And the decision regarding us at that point becomes almost a no-brainer.
Thank you. As there are no additional questions, waiting at this time I would like to hand the conference co-pack over to the management team for Clasimum.
Well, thank you all for great questions. Of course, our role is available in real time for any additional questions. Thank you for the challenge. Thank you for your trust. We will continue to work relentlessly on behalf of our shareholders.
Ladies and gentlemen, that concludes Infusion's fourth quarter 2022 earnings conference call. Have a great day ahead, you may now disconnect your lines.