Q2 2024 Enfusion Inc Earnings Call
Operator: I'd now like to turn the call over to Bill Wright, Head of Investor Relations, to begin.
Now I'd like to turn the call over to Bill <unk> head of Investor relations to begin.
Bill Wright: Good morning and thank you, Operator. We welcome you to Enfusion's second quarter 2024 Earnings Conference Call. Hosting today's call are Oleg Movchan, Enfusion's Chief Executive Officer, Brad Herring, Enfusion's Chief Financial Officer, and Neal Pawar, Enfusion's Chief Operating Officer. Please note that our quarterly shareholder letter, which includes our quarterly financial results, has been posted to our Investor Relations website. I would like to remind you that today's call may contain forward-looking statements. Such forward-looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the SEC, which are available in the Investor Relations section of our website.
Speaker Change: Good morning, and thank you operator, we welcome you to infusion second quarter 2024 earnings conference call hosting todays call are OLED Marchand infusions, Chief Executive Officer, Brad Herring, Infusions, Chief Financial Officer, and Neil Pawar Infusions, Chief operating officer.
Speaker Change: Please note our quarterly shareholder letter, which includes our quarterly financial results has been posted to our Investor Relations website.
Bill Wright: Actual results may differ materially from any forward-looking statements we make today. These forward-looking statements speak only as of today, and the company does not assume any obligation or intent to update them following today's call, except as required by law. In addition, today's call may include non-GAAP measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures.
Speaker Change: I would 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, which are available in the Investor Relations section of our website actual results may differ materially from any forward looking statements. We make today. These forward looking.
Speaker Change: Statements speak only as of today and the company does not assume any obligation or intent to update them on today's call except as required by law in.
Speaker Change: In addition, todays call may include non-GAAP measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures reconciliation to the nearest GAAP measures can be found in today's quarterly shareholder letter, which is available on the company's website.
Bill Wright: Reconciliation to the nearest GAAP measures can be found in today's quarterly shareholder letter, which is available on the company's website. During the second quarter, we had the pleasure of interacting with many of our investors who attended the William Blair Conference in May and the Morgan Stanley and Jeffries Conferences in June. We're grateful for a terrific turnout and hope that everyone walked away from those engaging discussions with as many insights as we did.
Bill Wright: For those of you who couldn't make it to the William Blair or Morgan Stanley Conferences, a webcast of the conference can be found in the investor relations section of our website. You can also find the full Investor Day presentation from earlier this year in the Investor Relations section of our website. With that, I'd like to turn the call over to Oleg.
Oleg Movchan: Good morning, and thank you for joining us today to discuss our results for the second quarter of 2020. I would like to personally thank all shareholders for their vote of confidence at our annual shareholder meeting on June 12th. It's a great privilege to represent Enfusion as both a board member and a CEO, and I greatly appreciate all your trust and support.
Oleg Movchan: We believe we have the right management team in place with the ability to execute on our long-term strategy. As you know, from our second quarter, 2024 earnings, published earlier this morning, we reported a solid quarter and reiterated our 2024 full year guidance. We also remain on track to deliver on our medium-term guidance, which is to achieve a revenue growth rate of 20 plus percent over the 2025-2027 period. As the company scales over the next several quarters, we plan to invest in our services platform, empowering our clients and enhancing our service delivery model as we move upmarket.
Oleg Movchan: Many of these funds were naturally drawn to Infusion's platform. Hence, 64% of our wins in the second quarter were launches, including four wins from established firms. SGA will utilize Enfusion's OAMS broadly, including Portfolio Workbench for cash flow rebalancing, pre-trade compliance, systematic APIs, as well as newly released cash letter reporting.
Speaker Change: Our wins in the second quarter, where launches included four wins from established firms.
Speaker Change: We continue to expect the launch and conversion mix to balance held more with a higher percentage of conversions in the back half of 2024.
Speaker Change: Q2, HCV increased sequentially from 226000 to $228000 and another firm record representing seven 5% year over year growth.
Speaker Change: Fund launches this quarter was strong resulting in healthy bookings growth on both sequential and annual basis.
Speaker Change: We believe that infusion the remains the go to platform provider of the hedge fund community due to high client satisfaction best in class service and a strong referral base.
Speaker Change: Fund conversions, which have higher seat counts and higher AUM are typical of larger and more complex firms with higher Suvs, our strategies to move up market when a larger asset managers, providing a more stable revenue profile and offering additional product functionality and managed services.
Speaker Change: <unk> targets in larger and more complex firms, we intend to continue to protect our core hedge fund segments of the market as this firms come to us organically translating and lower customer acquisition costs.
Speaker Change: Shifting gears, let me provide you with a few notable client wins across geographies from this quarter.
Speaker Change: In the Americas revenue grew 15% year over year in line with Q2 2023.
Speaker Change: Pension that APAC this quarter I am pleased to share another milestone for infusion we want our first client in use eland, the global equity investment management firm with close to $1 billion under management, which evaluated an infusion for almost two years and.
Speaker Change: And after a very thorough due diligence process decided to onboard infusion and stop using one of our largest competitors.
Speaker Change: This win is a reflection of our continued effort to expand our APAC book of business and make it less reliant on Hong Kong in light of the macro headwinds referenced earlier this year.
Speaker Change: I'm also happy to note that several recent wins in APAC have allowed us to further diversify and improve our client base is two thirds of the wins in APAC in Q2 2024 were outside of the hedge fund segment.
Speaker Change: We diversified our overall portfolio mix in APAC significantly over the past several quarters.
Speaker Change: While alternative asset managers represented 81% of our APAC portfolio at year end 2023.
Speaker Change: This now accounts for only 45% of our client base at the end of Q2 2024.
Oleg Movchan: The beauty of the Enfusion Cash Ladder is that it is fully integrated into our front to back platform and synthesizes on hand cash balances, the impact of unsettled trades, upcoming corporate actions, and asset servicing.
Speaker Change: To be an attractive destination for world class talents. We have recently added two experienced hires to our team Chris store hung and Daniel gas sell Chris.
Speaker Change: Chris joins us as our Chief product Officer, having most recently worked at Axioma Sim Corp, and previously worked at Barclays Bloomberg and Blackrock.
Speaker Change: Daniel joined as our head of transformation also from Blackrock.
Speaker Change: I'd now like to hand, it back to OLED to discuss market dynamics and strategy.
Speaker Change: Thank you Neil and for market dynamics, the strong launch market continued into Q2 'twenty to 'twenty four and investors maintain their support of the current hedge fund allocations.
OLED: Such we saw healthy demand for both launches M conversions in the segment.
Speaker Change: On the other hand, our geographical expansion in EMEA, the new win in New Zealand as well as multiple wins in the insurance and banking segments reflect the ongoing interest from large institutional and traditional players to decrease the total cost of ownership and upgrade for the last time their current platform.
Speaker Change: China and Hong Kong markets continued to show capital outflows. However, infusion continues to take market share there exceeding industry growth.
Oleg Movchan: Convergence War Lore makes this quarter, as this accounts for much larger ACVs and the opportunity to compete is more staggered based upon the timing of contract renewal.
Neal Pawar: I would point listeners to the Investor Day materials that are posted on our IR website. Adjusted EBITDA for the quarter was $10.1 million, up 27% compared to the same quarter last year.
Speaker Change: Account produces an adjusted EPS of <unk> <unk> per share.
Speaker Change: We ended the quarter with approximately $34 million in cash and cash equivalents with no outstanding debt.
Speaker Change: Our cash balance combined with $100 million of capacity on our revolver gives us adequate liquidity to support both our organic and inorganic growth objectives that we discussed at our Investor day in March.
Speaker Change: Moving onto guidance I want to open up the discussion with a bit of context our.
Speaker Change: I will summarize the first half of 2024 as follows.
Speaker Change: We presented a number of proof points to underscore our strength in onboarding, new logos, whether that be via conversions of competitive platforms or new launches.
Speaker Change: As we talked about in Investor day, the long term benefit from these new front book on boardings will continue to provide the lion's share of our growth in the future.
Speaker Change: However, the current market backdrop introduces volatility and our back book is our existing customers look to manage costs by either slowing down incremental spend we're managing seat in connection counts.
Speaker Change: We remain optimistic of the growth capabilities of our back book noticeably because the growth generated from that segment has improved five full percentage points from its lows of last year.
Speaker Change: Recovery to more normal levels and our back book metrics would generate an additional 2% to four percentage points of growth contribution.
Speaker Change: Given the current levels of market volatility, it's simply too early to make the call just when that recovery will materialize.
Speaker Change: Trans with.
Speaker Change: Consultants advisors third party integrators that are often.
Speaker Change: Not only get them engaged by clients to onboard.
Speaker Change: Our system client chooses but they also play a key role.
Speaker Change: Selection of those systems and so it's very important to us to have these relationships deepen so that the consultants understand infusion story and just to step back for a second in the broader context.
Speaker Change: Especially for large complex investment organizations business Digitization is a big big theme and at the end of the day people talk about the I and all of those things and so.
Speaker Change: Fundamental to that exercise is Kevin.
Speaker Change: Data clean all in one place and.
Speaker Change: There is literally no. Other software platform, then infusion to that actually has that and therefore this people of this organization as we kind of see the final destination for business Digitization and therefore infused we feel infusion will become a system of choice.
Speaker Change: When we start converting clients from larger to smaller synthesis, where those are.
Speaker Change: Consultant relationships will be key for us to succeed.
Speaker Change: Alright, great. Thanks for the color there and then one more quick one if I can.
Speaker Change: And we see strong growth in the EMEA region. So I guess from a capital allocation perspective, what investments are you guys, making to really scale those teams out there and continue capitalizing on the growth opportunities.
Speaker Change: Yeah, Great question. So we've been we've been adding to our teams in Europe.
Speaker Change: Most recently also in our product management area, where we're bringing more specialized product managers and our Oems and compliance space, because obviously recognizing that Europe isn't one country and there's actually a.
Speaker Change: A large number of very different countries with different accounting rules and regulatory rules, we have to make sure that we have.
Speaker Change: The right the right talent on the ground to be able to ensure that our product is.
Speaker Change: As a fit for all of those different geographies and b to be able to interact with our clients and help them during onboarding and during evaluation of the platform to make sure that they can see how those functionalities work and live within the infusion ecosystem. So it's a great question, it's a super important focus for us.
Speaker Change: Yes.
Speaker Change: Your next question comes from the line of Gabriella barges of Goldman Sachs. Your line is open.
Unidentified Analyst: Hi, good morning. Thanks for taking the time to answer the question. I thought for Oleg, Neal, or Brad, talk to us a little bit about the cross-sell motion that's happening in the back book. Are there company-specific products that you're excited to be able to get into the hands of customers that will help ramp that number? How much of this is macro pressure tied to seat count expansion? Just a little bit of color on how much of that is within your control versus how much of it is you waiting for customers to feel better about the underlying environment?
Gabriella barges: Hi, good morning, Thanks for taking my question.
Speaker Change: Okay.
Brad: Hello, Brad talk to us a little bit about the.
Speaker Change: Cross sell motion, what's happening in the back book.
Speaker Change: Their company specific products that you are excited to be able to get into the hands of customers that will help ramp that number how much of this is macro question is tied to seat count expansion, just a little bit of color on how much of that is within your control versus how much of it is you're waiting for customers to feel better about the on the line of Brian.
Speaker Change: Hi, Jeff This is Neil.
Neil: First in terms of the <unk>.
Speaker Change: In terms of the up sell and some of the elements that contribute to that we're putting a lot of efforts in our partnerships.
Neil: We're doing a number of different partnerships with companies ranging from compliance reporting transaction cost analysis other areas, where we can basically connect our clients data directly to those partner systems, such that the experience for our clients becomes close to seamless.
Speaker Change: Hey.
Speaker Change: Sign the contract and agree that they want to use a particular third party serviced through infusions partnership then all they have to do is let US know and then we can flow their data through and they can start to receive the benefits. So this is an area that we've been putting a lot more emphasis on the blades and.
Speaker Change: We will absolutely start to yield dividends for us.
Speaker Change: Gabriel I'll add to that so Neil kind of mentioned kind of the product component, but there certainly is a macro component.
Gabriel: That affects the back book when you look at how our customers add and subtract seats or add and subtract connections. There certainly is a pattern with what's going on in the macro environment that we watch very closely.
Gabriel: We saw that play out last year, we talked about it pretty extensively we don't see a lot of those changes coming through in large lumps.
Gabriel: 10, or 20% as a subtraction, we see a lot of Onesies and Twosies. So what we're watching very closely especially given some of the volatility that's going on now we'll be watching that real close over the next probably 30 to 60 days just to see how our customers react to some of this market volatility, let's see what that's going to mean on the back book and I'll just chime in with one more perspective.
Neal Pawar: You know, how the overall business has performed. I don't want to, you know, lose track of just how well that front book is performing. You know, we talked last year, if you remember, we said, look, as the macro environment gets challenged, the front book has a lot of tailwind. It just takes a little while for that tailwind to materialize. We are starting to see that now.
Bradley Herring: When you look at the back half of the year, you know, the unfortunate side of a difficult macro could be, as it was last year, where the macro takes a little bit more of a hit in the near term versus the longer-term effect on the positive side that the front book sees. So, when we sat down and looked at our guide for the year, you know, given some of the uncertainty that's played out, especially over the last, you know, call it a week, we felt it was prudent not to kind of call the winning game here at halftime.
Bradley Herring: So, we wanted to let a little bit more time pass to see what that back book looks like. You know, we'll certainly come back and revisit this in the third quarter. But given that level of uncertainty, we just felt it was prudent just to leave that guide with the range that we put out there to start the year with. We feel confident with that range. There's still some, you know, variability, obviously, with that back book component as to where we're going to land in that range, but we wanted to make sure we at least reconfirmed the range that we put out there at the beginning of the year.
Unidentified Analyst: Kind of a follow-up to the demand question, and so, as we're heading into a period of what seems like more volatility, specifically around a potential interest rate regime change, how do you guys think this could affect demand? I mean, should demand stay consistent with what we've been seeing over the past several years with everything going on? You know, Enfusion has been around for a long time, and we have lived through it. Many interests have seen the same changes in the past, and so I just wanted to get some additional color here on how we should be thinking about the demand environment.
Oleg Movchan: It will impact our upmarket motion. In fact, I actually have a high level of conviction that it will only accentuate what we've seen recently, which is continued re-evaluation of old database architectures, of the old managed services paradigm, and of course, obsolete software solutions that are just very costly and bulky. In fact, this environment precludes people from pivoting very quickly and choosing their investment stance to create a better risk management framework and deliver better risk-adjusted returns to the investors. So technically, I don't know in the long term, but I have a high level of confidence that this business is a very robust and low beta business.
Speaker Change: Precludes people from pivoting very quickly and choose their investment stance.
Speaker Change: To create better risk management framework and deliver better risk adjusted returns to the investors. So technically I don't know over the long term I have high level of confidence that this business is very robust and low beta business.
Speaker Change: Got it thank you.
Speaker Change: Maybe a follow up question for Brad.
Brad: I look at the NRA or 103% it is up sequentially and up year over year.
Speaker Change: How to think about the most attractive levers over the next 12 months to drive this metric higher and then also I know that a component of NR is onboarding from the back book. So any way you can quantify how much onboarding from the back book has contributed to the NR over 100.
Speaker Change: Thank you very much.
Unidentified: Yeah, sure. So some of the time...
Speaker Change: Yeah sure. So some of it some of the nuances that will help accelerate that number.
Speaker Change: Neil mentioned some of those cross sell opportunities we are looking at well while a lot of product is focused on generating front book Onboarding is there are some product capabilities that are in the pipeline.
Speaker Change: It will generate some cross sell Theres also some penetration rates were working on if you think about Oems managed services and modules like analytics. All of those are cross sell opportunities that will drive <unk> up on that existing customer base.
Speaker Change: Theres also some revisiting of some pricing discussions that we have internally that will be another positive impact one of the larger impact is still going to be how we think about our customers growing underneath us. If you go back to Investor Day. If you remember we talk about growing our customer base kind of horizontally and vertically I've mentioned the <unk>.
Speaker Change: The vertical part across Oems or managed services, but theres still a vertical component, where we pick up additional.
Speaker Change: Funds from customers, where we may not have a full share of wallet. So those are going to be the big the biggest drivers that are going to continue to expand that and Dr. I wanted to mentioned et.
Speaker Change: You said it in my remarks, we will get some pickup of that in Dr win that see us UBS impact rolls off so we'll get a little bit of impact there, but the other the majority of the impact is going to come from those.
Speaker Change: Things I just walked through.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: Your next question comes from the line of Aleksey Kovalev of Jpmorgan. Your line is open.
Aleksey Kovalev: Thank you.
Aleksey Kovalev: Hi, Brad.
Speaker Change: Ill come.
Speaker Change: Come back they come back to your.
Speaker Change: 2020 for backhaul guidance please.
Speaker Change: So you mentioned improvement in churn levels, where you thought it would be.
Speaker Change: So is it fair to assume that you're still looking at 4% to 5%.
Speaker Change: Tobacco churn this year.
Speaker Change: Yes churn churn is going to fall in the I would call it more like a 3% to 5% range, but yes, it's still in the low to mid single digits.
Speaker Change: For churn specifically.
Speaker Change: Perfect and then on organic.
Unidentified Analyst: Factbook growth. Is your assumption still around 7 to 10 percent?
Speaker Change: Book growth.
Speaker Change: Your assumption still around 10% to 10%. Despite everything you just said.
Speaker Change: They are now on the call.
Speaker Change: That's the number we're watching that's still what we're targeting but it'll be interesting to see how the back half of the year plays out. We were we were good in first quarter, we actually fell right in line with where we expected in first quarter and quarter as I mentioned on the overall back book performance. The week component was that net organic growth piece.
Speaker Change: So we're watching that closely just to see how that plays out in the back half of the year.
Speaker Change: And what.
Speaker Change: Specifically.
Aleksey Kovalev: Drove that.
Speaker Change: Thank you weaker dynamic thank you.
Speaker Change: Any geography that is underperforming.
Alexia: No. It's a good question Alexia, we spent a lot of time peeling it back and there were there's really no patterns into how.
Aleksey Kovalev: The slowdown in that upsell component played out it was mostly just one seat here to seat their one connection here two connections. There was no. It was no one concentration of a large group of clients. It was no concentrations across geographies or types of clients.
Aleksey Kovalev: It was really just a small sliver coming off across the book in general. So so it's a good question and when we Peel that back there really was no pattern, which is why we're watching it closely in the back half.
Speaker Change: Okay. So just to reiterate timing of NRI getting to 106, one could theoretically be delayed into 2020.
Aleksey Kovalev: But no change in Europe, the midpoint of the guidance for the back of four 4%.
Speaker Change: That's correct.
Speaker Change: Okay perfect. Thank you Brian.
Speaker Change: Okay.
Operator: Your next question comes from the line of Parker Lane from Stiefel. Your line is open.
Speaker Change: Your next question comes from the line of Parker Lane of Stifel. Your line is open.
Speaker Change: Hi, This is Matthew on for Parker, Thanks for taking my questions.
Matthew: To start the guidance noticed this time for accelerated even though margin expansion in the second half are there any specific efficiency projects that you would expect to start bearing fruit in the next few quarters.
Speaker Change: Are you expecting.
Speaker Change: Spread out or is there any specific areas, where that acceleration is going to come from.
Speaker Change: It's generally spread out, but but to call out one area in particular, we've been doing a lot of work in.
Speaker Change: What we're calling sort of self service and that is where there's a number of types of activities that today, our clients perform through our managed service and our client support staff and.
Matthew: Especially as we move into the larger institutional segments. That's much more of an expectation that clients can manage those activities themselves and so theres been an increased demand for the ability to have self service tools to do that obviously while.
Matthew: Also satisfying clients demand for that we are making ourselves more efficient because we are taking a number of activities that normally we would perform in some cases.
Speaker Change: On page.
Matthew: And we're shifting that back to the clients at their request because they want to have greater control and integration into their systems. So that's a good concrete example of where we see some of that efficiencies, but there are obviously other examples more broadly across the platform as well yes.
Neil: Neil just mentioned is a.
Neil: This is an effort that's going to mostly manifests itself in gross margins. But then we've also got some really good scale benefits flowing through over some of our G&A functions as well. So it's really going to show up in both places, but youre exactly right. We do expect margins to continue to expand.
Speaker Change: Okay. That's good to hear and very helpful. And then secondly noticed the new fund launches increasing from 55% to 64% quarter.
Speaker Change: And in fact, you expect traditional fund migrations during the second half.
Speaker Change: We'll expect that percentage to trend down moving forward.
Speaker Change: Matthew what do you mean by migrations.
Neil: Yes.
Matthew: Shareholder letter you mentioned, the new fund launches just was 64% in the quarter.
Matthew: I think last quarter, you had mentioned.
Matthew: That number would be expected to trend down just given the funds.
Speaker Change: Funds are migrated platforms that are launching.
Speaker Change: Yes, that's right so.
Speaker Change: We see a lot of these launches that are.
Speaker Change: Co launches in disguise, where existing investment organization.
Steve: <unk> is launching a new product, but in some sense Steve.
Speaker Change: Conversion why because they use something other than infusion to operate other investment vehicles and now as they add new product they make a decision.
Speaker Change: Susan to choose something other than what they currently have in house and.
Speaker Change: We think that this is the launch more of a.
Speaker Change: Two our conversion category as opposed to.
Speaker Change: Launch category.
Speaker Change: We don't expect number one we don't expect this hedge fund bush environment to persist forever right. That's a cyclical thing and number two again naturally as well.
Speaker Change: Migrate up market.
Neil: Larger clients.
Neil: Be more conversion southern on launches and typically they already have existing infrastructure.
Speaker Change: Just to add to that real quick if you look at the count number you're right. It's like a 65 35 number if you look at it on an IRR basis, it's much more skewed towards conversion just because we're always mentioned the size of those clients is significantly bigger.
Speaker Change: Okay that makes sense. Thank you very much.
Speaker Change: With no further questions. This concludes our Q&A session I will now turn the conference back over to CEO OLED mass Chen for closing remarks.
Speaker Change: Well, thanks to all of you for great thoughtful questions and of course, it gets gratitude for our shareholders for supporting us with partnering with us and for sharing our vision that.
Speaker Change: Infusion disruptive platform and disruptive company.
Neil: We have <unk>.
Neil: <unk>, our commitment to work really hard on.
Neil: Shareholders' behalf to deliver value.
Speaker Change: This concludes today's conference call you may now disconnect.
Neil: Please wait the conference will begin shortly.
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