Enfusion, Inc. (NYSE:ENFN) Q1 2024 Earnings Call Transcript

Enfusion, Inc. (NYSE:ENFN) Q1 2024 Earnings Call Transcript May 11, 2024

Enfusion, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Enfusion’s First Quarter 2024 Earnings Conference Call. At this time, all lines have been placed on mute to prevent any background noise. Following the speakers’ remarks, there — we will open up the lines for your 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.

Bill Wright: Good morning, and thank you, Operator. We welcome you to Enfusion’s first 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, 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. With that, I’d like to turn the call over to Oleg to begin.

Oleg Movchan: Good morning. And thank you for joining us today to discuss our results for the first quarter of 2024. I’d like to start by sharing my excitement about the direction of our business and our team’s ability to execute on our strategy. As you will hear from me, as well as our COO, Neal Pawar, and CFO, Brad Herring shortly, the value proposition we have shared with all of you in the investment community and bring to market every day is resonating and I am incredibly proud of everyone at Enfusion for their hard work and dedication. I’d also like to thank those of you who attended our first ever Investor Day on March 19th in Fort Lauderdale. We are grateful for a terrific turnout and engagement from shareholders and research analysts who spent the time to learn more about our story.

For those of you who couldn’t make it, our presentation can be found on the Investor Relations section of our website, where you can see how we outlined all the key factors in place for Enfusion to achieve our revenue growth goal of 20%-plus in the medium-term, which we define as 2025 to 2027. We believe that current macro trends will support and enhance our overall value proposition, and Enfusion’s platform will be the last upgrade our clients will ever need. As for the first quarter of 2024, we are off to a great start, with 33 new client wins. We are on track to achieve the full year financial guidance we laid out for you at our prior earnings call and Investor day. On the call today, we will share several proof points that confirm Enfusion’s continued move upmarket, while deepening our relationship with existing clients.

I am also pleased to share that client onboarding satisfaction scores are at three-year highs. Those familiar with our story know that this has been an area of focus and investment and I am delighted that our clients are seeing results. Now, let me walk you through some key highlights from the first quarter. Our economic trajectory remained on plan in Q1 2024 as we reported $48.1 million in revenue, delivering 17.3% year-over-year growth. First quarter adjusted EBITDA totaled $9.2 million, translating into an adjusted EBITDA margin of 19.1%. Brad will provide a deeper discussion on financials later. More broadly speaking, the industry backdrop remains volatile. We witnessed the typical seasonal volatility in December, which included a combination of year end fund closures and consolidations, followed by new fund launches in January.

This year was no different. The 33 new clients we signed during the first quarter is up from the 27 we signed last year in the first quarter, bringing our total client count to 868. Not surprisingly, launches represented a higher mix in Q1, representing 55% of new client wins this quarter. We expect the mix will balance out more with a higher percentage of conversions throughout 2024. Moving on to ACV, it increased sequentially from $219,000 to $226,000, a record in our recent history, representing 3.2% quarter-over-quarter and 7.8% year-over-year growth. As we successfully protect and grow our market share in Enfusion’s core hedge fund segments, our expansion upmarket will broaden our client base, resulting in higher ACVs as we continue to add larger asset managers to our portfolio mix.

These larger new accounts deliver more stable revenue profile and offer a great opportunity to expand our offering with additional product functionality and managed services, which will support NDR expansion over time. Stated differently, as the ACV of our client base improves over time, so too will the overall business level economics. Shifting gears, let me provide you with a few notable client wins across geographies from the first quarter. In the Americas, revenue grew 16% year-over-year, up slightly from the fourth quarter. New wins were a combination of market share gains and several new fund launches, which is normal in Q1 due to seasonality. I am thrilled to announce that we welcomed Foundation Credit as a new client. Foundation Credit is a prominent New York based credit-focused alternative asset manager with $1.7 billion AUM, specializing in municipal credit and infrastructure debt markets.

In order to earn their business, our team designed a customized solution that will consolidate and replace multiple pre-existing systems across trade capture, portfolio management, risk and the tracking of credit agreement terms and conditions. Historically, Foundation Credit was tasked with coordinating workflows across several siloed legacy providers on a daily basis. Foundation Credit will now be able to enjoy one centralized view across its entire business. This is an exciting signing and another validation of our ability to deliver customized solutions that support and drive productivity for complex credit managers. Another notable win this quarter, we just signed a multinational New York based alternative investment management company, specializing in credit with over $100 billion in AUM and multiple business leads across the capital structure.

This client recently acquired an equity business from an investment bank and chose to implement Enfusion to drive front, middle and back office operational efficiencies. Shortly after the completion of their Enfusion front to back implementation, they recognized the opportunity to drive similar efficiency with its structured credit business, which trades across asset and mortgage backed securities. At their request, Enfusion designed an end-to-end workflow from pre-trade compliance, trade capture, real-time IBOR and shadow books, all with an open framework to integrate to third-party best-of-breed risk providers. This is a prime example of our technology’s broad adaptability and flexibility. Importantly, it’s a reflection of Enfusion’s team ability to think outside the box and deliver creative and customized solutions to large investment managers.

In Asia-Pacific, revenue grew 13% year-over-year, which is up 7% last quarter, but below the 20% growth of last year. Not surprisingly, given the geopolitical and macroeconomic backdrop in the region, we continue to see capital outflows from China and Hong Kong into Singapore, Middle East and Australia. Given our strong brand and market positioning in APAC, we remain the partner of choice for new fund launches and seeing strong growth opportunities with large asset managers outside of China and Hong Kong. We are delighted to add a high pedigreed launch to our client base with the addition of Chikara Investment Management. Our ability to consistently win managers such as Chikara validates the value proposition we deliver to high quality asset managers.

These type of wins confirm that our product and client strategy are continuing to help us win in the traditional asset management segment. In Europe, Middle East and Africa, revenue grew 29% year-over-year in the first quarter, up from 24% growth last quarter as Europe continues to be our fastest growing region. Not surprisingly, we continue to win our traditional bread and butter investment management accounts in the European money centers, but we are also making inroads geographically beyond the U.K. market, with 44% of new clients coming from outside the U.K. On a client level basis, we were pleased to see a few credit fund wins in Europe, one new family office in Switzerland and several account expansions. Given our European momentum, we plan to dedicate additional resources to further expand our market presence in Continental Europe and Middle East.

A unique client expansion story I am excited to share with you is ICP Asset Management, an asset manager backed by the Norwegian industrial investment company, Aker, and led by Yngve Slyngstad, who was the former CEO of Norges Bank Investment Management. ICP Asset Management is an existing Enfusion client that recently acquired an established Swedish asset manager, Norron, to form a single Nordic firm with a global reach. Their ambition is to create unique products that provide exposure to the whole energy transition. The newly combined firm evaluated both its incumbent solution and current market offerings and elected to broaden its commitment to Enfusion as its PMS across product, geographies and asset classes. ICP once again is a clear proof point that not only can we land-and-expand, but also take share from our largest competitors.

I would like to draw your attention to the strong geographic diversification benefits that Enfusion business delivers. While growth in the APAC region slows, our revenue engine in EMEA is more than compensating for that dynamic, resulting in overall growth acceleration and margin expansion. We will continue to adjust our go-to-market strategy and execution tactics to reflect market opportunities on a global basis. At this time, I’d like to have Neal Pawar, our Chief Operating Officer, make a few comments on product and partnerships.

Neal Pawar: Thank you, Oleg, and thank you to everyone for the warm greeting at our Investor Day. Just prior to today’s call, Oleg and I returned from visiting Enfusion’s offices in Hong Kong, Singapore and Sydney. My trip to Asia closes out the opportunity to spend time with our colleagues around the globe and to meet with a fantastic group of clients who have entrusted Enfusion to provide them the mission-critical software and connectivity to operate their businesses. Our clients in the APAC region represent 28% of our client base in total and include a cross section of hedge funds, asset managers and family offices. It’s been an amazing experience and gave me a first-hand chance to not only understand market nuances in this region, but equally to see our team’s dedication and drive.

On our previous earnings call, we discussed how the addition of the Portfolio Workbench product has helped us to win new accounts in the fourth quarter of 2023, such as the Utah Retirement Systems. In this past quarter, the value of having this product in our offering allowed us to expand our relationships with some existing accounts. One client story that perfectly illustrates our ability to grow our business with existing clients, which I am pleased to share with you is that of Trium. Trium Capital is a London-based multi-boutique hedge fund with $2.1 billion assets under management. Trium’s portfolio managers specialize in a variety of trading strategies, including event-driven, emerging market macro and ESG long/short equity, which are offered to institutional investors in Irish UCITS, Cayman offshore and single managed account formats, either as a standalone investment or as a multi-manager product.

We are particularly excited about this win as it is a textbook example of our land-and-expand strategy. Trium launched a single new fund with Enfusion in Q2 2021 as their existing solution could not handle the range of financial instruments required. After two years on the platform, Trium’s COO chose to implement Enfusion’s full front to back capabilities across their entire portfolio, encompassing over 20 funds and accounts in Q3 2023. In Q1 of 2024, Trium decided to further expand its relationship with Enfusion by onboarding a related entity TCN Wealth to our platform. We are so grateful for our growing partnership with Trium. The timing of the wins this quarter was not a coincidence. We saw several conversion wins that were aided by our ability to rapidly release new versions of our software, thus being able to respond to clients’ ever-evolving needs.

We can’t overemphasize the competitive edge of Enfusion’s multi-tenanted SaaS model. If you were at our Investor Day, you heard a few of our clients explain how they don’t want to orchestrate and manage software system upgrades, nor do they want to have to wait months or years to have the latest version. This past quarter, Enfusion rolled out 205 enhancements and features across our portfolio management and order management systems. And all of our clients benefited from these upgrades simultaneously, ensuring everyone is constantly running the latest version of our platform. Moving on to market expansion. As Oleg mentioned earlier, 44% of our Europe, Middle East and Africa business came from outside the U.K. in Q1 2024, which is up from 27% in Q1 2023.

This is in line with our plan to expand into Continental Europe. Many of you had the opportunity to meet Lotte Tonsberg at our Investor Day, where she moderated a fireside chat with two of our clients. Lotte runs our European sales team and under her leadership, we are seeing deeper market penetration, a trend we expect to continue. For example, the ICP expansion was the fifth consecutive quarter in which we won new business in Scandinavia. Lastly, I’d like to touch on our overall services. As we mentioned last quarter, we have accelerated the onboarding cycle. As someone who has had to manage many upgrades and switches over my career on the buy side, I understand how important switching costs are to our clients. We believe that the cost to switch to Enfusion both in time and effort is already materially lower than our competitors.

We continue to focus on this by putting emphasis on our inbound and outbound interfaces, as well as our flexible reporting solution. Getting clients up and running faster and more efficiently than ever has wide reaching benefits. One obvious one is as we onboard clients faster, we are able to recognize revenue more quickly. As an additional benefit, we have seen that clients with high onboarding satisfaction scores can be more receptive to purchasing additional products or services from us. While client onboarding satisfaction scores are at a three-year high, we continue to respond to our clients’ feedback and find ways to continue to improve our service here. And now, I will turn back to Oleg to discuss market dynamics.

Oleg Movchan: As for market dynamics, we are seeing an inflection from year-end fund closures in December to new fund launches in January. We have been seeing capital flows shift out of China and Hong Kong and into Singapore, India, Japan and Dubai, although we believe Hong Kong remains the core operating hub for fund managers. We observed more activity in Dubai recently as it has been a destination for both intellectual and investment capital, and we are evaluating opportunities in this market. China was a little quieter during this first quarter due to the Lunar New Year, as well as some funding delays from newly launched investment funds in the U.K. We expect to see activity ramp up after these events. And now, let me discuss our strategic focus.

We are pleased with the start of 2024, with healthy new client growth and customer onboarding satisfaction at three-year highs. The Enfusion team remains laser-focused on product innovation, customer satisfaction and creating superior value for our shareholders. We continue to view our best return on investment capital as an investment in our product and people, which has been in motion and will continue throughout 2024. Our product team and software engineers are relentlessly working in synchrony to deliver new capabilities and workflows for our clients with a focus on traditional asset managers. Our focus on operational efficiencies throughout product platform development is designed to provide our clients with more capabilities to self-customize their systems and enable our team to deliver best-in-class client services in a cost and time efficient manner.

We believe this will result in shorter completion times, minimize helpdesk interaction and wait times and greater customer satisfaction. In closing, I am delighted with our first quarter results, but even more pleased with our team’s ability to execute. We have the product offering to win new business and to land-and-expand with our current accounts. Our strategic roadmap and revenue trajectory afford us the ability to invest in our account management and managed service teams as we simultaneously expand Enfusion’s platform and product capabilities. When added together, we believe this creates value for our clients and accelerates scale, expands margins and drives efficiency. We believe our disciplined approach to capital allocation and relentless focus on our technology capabilities puts Enfusion on the path to be a Rule of 40 company over the medium-term.

I will now turn the call over to Brad to discuss our financials.

Brad Herring: Thanks, Oleg, and thanks, everyone, for joining us this morning. On behalf of Enfusion’s 1,100-plus global employees, I have the privilege to report another solid quarter that reflects market-leading growth combined with continued expansion of our profitability profile. For the first quarter, we generated revenue of $48.1 million, an increase of 17% over the same quarter last year. This quarter’s revenue performance continues the trend of expanding our growth rate by adding 260 basis points over the growth rate we reported for Q4 of 2023. Referring back to the discussions we had in our last earnings call and at our Investor Day on the designation between front and back book, the 17% growth rate in the quarter consisted of approximately 14% contribution from the front book and approximately 3% of growth coming from the back book.

While both of these figures are within the expected ranges we discussed at our Investor Day meeting, we are watching the patterns in the back book drivers as Q1 churn and downgrades came in slightly higher than the normal seasonal pattern we would have expected to see. As a reminder, I would encourage listeners on the call to review the materials from our Investor Day that lay out our discussion on front and back book revenue projections, and those materials are posted on our IR website. First quarter ARR was $190.5 million, up 14% year-over-year and 3% higher than what we reported in the fourth quarter of last year. As a quick reminder from our last earnings call, going forward, we are only reporting a single NDR figure that captures both voluntary and involuntary churn in order to simplify our messaging to investors.

Our NDR for the quarter was 103%, which is up 80 basis points from what we reported last quarter. As we talked about last quarter, the consolidation of UBS and CS will continue to impact our NDR until it annualizes in Q4 of this year. The impact of the UBS, CS consolidation on Q1 was a headwind of 60 basis points compared to 70 basis points last quarter. We are still targeting an NDR to expand to 106% to 107% as we close out 2024. Our reported adjusted gross profit increased by 17% year-over-year to $32.6 million. This represents an adjusted gross margin in the quarter of 68%, which is down 40 basis points from Q1 of last year. The year-over-year margin impact represents a combination of slightly higher infrastructure cost to support our push upmarket in the traditional asset manager segment, combined with improved operating leverage from client service and onboarding personnel.

Adjusted EBITDA for the quarter was $9.2 million, up 61% compared to Q1 of 2023. This represents an adjusted EBITDA margin of 19%, which is up over 500 basis points from the same period a year ago. The improvement over Q1 of last year was due to increased scale from our SG&A functions, reduced provisions on receivables and lower spend on third-party service providers. Referencing the margin guidance, we provided in our Q4 call, where I discussed a target of 16% to 17% for the quarter, I would like to call out that there was approximately 150 basis points of margin benefit or roughly $600,000 in the quarter from non-recurring savings that will not repeat throughout the remainder of the year. Adjusted free cash flow for the quarter was negative $1.2 million.

The decrease in adjusted free cash flow from Q4 of 2023 is due to the timing of our 2023 annual incentives that were paid out in the first quarter. For the trailing four quarters, our adjusted free cash conversion was 47%. Note that there was a one-time $1.5 million distribution payment made to FTV Capital that we discussed in Q2 of 2023, which reduced our free cash flow conversion by 4%. GAAP net income for the quarter was negative $800,000, which results in a GAAP EPS of negative $0.01 per share. Similar to last quarter, we do not have anything significant to report with respect to our balance sheet or capital structure. We ended the quarter with approximately $33 million in cash and cash equivalents, with no outstanding debt. 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.

Moving on to guidance, I will reiterate the full year guidance we provided in our previous call. As a reminder, that guidance included revenues between $200 million and $210 million, adjusted EBITDA between $40 million and $45 million, and a free cash conversion rate between 50% and 55%. For modeling purposes, we continue to expect stock-based compensation to land between $19 million and $20 million for the full year. With that, we would like to open up the call to questions. Operator, please go ahead.

See also 20 Largest Publicly Traded Financial Companies in the US and 15 Easiest Degrees That Pay Well.

Q&A Session

Operator: [Operator Instructions] Your first question is from the line of Michael Infante with Morgan Stanley. Please go ahead.

Michael Infante: Hi, everyone. Thanks for taking our question. Oleg and Neal, I am curious how you are thinking about resource allocation with the salesforce generally. You obviously talked about some of the different geographic revenue exposure, but I am curious, like, ability to sort of toggle that depending on what you are seeing in various regions would be helpful?

Neal Pawar: Yeah. Hi. This is Neal. In terms of the salesforce right now, we are obviously looking to expand, particularly in Europe. We see a lot of opportunity there in our core segment and the recent wins that we talked about on the call a few minutes ago are a result of our continued emphasis in that region. Fortunately, we are not doing that at the expense of other regions and so, I would say, in Asia-Pacific, we are not growing our investments in our salesforce significantly. Obviously, for macroeconomic reasons that Oleg talked about, things have slowed down a little bit there. And in the U.S., we are still pushing as we continue to grow into the sort of higher ACV, more complex, larger client segment. So, very much a focus on North America and Europe, and yeah, continuing to invest.

Michael Infante: That’s helpful. Appreciate it. And nice to see the KPI acceleration really across ARR, NDR and ACV. I wanted to ask on the full year outlook, I know it’s somewhat early in the year. But given the performance in the quarter, particularly on profitability, I was curious how you would frame the previously provided outlook for us and whether or not the outperformance in the quarter either leaves you more convicted in the 2024 outlook or potentially tracking towards the higher end of it? Thanks.

Brad Herring: Yeah. Hey, Michael. This is Brad. I will take that. One of the things I did mention on the call, we did have a few kind of non-recurring type things that helped us on profitability in the quarter. I mentioned that in the call specifically. Outside of that, I think first quarter in, it’s a little early to declare victory. So, we look good, we like the way the trends are playing out, but we are a little bit cautious on a couple of little things I mentioned around where we saw churn and some other things come in for the first quarter. But we feel really good about our guidance for the full year and we are just going to see how that plays out. But we just want to be — we don’t want to get ahead of ourselves this early in the year.

Michael Infante: Makes sense. Thanks, guys.

Operator: Your next question is from the line of Dylan Becker with William Blair. Please go ahead.

Faith Brunner: Hey, guys. It’s Faith on for Dylan. I am just looking at that ACV metric. Given you guys’ push upstream with larger asset managers, what’s the importance of these customers and how should we expect the balance of ACV growth versus maybe new logo adds going forward? Is it going to be fairly balanced given the long tail opportunity or what’s the right way of thinking about this?

Oleg Movchan: So, hi, Faith. Oleg here. So, look, of course, naturally, as we move upstream and sell into more complex, larger funds, institutional asset managers, ACV will go up. I would encourage you and everyone else to think about ACV in a very — in a more granular way. We have a large chunk of customers that pay us above $500,000, but a lot of our clients pay us $250,000 a year or less. And so, that portion of our portfolio over time will shrink, but it will shrink disproportionately and so the idea is the averages are sort of difficult to interpret across the entire client base. So, we are very focused on growing the portion of the portfolio with larger clients. But in this particular case, one of the reasons ACV went up is because some of the clients with much lower ACV churned and, of course, mathematically, it yields higher ACV as well.

Faith Brunner: Awesome. Thanks for the color. And then if I could squeeze in one more. Just thinking about the partnership ecosystem angle, as you expand your value proposition and address more components of these traditional asset manager workflows. I am wondering, how you guys think of leveraging this channel to support incremental capacity or value services that you can offer customers through different integration?

Oleg Movchan: So — great question. So, a couple of things I will say, and maybe Neal can chime in here. So [Technical Difficulty] in a couple of different [Technical Difficulty]. On one hand, those relationships give us — given us clients, which is the pure referral type relationships and we are doing both ways. Different entities refer clients to us and vice versa. The other way we think about it is when we actually have a joint development proposition with another solution provider and we go to market together and enhance or accentuate value proposition to the client and there is an abundance of examples there. We are talking about some entities to help us sell content, help us sell risk models, help us sell data and vice versa.

We have seen opportunities where we help those partners, where they provide certain capabilities, like optimizers, risk models, performance attribution, where they see clients that still live in this outdated compartmentalized technology world, where we can bring value to the table.

Neal Pawar: Yeah. Maybe just to add to that. This is Neal. I will give you a couple of examples here. So, there’s a company called FundApps that we have a partnership with. They provide trade reporting to regulators. It’s a great example of leveraging sort of the partnership with them to quickly add capabilities that we don’t need to build ourselves and that we can quickly provide to our clients, but with a deep integration. Clients would much prefer to use industry-tested data pipelines and connections and not have to manage sort of a myriad of numerous data vendor connections themselves. Another great example is Backstop. It’s a CRM solution used within the hedge fund community that we have integrated into the platform. So, we have a number of others like this and we are investing in building more, because we think this is a really sensible way to provide value to our clients.

Faith Brunner: All right. Thanks.

Operator: Your next question is from the line of Jeffrey Lane with Stifel. Please go ahead.

Jeffrey Lane: Hi, guys. Thanks for taking the question here. It’s Parker. You referenced switching time and costs being lower with Enfusion. Has that been the primary impediment for these asset managers that you are looking to convert in the past or is there other dynamics at play?

Oleg Movchan: So, let me start now, in our usual fashion, Neal will complement my answer. So, the impediments, many things, right, both risk and cost of translation, and when we talk to larger clients, it’s almost that the pain that they currently incur, and everybody acknowledges they do incur a lot of pain with everything they run, should exceed their sort of concern about risk and visibility into our onboarding process, then they just cannot help but make a choice and decide to switch. We also approach this in a modular fashion. So, in addition to our ability to onboard clients in a comprehensive way, we offer sort of just the same way we do with products kind of land-and-expand approach, where we either onboard a portion of the organization when it’s broken down by asset class, by product, by division and then go sort of horizontally or we start with a portfolio management system sort of our traditional default approach and then we continue to integrate both up and down the way of measure accounting.

But switching costs are super-important. We are investing in product and platform that enable us to do data migration and the boarding work much more efficiently. And on the flip side, use — enable clients to use exactly the same tools to self-service and do it themselves.

Neal Pawar: Yeah. Just to add to that, Oleg, I would say that our average implementation time over the past four quarters for clients who are switching or converting to Enfusion has ranged between seven months to nine months, which we think is pretty good. There’s obviously more work we want to do to bring that down. But it’s worth mentioning that for clients who are switching to non-SaaS companies, just procuring hardware can be 50% to 80% of that timeframe alone and then when you factor in the potential supply chain shortages with chips and we saw this over the pandemic and now with the AI computing demand, trying to just get the hardware to run this software can often eat up the majority of that timeframe. Obviously, as a SaaS-native platform, that’s not a challenge for us and our clients are able to reap the benefits by getting on to the platform sooner.

Jeffrey Lane: Very interesting. Neal, maybe just to stay with you here, you called out some nuances in the APAC market. I was wondering, if you can go a layer deeper there on what those nuances look like and how they impact your view on the market opportunity, and more importantly, deal cycles that you are seeing in that region?

Neal Pawar: Well, let me first maybe make a comment just on some of the nuances I was referring to and then perhaps Oleg can talk more about the macro picture that we saw when we were together in APAC last week. What we have noticed as we talk to clients in the region is that, even just when you look at the way swap trades are financed there, you look at some of the compliance rules there, they are very different. If there was one message that we heard loud and clear, and we hear this from our European clients as well, it’s that the EU is not one country and APAC is not one country. And so, as we went across those regions and sort of talked to clients in each region, we recognized that there are just differences in the way products trade and the way they are financed that we need to make sure the system can handle, so that, especially those who are using us for their accounting, do not have to do a lot of adjustments at month end to try and align their books relative to their custodians or their prime brokers or admins.

So, those market nuances are a lot of the nuances I was referring to. But I think your question is the right one, which is there’s also a sort of macroeconomic trend that we witnessed, particularly in APAC. And I will hand it over to Oleg to share his thoughts on that.

Oleg Movchan: Yeah. Thanks, Neal. So — yeah, so, Parker, it’s a consistent theme. People on the back of fundamental concerns about geopolitics, China economy slowdown and just being able to extract and protect capital in the region, we are seeing capital leaving China and Hong Kong more into places like Singapore and Middle East, Australia, in some cases. And also from investment opportunity perspective, investment managers that typically kind of presented themselves as sort of giving exposure to APAC as one holistic region, they try to differentiate within that block and focus on countries like India and Japan versus just being highly levered to China and Hong Kong. However, having said that, we still see that Hong Kong remains pretty strong operating base for many APAC-centric managers.

As you know, we have a very strong brand equity in Hong Kong specifically, but as we reiterated multiple times, we expand our presence around Hong Kong to cover APAC broadly, and of course, shifting our attention to the Middle East as part of our EMEA portfolio.

Jeffrey Lane: Got it. Thanks for the feedback here.

Operator: Your next question is from the line of Kevin McVeigh with UBS. Please go ahead.

Kevin McVeigh: Great. Thank you. Hey. I know you talked about seven months to nine months of implementation time. Any sense of the fees associated with that and the cost savings? Has that changed much just given some of the efficiencies you have been bringing to bear?

Oleg Movchan: Hi, Kevin. Can you repeat the question? We couldn’t hear you really well.

Kevin McVeigh: Yeah. Just the cost of the implementations, I know you talked about seven months to nine months. What’s been the average implementation cost and what type of cost savings are your clients seeing as you folks drive more and more efficiencies in the channel?

Oleg Movchan: Well, look, I mean, implementation costs vary from client-to-client. It’s — again, the kind of seven months to nine months, it’s an average number as well. You have to sort of peel it back a little bit and see what complexity of different clients actually, call it, drives the cost. I don’t think it can be just summed up to dollar amounts. We will look at the relationship with clients on a holistic basis. So, it just becomes part of it. I would probably emphasize the actual risk assessment, and to clients sometimes it means that if they want to take a little longer, instead of nine months, if they want to take 12 months just to make sure everything is smooth and everything is in production and they can go live, they will take longer, right?

So, when people think about, I mean, Neal, spent his lifetime thinking about this risk. When they think about that portion, a lot of different things factor into it. It’s hardware, it’s software, it’s data sets, how much data you need to actually migrate from the legacy systems to us, what modules you want to migrate, so it’s a multi-dimensional question. But we sort of price that elements of the — of our relationship with the clients from a holistic perspective, not on a standalone basis.

Neal Pawar: And maybe the only thing I’d add to what Oleg said is, where we see the most savings for clients and it’s often hard to tell exactly what the savings are, because obviously, we don’t get much transparency into what their pre-existing cost structures were. But having been on the other side of the table, I can tell you that, like, when a client adopts our portfolio management tools, our order management tools and our accounting tools, they are obviously going to see a much bigger savings, because they are typically replacing three or more independent systems that they have to keep synchronized and reconciled and mutually consistent, which they can then replace with a single IBOR that fuels all three of those key components. So there is obviously a scaling factor to those savings, given — depending on how wide a range of our product set they adopt.

Kevin McVeigh: That’s very helpful. And then, Brad, can you just remind us, the $600,000 of non-recurring savings in the quarter, what exactly was that?

Brad Herring: Yeah. The biggest one had to do with the provision for receivables. We did a really good job in the last two quarters of 2023 with our collections. So, that then translates into the calculations you use for your reserves. So, we actually ended up in a credit position on our provision for the quarter that’s actually reduced it. We don’t see that kind of continuing. We are going to go back to normal provisioning against our open receivables, which is a very small number. But given the fact of how good it was in Q3 and Q4 from a collection perspective, it actually took us from a debit to a credit position in Q1. I just don’t see that recurring, so we wanted to call that out.

Kevin McVeigh: Thank you.

Operator: Your next question is from the line of Alexei Gogolev with JPMorgan. Please go ahead.

Alexei Gogolev: Hi, Oleg. At the Investor Day, you mentioned that you already possess quite a lot of capability to cover traditional asset managers and sort of those asset classes, but you were saying that you need further product buildout for investment decision-making processes. So, could you maybe talk about the product buildout here and when do you think you can meet those customer needs?

Oleg Movchan: Yeah. Sure. Actually, I will let Neal to deep dive into that. I would say there are two elements here, right, just broadly. One thing is investment decision-making part that you just mentioned that has to do with, on one hand, absorbing information about expected returns, both at the asset class level and at the security and instrument level and incorporating that into portfolio construction and then translating that into portfolio implementation stuff, which is, as we discussed many times, this is what Portfolio Workbench is all about. Right now, it’s been released in first version, where you basically can do heuristic portfolio construction, ad-hoc and integrated and then you apply compliance rules and then rebalance the portfolio accordingly.