Enfusion, Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Infusion's third quarter 2024 earnings conference call. At this time, all lines have been placed on mute to prevent any background noise. Following the speaker's remarks, we will open the floor for questions. As a reminder, this conference call is being recorded. I'd now like to turn the call over to Bill Wright, head of investor relations, to begin.

Good morning, and thank you, operator. We welcome you to Infusion's third quarter 2024 earnings conference call. Hosting today's call are Oleg Novchin, Infusion's Chief Executive Officer, Brad Herring, Infusion's Chief Financial Officer, and Neil Pilar, Infusion's Chief Operating Officer. Please note, 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. 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 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. Reconciliation to the nearest GAAP measures can be found in today's quarterly shareholder letter, which is available on the company's website. And now, I would like to turn the call over to Oleg to begin.

Good morning, and thank you for joining us today to discuss our results for the third quarter of 2024. This quarter was about execution of our long-term strategy. We're pleased to see that our initiatives over the past several quarters are aligning and starting to add up. Throughout the year, we have been delivering new products that allow us to attract and retain larger upmarket clients in line with our strategy to expand into higher value market segments. We will discuss some of this product developments and subsequent wins or proof points on our call today. As you can see from our third quarter 2024 earnings release published earlier this morning, we reported a strong quarter with 15% top line growth and narrowed our 2024 full year guidance, which Brad will discuss later. We also remain on track to deliver on our medium term guidance of 20% to 22% revenue growth rate over the 2025-2027 period. Our confidence in achieving our midterm guidance is based on our ability to win new business by broadening our product offering to capture up market opportunities while further expanding our geographic footprint. I believe we can accomplish this because we are already doing it as our investments in platform capabilities result in broad product adoption. We're capturing new business today that was previously out of reach due to our expanded product suite and global reach. Our more than 1,100 employees are constantly striving to deliver the last upgrade our clients will ever need. Now let me walk you through some key financial highlights from the third quarter. We delivered $51.2 million in revenue in Q3 2024, representing 15% year-over-year growth. Third quarter adjusted EBITDA totaled $11.1 million, translating to a healthy adjusted EBITDA margin of 21.8%. Brad will provide a deeper dive on financials later. We signed 38 new clients in Q3 2024, up from the 37 signed in Q3 2023. This brings our total client count to 894, another firm record. The strong U.S. launch market we highlighted in the first half of the year continued into Q3. We captured eight new launches, totaling 31 year-to-date in the Americas, which puts us on track for our best year since 2021, which had 35 new launches. Fund launch wins tend to originate from portfolio managers that have a strong loyalty to Infusion brand from their previous firms. From a customer count standpoint, in Q3, launches represent 53% of new clients versus 47% for conversions. However, from a booking standpoint, Launches represent 38%, while conversions represent 62% of bookings, as conversions are typically much larger accounts. Overall ACV for the firm rose to $229,000 in Q3, which is another firm record, and it represents 5.7% year-over-year growth. Several of our new account wins this quarter are direct results of our expanded product shelf and continued client adoption. As you have heard me say many times, our new product rollout this year, including our Portfolio Workbench tool, has been central to our strategy in expanding our market, leading to larger and more profitable relationships with more stable revenue profiles. The second release of our Portfolio Workbench tool in Q2 included additional enhancements that expanded our serviceable TAM and allowed us to win accounts in the third quarter that were previously out of reach. We're very excited to see this effort materialize. Importantly, as we roll out premium features that enhance our offer in portfolio construction, we expect to see revenue expansion in both the front and back book. Allow me to provide you with a few notable plant wins across geographies from this quarter. In the Americas, revenue grew 17% year over year, up significantly from 10% last year and up from 15% last quarter. The following wins illustrate how the product investment has been unlocking new clients for Infusion. Credit fund formations have remained strong this year, and we continue expanding our market share in this segment. I'm thrilled to announce that Infusion signed Agile Investment Management. Agile Investment Management is a Florida-based institutional asset management fixed income firm with about $650 million in assets under management and assets under administration. The Agile investment process combines top-down and bottom-up analysis with the team's commitment to comprehensive risk management. In identifying opportunities to generate attractive income streams, the Agile team maintains the constant focus on the risk management that has defined InGenesis signature style for almost 40 years. When Agile was appointed sub-advisor to the IA Clarington Core Plus Bond Fund, they needed to ensure that they had a technology partner that was able to drive operational efficiencies across the front office while operating on a modern platform that could scale with them into the future. They chose Infusion. Agile will utilize Infusion's OMS broadly, including portfolio workbench for cash flow rebalancing, pre-trade compliance, cash ladder reporting, and managed services offering. This is a very exciting win as we continue to grow our momentum in the institutional asset management space. Another notable win-up market this quarter, which I am pleased to share, demonstrates our continued expansion in the institutional asset manager space. Frontier Global Partners is among the latest to partner with Infusion and enhance their investment trading and operations. Frontier's strategies invest not only in frontier markets, but also global, international, and international small cap equity markets. And it was imperative that they partner with a firm that has the security coverage. Frontier was an opportunity we nearly lost two years ago, but we stayed in contact with them periodically. Then recently, unhappy with their existing provider, they came back to us realizing their business needs lined up with infusion build of our portfolio workbench, which allows dynamic portfolio rebalancing workflows coupled with a robust compliance engine. The compliance engine provides transparency into the data, which their legacy provider could not support. This is a very exciting win with a prestigious and well-known asset manager in the institutional asset management space. As we've stated throughout the year, we have made a concerted effort to win more institutional asset management, and I'm pleased with the team's effort, execution, and most importantly, results. Turning towards EMEA, revenue grew 22% year-over-year in Q3 2024, down modestly from the last quarter. as we saw an unusually high amount of involuntary churn at the end of Q2 and beginning of Q3. These closures impacted the growth trajectory for the quarter, but Q3 was also the best quarterly bookings in EMEA in our history. Signing several large new asset managers is a positive leading indicator for future growth. As a reminder, Europe has a diverse mix of financial institutions, and Scandinavia continues to be a growth region for us. We won another account in Norway this quarter with Fearnley Asset Management. This is a newly formed asset management arm of Astrop Fearnley AS and will be trading longshore equity and credit. The Astrop Fearnley Group represents over a century of history, growth, and excellence in the areas of shipping and offshore services. Infusion's presence continues to expand within the Norwegian assets management industry. As mentioned in our Q2 call, we have been focused on the Middle East, and specifically Dubai. As a result of these efforts, I'm happy to share that we closed another account in Dubai. We are pleased to announce that Magellan Capital, a prolific several hundred million dollar multi-strategy launch in Dubai, has selected Infusion to support our complex asset classes and workflow requirements. This win is a further testament that Infusion's success and continued growth precedence in the Middle East. Lastly, with our London space, we're proud to announce that TT International, an alpha-driven specialist investment manager, has selected Infusion as their strategic partner for PMS, OEMS, accounting, and portfolio construction and rebalancing. Following a thorough market evaluation, their decision to replace multiple existing systems with our front-to-back solution underscored their confidence in our platform. The partnership is set to boost operational efficiency, streamline workflows, and enhance straight-through processing. Turning to Asia Pacific, revenue grew 6% year-over-year, moderating from 10% year-over-year growth last quarter. As you may recall, we have highlighted the capital outflows and geopolitical trends in APEC for the past few quarters, and given those macro headwinds, we're pleased with these results. We continue to sustain healthy growth through the market share gains among traditional and hybrid asset managers as we weather the macro conditions that are impacting the hedge fund market. The following client win is a good representation of how we continue to diversify our business. GuoSan is among the latest institutional asset managers to partner with Infusion and enhance their investment management operations. GuoSan is a Chinese financial services company with services from sell side, sales and trading, research, investment banking, to buy side, asset management and private equity investments. Infusion was selected as the primary technology and services provider to help them grow and scale their asset management division. The advantage they see from Infusion is our all-in-one design to help seamlessly connect their front office trading and operation teams, and it allows them to replace two of their incumbent systems including their order management system and accounting system, which will optimize their total cost of ownership. Another key win this quarter and proof point demonstrating our continued market leadership position in Hong Kong was a $500 million AUM loan short equity manager with offices in China and Hong Kong. It is among the latest investment managers to partner with Infusion to enhance their investment operations. Infusion has been selected as the primary technology and services provider to help them grow and scale their investment business. They chose Infusion due to the functionality of our EMS feature within the mobile app and also pre-trade compliance checks, helping ensure they're always trading within their compliance and regulation. At this time, I'd like to have Neil Pawar, our COO, to make a few comments on product and services.

Thank you, Oleg. This month marks my first full year at Infusion. Over the past year, a major area of focus for us has been to add capacity to our product and engineering teams so that we can increase the velocity of adding new capabilities for our clients. This is key so that we have more tools to unlock new client opportunities, helping our front book, as well as capabilities to offer our existing clients, helping grow our back book. This past quarter, we have added several product enhancements for the portfolio workbench, including most recently native rebalancing of fixed income portfolios. A great advantage of our weekly release cadence is that we are routinely pushing out new features to clients, something that is extremely helpful, especially when developing a new product like the portfolio workbench. We can also report a strong rate of mobile adoption for the workbench, which is a good reminder that portfolio managers are increasingly looking for ways to manage their portfolios while they're on the road. As you heard from Oleg, the workbench continues to play a part in Infusion landing several new asset management clients this quarter, for whom some of the workbench capabilities were table stakes. The addition of these customers is a nice proof point of how the workbench is helping us grow our front book and it's expanding our serviceable TAM. We have also delivered the first in a series of upgrades to our managed service offering. As we've mentioned previously, our managed services provides our clients a dedicated team that operates as an extension of the client's organization, providing accounting and operational support for the client's shadow accounts. This quarter, we beta released a highly visual and intuitive set of dashboards for managed service clients to better track and measure their team's work product. This release went out to a subset of our managed service clients and is the first significant technical enhancement we've made to this service since it was first launched. It is by no means the last We are adding a number of new features to our managed service platform in the coming months. We are very focused on improving both the client and operations user experience, while also increasing productivity and hence margins for the managed service business. These enhancements will also give us new product capabilities for us to upsell to clients who do not leverage our managed services today. We have also released a complete reboot to our online documentation, a system we call Violet. We have over 75 clients in the beta release of Violet, and the feedback loop this has generated is helping prioritize what we will cover next. Having all of our documentation in Violet has given us the opportunity to leverage AI so clients and employees can ask questions through the search and get answers along with links to source documents, to solve the problems. Violet is broadly regarded as a huge upgrade over our previous documentation, and we will be closing the beta and rolling it out to all clients in Q4. Over the past year, you've also heard about some of the talent we've brought into the firm. We have added several senior hires to the product team, investing in key areas, including compliance, OEMS, data, user experience, and analytics. Of course, product works in lockstep with our engineering team, where we've also been investing more capacity. We recently announced the appointment of Arman Artuk to head of engineering. Arman will oversee the continued scaling of our engineering teams as they work on delivering our product roadmap. Arman comes to us from Instanet, where he served as managing director, global head of liquidity technologies, leading the development of low latency algorithmic trading systems. Arman's arrival is at the perfect time, as we have grown our engineering organization by 40 people year to date. Overall, we are pleased with the new velocity that we're gaining in our product and engineering throughput. And as you can see, we're putting it to good use. We remain committed to continuing to enhance our platform so we can provide our clients with the last upgrade they will ever need. And with that, let me turn it back over to Oleg.

Thank you, Neil. As for market dynamics, the strong US launch market has continued, and we're on track to have our highest US launch win count since 2021. As you may expect, the Americas is our largest region, and generated a 200 basis point sequential improvement, which we see as a big contributor. I'm excited to share that our EMEA sales team recorded its highest ever new client quarterly bookings in the third quarter, with an average deal size in EMEA at two times the average deal size from as recently as the first quarter of 2023. Looking beyond our core markets of the US, UK, and Hong Kong, we continue to generate healthy geographic expansion. In particular, 32% of our new clients added in the third quarter came from outside of the score markets, well above our previous average of 19% since Q1 2021. From a product standpoint, we saw 84% of new clients choosing to include our OEMs, the highest quarterly average since Q4 2021. and well above our historic average of 75%. Hence, new accounts are growing in size on the front office side, which improves unit economics and quality and growth of the front book. As our growth momentum in the Middle East continues to be strong, as reflected in our recent wins, we have been evaluating an expansion of our corporate footprint in Dubai. We view the region as strategically important for Infusion. as we follow the flows of talent and capital. Additionally, our team continues to work on designing our product roadmap to capture the private credit time segment. We view credit instrument data as the main pain point for the market participants and will build our new product roadmap in private markets around an integrated data strategy and related workflows. In conclusion, everything we have been doing the past several quarters is aligning and adding up. As you just heard from Neil, we're executing on our product roadmap an upmarket strategy, which we laid out at our investor day early this year. Our successful execution is reflected by increased ACVs, revenue growth, and expansion of our footprint in the institutional market segment as evidenced by our marquee client wins. The products we've rolled out in 2024 have been well received by existing clients and have positioned our sales team to bring in new upmarket clients. The key new multi-billion dollar clients we've won this quarter, such as TT International, were previously out of reach and now serve as proof points of Infusion product adoption and hence our growth in the institutional asset management segment. And now I will turn the call over to Brad to discuss our financials.

Thanks, Oleg, and thank you everyone for joining us this morning. For the third quarter, we generated revenue of $51.2 million, an increase of 15% over the same quarter last year. Referring to the same descriptors we used in our discussions at Investor Day and on previous calls, our 15% growth for the quarter consisted of 14% from the front book and 1% from the back book. Our front book continues to show strength as our value proposition continues to resonate across our growing TAM segments. Specifically, our year-to-date bookings are running 16% over where they were the same time last year and continue to represent a good mix of new launches and conversions off of our competitors. Additionally, we continue to see our product initiatives, such as Portfolio Workbench, bearing fruit and allowing us to win accounts that previously passed on Infusion as a provider. The back book contributed 1% growth in Q3 on a year-over-year basis. Moderation in the back book is coming from two primary sources. First, in Asia, we are seeing a lower net between upsells and downgrades, which we refer to as our net organic growth, which shouldn't be a surprise given the recent geopolitical headwinds. We are also seeing general solvency and organic growth amongst our domestic hedge fund clients. The feedback we have heard is that our clients have put extra scrutiny on their OPEX spend ahead of the uncertainty with the upcoming election. Despite recent slowdowns, we continue to expect that back book growth will contribute 3% to 5% of our overall growth going forward, just as I communicated at our investor day earlier this year. Going forward, we believe this temporary softness in our back book will be more than offset by the upcoming product deployments Neal spoke of, as well as accelerated pricing actions across our customer base. Third quarter ARR was $202.7 million, up 14% year over year. and 4% higher than what we reported in Q2. We're proud to say that this represents the first time our ARR has crossed the $200 million mark. Our NDR for the quarter was 102%, which is down one percentage point from the previous quarter. Consistent with the discussion on revenues for the quarter, NDR was negatively impacted by the lower growth from the back book, as well as by consolidation of two large broker-dealer customers which reduced our NDR by approximately 60 basis points in the quarter. As a reminder, that impact will roll off in Q4 of this year. Our adjusted gross profit increased by 17% year-over-year to $35.2 million. This represents an adjusted gross margin in the quarter of 68.8%, which is up 79 basis points over Q3 of last year and represents the third quarter of sequential expansion in adjusted gross margins. We are pleased by this performance, which is in line with our expectations, given the investments we made in early 2023 in client services. Adjusted EBITDA for the quarter was $11.1 million, up 36% compared to the same quarter last year. This represents an adjusted EBITDA margin of 21.8%, which is up over 320 basis points from the same period a year ago. The improvement over Q3 of last year was due to continued scale from our SG&A functions and lower corporate costs. Adjusted free cash flow for the quarter was $13.7 million for a free cash flow conversion in the quarter of 123%. This pattern of over 100% conversion in the quarter is consistent with Q3 results over the past few years and is driven by normal cyclicality of our net working capital. For the trailing four quarters, our adjusted free cash flow conversion was at 53%. Gap net income for the quarter was $2.0 million which on an average share count of 129 million shares results in a GAAP EPS of 2 cents per share. Adjusted net income of 5.9 million on the same share count produces an adjusted EPS of 5 cents per share. We ended the quarter with approximately $48 million in cash and cash equivalents with no outstanding debt. Our cash balance combined with 100 million of capacity on our revolver, continues to give us adequate liquidity to support both our organic and inorganic growth objectives that we discussed at our investor day in March. Moving on to guidance, I want to take a minute to summarize year-to-date performance and tighten up our estimates for the full year. I mentioned for the last two quarters a few important trends that highlight our current year revenue performance. So to summarize, new client wins continue to drive strong growth while our back-book growth is temporarily moderated. I've mentioned in previous calls that while new customer signings in the front book take several quarters to convert into book revenue, the moderation and back book trends have more near-term impact. With that context and given visibility into Q4, we are tightening our full-year revenue guidance to a range of $202 to $205 million. Our trends in profitability continue to improve due to disciplined cost management and investment decisions. We're therefore tightening our EBITDA guidance to land between $41 and $45 million. At the midpoint, this represents an EBITDA margin of 21.1%, which is consistent with our original full-year guide. With regard to free cash flow conversion, we are reiterating our original guidance range of 50% to 55%. We're not tightening this range, given the variability we typically see in cash inflows and outflows at year end. For modeling purposes, we continue to expect stock-based compensation 2024 to land between $19 and $20 million. We'd now like to open up the call to questions. Operator, please go ahead.

Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you're called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset to ensure that your phone is not on mute when asking a question. Just a moment for your first question. Your first question comes from the line of Michael and Fontaine of Morgan Stanley. Your line is open.

Hey, guys. Thanks for taking my question. I just wanted to first start with the exploration of strategic alternatives. It's clear the business isn't being valued like a high-teens grower with really strong margin expansion. So, Oleg, it would be great to get your thoughts just on the state of the business today and how you think about some of the boundary conditions that might dictate your decision on whether or not the business stays public or private. Thanks.

Thanks, Michael. To start, as a matter of policy, we don't comment on the rumors. As I've been saying all along, and this remains to be true today, the management team and the board are focused on creating shareholder value long term, and that's what we're focused on.

Understood. Two-part question on 25 here to the extent I can. Obviously, you alluded to confidence in the release and the midterm outlook. But maybe just given some of the back book trends, I know, Brad, you mentioned confidence in being able to recover to that 3% to 5% range. But to the extent that we don't get back there, how do you think about the combination of some of the accelerated pricing actions and the new product developments you alluded to to deliver on the medium-term outlook for next year specifically? And even if we don't deliver on that two-handle for next year, and it's something like high teens, the incremental margins for this year at 39%, even if you hold those assumptions steady for next year, it seems like you should still be able to deliver on outperformance in terms of rule of 40 for next year. Is that generally fair, or what nuance would you add to that? Thanks.

Hey, Michael, it's Brad. Thanks for the question. A couple parts. So one, when you think about 2025, you know, one of the things that I mentioned was that gives us the confidence. We've got so many more levers to pull when we go into 2025. I want to pause just for a second to make sure everybody can understand the impact of some of the hires that Neil has made on his team, whether it's the product team, whether it's the transformation team, whether it's new heads of managed services, new heads of engineering. We've got a very different a very different team on the field going into 2025 than we had starting in 2024. So that gives us a lot of confidence of knowing that we've got opportunities to get product in the market. We've got opportunities to explore the pricing opportunities I mentioned. There's also a dynamic around when you go up market, we've got much more white space in our customers. So that gives us a much more bigger TAM to work with internally on our back book. at the end of the day, we've got a number of levers to pull going into 2025 that, candidly, we didn't have going into 2024. So I think more levers to pull, you know, gives us much more confidence going in, in terms of back book performance for 2025. Going into your question around profitability, I agree 100%. You know, we've always focused on our pass-through rates. You know, we've always focused on allowing, you know, a fair amount of our incremental revenue to flow through into margins. So we still stand by, you know, picking up you know, those couple hundred basis points of margin improvement into 2025, just based on that, you know, continued philosophy that we all use internally.

Your next question comes from the line of Dylan Becker of William Blair. Your line is open.

Hey, gentlemen. I appreciate the question. Maybe sticking on that thread from Brad, but posing it for Oleg or Neil, kind of with that recent slew of new key hires, how do you think about kind of the evolution of the executive team And maybe the importance in the background that each of those have kind of doing this at scale as you think about kind of incremental confidence and your push up marketing kind of the economic shift of the model here.

Yep. So let me cover the high level executive hires. And, you know, Neil may comment more on a deeper level of the organization. One big thing. issue that I highlighted is that as we are thinking about expanding into institutional asset management market, we'll have to think through our brand design and brand positioning and corresponding go-to-market strategy. And so looking for senior hires on marketing side is one of the top priorities. The same goes for some elements of the product revenue organization, basically aligning the firm to be able to capture that opportunity set as well as possible.

Yeah, and with a lot of the new hires, senior hires who've come in over the past year, we're seeing the ability now for us to make a good investment in improvements to our managed services, continuing to build out our workbench, and And also continuing to build out our marketplace where we offer, you know, partnerships to companies that have capabilities that are of interest to our clients that we can sell to them through a revenue share with Infusion. So we're opening the shelves of, you know, the product organization so that we have a lot more product on the shelf to sell to our existing clients. And we expect that to have a positive uplift on the back book as we look into 2025. Okay, great.

And then you guys did call out as well, too, again, being included in more RFPs as this trend up market continues. Wondering, and you called out kind of the bookings momentum, too, but if you could give us kind of a general sense of this kind of pipeline trajectory there, how you're seeing the conversion trends as well, too, so being included in those conversations, understanding they're naturally a bit more elongated sales cycles by nature, but how you think about kind of the evolution of the conversion trends there as well as the platform continues to mature and the value proposition continues to compound. Thank you.

Yeah, we're seeing roughly around, you know, 30%, 40% conversion for qualified opportunities in the upmarket space. And in particular, what's been very helpful there in terms of opening up those opportunities has been the workbench. And I think as Oleg highlighted earlier in the call, specific functionality in the workbench has unlocked opportunities individual client opportunities. And bear in mind, some of these are features that have only been released in the last few months. And so one of the great advantages, again, and I know I often say this, but one of the great advantages of having that regular cadence of being able to push out new features weekly is that you will not see the growth in these areas as a step change. You're going to see numerous incremental proof points that show that we're executing on the strategy and able to win those clients that perhaps we wouldn't have been able to win two or three years ago.

And just one layer on top of this, you know, this is not just about conversions and move up market, you know, the product design and strategy that Neil's team is executing on also lays the foundation for eventual premium products and price increases. So actually create value

uh for the firm that way as opposed to simply using it as a mechanism to unlock a new market segment certainly okay thanks guys appreciate it of course your next question comes from line of parker lane of stifle your line is open yeah hi guys thanks for taking the question this morning um neil you talked about a series of upgrades in the managed services uh piece i think that's the first stuff you've done since it was launched Is that in response to feedback you're getting out there from clients, or is that more about going on offense and identifying opportunities to do more and potentially extract some additional revenue from that?

That's a great question. It's a combination of both. We've been talking to all of our managed service clients and getting feedback on what they want to see more of. And in general, we've heard from them that they want more visual and more interactive ways of working with the team that's an extension of their own team. And so a lot of the tech upgrades that are coming out are very much in response to that. But at the same time, you know, and we talked about this a little bit in the Investor Day earlier this year, we also acknowledge that the way we built the managed service business still has some elements that are more manual than, frankly, we would like. And so we've been investing over the past year in improving the tooling. So not only the client experience improves, but also the our employees that work on it, their experience improves, and most importantly, their productivity improves, which also means that we'll be able to get much better margins out of that business as well. Got it.

And one quick follow-up for Brad. Looking at the HCV distribution by the size of client you have here, you've had a really solid trend towards those 500K cohort customers. Should we think about that trend line just continuing here? Should there be any reasons for that to moderate based on the lead distribution you have and what's in the pipeline today?

No, Parker. In fact, that's, you know, it's a slide we're trying to get people to focus on. I think it's, we certainly expect those trends to continue. And I think, you know, one of the big points we want to make sure, you know, people leave, you know, this call and reading that page, you know, takeaway is that this is not a new trend, right? This has been going on for some time and we expect that trend to continue. Got it. Thank you.

Your next question comes from the line of Kevin McVey of UBS. Your line is open.

Great. Thanks. Hey, is there any way to think about, like, how many modules you're bringing to market today, I guess, as opposed to maybe at the time of IPO and what that can mean in terms of, you know, all-in, if clients were to use them all, what that would mean as opposed to, maybe at the time of IPO, just to try to dimensionalize that a little bit?

Yeah, sure. So, you know, you rewind three years back and we're basically, you know, our modular, you know, the nature of our product wasn't that modular, right? We have core PMS offering and then, you know, we had an OEMS product on top of it. And that was basically was two ways for us to make money. And then the third one was managed services, right? Today we're setting the foundation for doing more than that. You know, we don't like to kind of express the value that our system delivers as modular. However, you know, clients, you know, get the platform and then they sort of expand the footprint within the platform from PMS. You know, they integrate the accounting module and then accounting capability, and then they expand the presence with OEMS and other things. The path forward, as Neil articulated earlier, is not just about that. It's about building new products and capabilities. So the first foray is the portfolio workbench on that front. But at some point, we will be more aggressive in, number one, creating premium features, including portfolio risk management, optimization, factor attribution, you know, things like that. So everything that happens both pre- and post-investment decision-making. You know, reach your functionality on AMS. It's sort of been a bit more offensive as far as OMS is concerned and actually offering a standalone product. In other things, Neil mentioned a couple of things about marketplace, so we're gearing up on creating a more universal, comprehensive framework so we don't just build our own products and distribute it using our network, but also bring external partners and have this kind of revenue sharing or partnership agreements where we can enrich clients' experience and create value.

In terms of the client hesitancy around the election, was there anything that they pointed to just more recently? Obviously, we've been in an election cycle for a couple of quarters now. Just anything that they were highlighting the concern in terms of switching?

We did not see anything. I had several conversations with clients. I mean, people are positioned, I think, well, you know, as you know, markets are pretty efficient in terms of pricing. And so bearing any, you know, world is sort of falling apart post-election, I think people are just thinking ahead and, you know, what will happen. I will say, you know, the conversations about interest rate environments, you know, just lead to more and more consensus around elevated volatility levels in the marketplace, which is good for

uh all constituents uh including hedge funds so they're just one color i can offer at this point okay thank you your next question comes from the line of alexey gogolov of jp morgan your line is open hi this is elise kenner on for alexey gogolov my first question was can you discuss where you're at in terms of conversations with third-party consultants and system integrators as you move up market

Yeah, absolutely. If you go onto our public social media feed, you'll see we've been actually hosting webinars with a number of the system integrators. So it's an education process where on the one hand, obviously, we need to make sure that the integrators understand you know, infusions capabilities. We're newer to some of them, so we're spending a lot of time with them so that as they manage RFPs on behalf of their clients, they know where to insert an infusion into the process and perhaps where not to. So that's been going really well, and we've been using the opportunity to, you know, talk to their clients through these webinars that we've done with them. And we're starting to see the fruits of that. We've got a few opportunities that they've brought to us and likewise opportunities that we've brought to them. So still in the early innings, but off to a really positive start. And we recognize that this is going to be a super important channel for us as we continue that upmarket move in 2025.

Got it. Thank you. And then for my second question, in 3Q24, there wasn't really much sequential growth of ACV. Could you provide more color on this dynamic as typically you report around 2.5% to 3% sequential ACC growth in a given 3Q?

Yeah, ACV is going to move around a little bit. It's not going to be as linear on a quarterly basis. That's why, you know, if you look at the charts we put out of the earnings material, we go back four quarters. There's going to be some bouncing around. You know, it's a question of, you know, who comes in, who churns, who starts to monetize. Because remember, even a big booking doesn't start and get included in that ACV or ARR calc until they're in the modernization mode. So there'll be a little bouncing around across the quarters. But over four quarter trends, you're still going to see that expansion.

Yeah, and just one more element to that, investments that Neil mentioned that we're making in managed services, the framework that Brett helped us set out in front and back book dynamic, the managed services piece should help us accelerate the front book monetization. So as we get more and larger complex clients, we should be able to onboard them quicker and more efficiently, which should then, of course, translate it into back book and create higher ACVs quicker.

Got it. Thank you.

Your next question comes from the line of Gabriela Borges of Goldman Sachs. Your line is open.

Hi. Good morning. Thanks for taking the question. Either for Neil or for Oleg, I think about the success you've had with portfolio workbench and how much of a needle mover that's been with landing upmarket. Maybe expand that for us a little bit as we think about the cadence of product innovation that you've been talking about for the last 45 minutes. What are the one or two products that we should be looking at or product enhancements that we should be looking at that you think move the needle most with your move up market over the next couple of years?

Yeah, let me, thanks for the question. Let me outline a couple of things. First of all, you know, and we've talked about this a little bit in the past, but to share some more color on it, as we think about the workbench and as you've seen from some of the opportunities that the workbench has helped us unlock, We've still very much been playing catch up in some of that functionality and adding capabilities that some of the clients that we've been winning believe are table stakes. 2025 we see that trend moving more into offense than defense where we start to offer capabilities in the workbench mostly around more complex portfolio construction the user use of capabilities like factor models and optimizers for portfolio construction where we start to charge for those incremental features so that's one example through the lens of the workbench i think Outside of the workbench, other products where we're busy at work, also aside from managed services, which we've already talked about, I would talk a little bit about our analytics and data platform. We're just seeing more and more feedback from clients that they want to run more complex analytics on their own data. Infusion, like most systems, is a transactional-based system, and so we don't encourage clients to run really large, complex analytics. analytics, including the type of analytics you run for artificial intelligence against a transactional data store. And so we are encouraging them to move to use our data warehouse and our analytics product, which is hosted inside of Google's cloud. And obviously there's an additional upsell component with that as well. The last thing I'll say is, you know, the marketplace, while still in its early innings has tremendous potential for us as it allows us to offer our clients a much wider range of complementary products that don't compete with the core Infusion platform but give clients additional capabilities around, for example, treasury and collateral management and margin calculation that they can add on to Infusion with a revenue share to Infusion in the process.

Absolutely. That makes sense. The follow up is for Oleg and Brad. So I'm thinking about some of the leadership changes that you've made over the last year. And then Oleg, I think you just mentioned Brad introducing the front book versus back book dynamics. What I want to ask you is how that's changing some of your planning and some of your forecasting processes for 2025. So would love any commentary that you're willing to provide on how the planning process, how the forecasting process has evolved over the last year or two. And some of the things that maybe you are more focused on now versus in prior planning years. Thank you.

Great question, Gabrielle, because that is certainly a process that changes pretty substantially as a byproduct of all these hires. You know, what it's done is it's opened up much more kind of cross-corporate involvement in our planning processes, we get much more visibility of what we think is happening. And that's both from a front book and a back book perspective, right? I mean, I think, you know, when you think about what we're looking at in terms of pipeline, what we're looking at in terms of closure rates, we've opened up a lot of our Salesforce capabilities. We've got different modules in there that we're utilizing. And then how it translates into you know, much more specific timeframes around product rollout, you know, the sequencing of how that product rollout begins to monetize. You know, it's really strongly a byproduct of a lot of these folks that Neil has brought in, which is why I mentioned them as to a key driver, not only of front book, or I'm sorry, back book, you know, opportunities, but also in terms of just our visibility to customers. see it, our ability to measure it, and our ability to deploy on a much more kind of granular basis. So your point is spot on. We will have better visibility on forecasting. We will have better visibility on product rollout. And we will have better visibility on how we guide the markets accordingly.

And we're just beginning. I mean, you're going to see a much broader universe of talent that comes to Infusion. from our competitors, from buy side, sell side, that bring a lot of mistakes from their past lives, track record, and, you know, just as important a culture, which, you know, we're very, very focused on infusion. So we actually need to, you know, infuse infusion, the past and move forward with people that actually, you know, have experience executing an institutional asset management market and executing at scale. You know, as we add revenue to the business, you know, we need operators that, you know, were in their seats growing the business from $200 million revenue to $300 million, $400 million, $500 million.

That makes sense. Thank you for the detail.

Your next question comes from the line of Koji Akita of Bank of America. Your line is open.

Yeah, good morning. Hey, guys, thanks for taking the questions. I wanted to ask a question on ARR and the fact that when I listen to the prepared remarks, The New Deal commentary sounds really strong. But when I look at ARR, it did decelerate in the quarter to slightly below 13% from slightly above in the last quarter. So maybe you could talk about what are some of the underlying drivers or metrics outside of ARR that's giving you the confidence in the revenue growth acceleration that's embedded in the guide. I heard earlier maybe that 500K ACV metric. Is that one of the key metrics we should be looking at? Thanks.

Yeah, hey, Koji, this is Brad. Yeah, I'll take that. So when you look at ARR, you know, remember it's a snapshot in time. So you're right, we've seen a lot of really strong bookings. You know, we saw some really strong bookings in Q3, for example. But if those bookings haven't started to monetize yet, you know, which may take, you know, 30 to 60 days before the implementation fees will start, that would not be included in ARR yet. So there's a little bit of a timing impact of how some of these bookings kind of manifest themselves in ARR, but they will be in ARR very soon. In fact, we monitor another statistic internally called CAR, which is a contracted ARR, and that's where you can kind of see the difference between those two. So ARR is important, but I think when you look at it over any sequential quarter, you can get a little bit of noise just based on timing. Yeah, when you look at going forward with the guide, I think, you know, I'll reiterate a couple of those points. You know, when you go into next year, there's a couple of things that really give us, you know, conviction about getting back into our, primarily our back book targets in the mid-teens, you know, because that's where kind of our current, you know, our current gap sits. You know, I would be paying close attention to that overall ACB number. I would be paying attention to, you know, a net organic growth number, which we'll be, you know, talking about I'll be paying attention to churn, which is returned largely to historical level, so I feel good about that number. But to grow that number, I think you're looking at penetration and managed services, which we'll be talking about. We're going to be talking about product deployment, you know, and cross-sell within our base. You know, it just boils down to the comment I made a minute ago, which we have so many more tools in the toolbox going into 2025. than we had in 2024, that that puts us in a very offensive position rather than kind of sitting back in more of a defensive position against, you know, seeing what clients do in a macro environment.

Got it, Brad. No, thanks so much for that. And just one follow-up here. When I look at net revenue retention, you know, listen to all the commentary, the Q&A, it does seem to imply that net revenue retention is potentially bottomed here in the third quarter. Just curious and looking at the guidance and kind of the factors of the next several quarters, is that a fair assumption? Or if it is going to contract, you know, what are some of the things that we should be aware of? Thank you so much for taking the questions.

No, great question. I think, you know, I would say with the last couple quarters, we've seen it, you know, 102, 103. We haven't seen it dip below that. So I feel like it's reached a bottom point. We have seen some trends start to improve or at least stabilize. You know, we've seen I've mentioned the upsells have kind of slowed down to some degree. Downgrades have largely stabilized. Churn has largely stabilized to even starting to improve. You know, it's hard to bet going forward, but given what we're seeing today, we certainly don't see it dropping anymore from here. And that's also why, you know, we pay attention a little bit more to that back book component. I'll offer up to this call that, you know, NDR, because of the way our client growth has been so rapid, it actually represents about 80% of our clients. So you get a little bit of skew in the DR number just based on what client pools are in a 12-month look back versus the back book, which is 100% inclusion. And don't forget also, Koji, we will get about 60 basis points of pickup in Q4 when that UBS CS impact rolls off. So I think in the next quarter, we should certainly see a slight pickup. We're trying to figure out, we've got targets for a bigger pickup than just the 60 basis points. And then going into 2025 is where we start to see that number really start to accelerate for all those reasons we walk through.

Got it. Thank you so much for taking the questions. Really appreciate it.

Your last question comes from the line of Crispin Love of Piper Sandler. Your line is open.

Thanks. Good morning, everyone. Just first off, you said the Americas are on track for the best launch market since 2021. Just curious if you could parse that out a little bit. Is this the best launch market for infusion or the industry more generally? And then can you discuss what you believe some of the factors are that are driving an increase in launches and if you think that could be sustainable over the next few quarters? Thank you.

Hi, Christian. Oleg here. Happy to take the question. So there's nothing more granular than that from my perspective. So this is just a regional thing, as we discussed. People are just deploying capital in Americas much more aggressively and taking capital away from, From APAC, we do see some more interesting capital deployments in Europe as well. But America is one of the most interesting environments for launches we've ever seen. I've spoken with some of the people in the industry. Looks like people are looking to put capital to work in strategies where volatility is a friend. as well as private credit. You know, credit strategies are typically short volatility strategies, but it's a very hot area. A lot of people are either looking to launch new funds or deploying private credit strategies within their hedge fund offerings or within vehicles. And, you know, typical sort of launches that trade macro or multi-strat that typically, you know, tend to be longer volatility than other strategies are involved. So You know, this is sort of the high-level picture. I think overall, you know, it's good for us. It's good for the market. And, you know, we're just capturing it. We're a de facto default system for launches in many different cases, as you know. But for us, it's just at this point, it's a current perimeter. It's a homeland, so to speak. Our eyes are on the future, and we're looking at that marketplace, not just on a standalone basis, but on part of the overall market. portfolio of strategies and products that the institutional asset management industry offers alongside with loan only, fixed income equities, liquid asset classes, and then the liquid private equity and private credit.

Great. I appreciate the color there, Oleg. Thank you. That's it for me.

That concludes our Q&A session. We'll now turn the conference back over to Oleg Movchen for closing remarks.

Thank you all for very thoughtful questions. I thought it was helpful, and I look forward to reconnecting with you shortly for the follow-ups.

This concludes today's conference call. You may now disconnect.