The next stage will be a little more sophisticated and the benchmark will be taken into account, so you can actually rebalance portfolios on a relative basis and then we will evolve the process to allow for more quantitative-driven systematic portfolio optimizations with constraints. So, this is sort of portfolio construction piece. And then the portfolio implementation piece dimension has to do with just scaling the system, so that we can apply much more complex pre- and post-regulatory compliance rules, much more complex compliance logic and much more complex and high level scale allocation capability, where we are not just dealing with pro rata allocation for, like, 20 SMAs for a hedge fund, but with, like, 50,000, 100,000 accounts, each of which can have its own investment guidelines, constraints, limits and so on and so forth.
So, on that front, we definitely have a lot of work to do, but the good news for us is that architecturally system is set up very well. So it’s just a matter of us investing time, money and making the product better.
Neal Pawar: Yeah. I think, Oleg, you covered most of it. The only things I would add, I would say is, especially in the institutional segment, we have a lot of demand for institutions to be able to do a lot more self-service on the platform. Today, there are a number of things, for example, in our compliance suite, where to make a change, you have to log a ticket with our support desk and we make the change for you. Larger, more complex clients want more control over that themselves. That’s something that we are starting to roll out. And then just maybe to quickly address your question on the timeline aspect, as we have mentioned, the fact that we do weekly releases, we are pushing these things out incrementally all the time.
I mean, it’s going to take us a couple of years for us to be able to say we handle every single nuance of every single market for every single client type. But the good news is, as we onboard more clients, that tends to drive our prioritization queue because we want to make sure that we have the functionality that they need to go live and then as we add those features to the platform, other clients get the benefit of it and it makes the platform more attractive for future clients to be onboarded to.
Alexei Gogolev: Great. Thank you for that, Neal. And Brad, if I could maybe ask you about the comment you made regarding the elevated churn in the first quarter. Does that impact your outlook for the normalized churn level that you mentioned earlier in the year, I think, it was about 4% to 5%?
Brad Herring: No. It doesn’t. There’s normally a seasonal pattern of churn in Q1. That tends to be the highest churn quarter as customers’ kind of go through the previous year and who survives and who doesn’t. It was a little higher, but what I’d call out, the count number was a little higher than we anticipated, but the impact wasn’t as much as you would have associated with those counts because what churned out was really small clients. So, it’s a combination of who churned and then what’s the impact of that churn. So, that’s what we are watching closely. We just wanted to call it out to say there’s something we are looking at.
Alexei Gogolev: Great. Thank you very much.
Neal Pawar: Thank you, Alex.
Operator: Your next question is from the line of Gabriela Borges with Goldman Sachs. Please go ahead.
Gabriela Borges: Hi. Good morning. Thank you. Perhaps for Oleg or Neal to start, remind us how you think about the monetization strategy around Portfolio Workbench. How much does it help you in terms of deal sizes when you land? How much does it contribute to NRR? Just a little bit on how you think about charging for that.
Oleg Movchan: So, well, thank you very much. This is actually topic du jour for us at Enfusion. So, as you know, traditionally, our pricing model has been very simple and sort of generic, right? It’s basically price per license, price per seat and then we make money on broker connections. So, as we enrich the platform and make it more sort of, I would say, multi-layered, right? We need to strike a balance between the fact that we have, like, a SaaS technology or a SaaS — architecture-driven SaaS model with the fact that now instead of just making the system better, we are actually developing premium features and differentiated features that actually not clients — not all clients use or not all clients actually value and not all clients would be willing and able to pay for, and so we are kind of doing a wholesale revision of how we actually go to market, in particular, for larger clients.
So, this is a big, big topic of discussion for us. It definitely will result, I mean, one way or the other. It will result in a more granular pricing, in more — in better economics for us, but also better alignments for the clients, right? Because we can’t simply just continue to make the system better without reflecting it in our part.
Neal Pawar: Yeah. And maybe just to add to that, in a more immediate sense, the new features in the Portfolio Workbench are helping us win new business that we wouldn’t normally win if we didn’t have this functionality, so that’s already contributing to our revenue story. It’s also giving us the opportunity to expand our relationship with existing clients. So, we have had clients look at the functionality and then want to add that to their suite, and thus, that adds more seats within that client, and thus, also drives additional revenue. And then, obviously, for us, we are also getting tremendous validation on the product market fit for that product, which while that in itself doesn’t directly contribute to revenue, it gives us tremendous conviction that we are moving that product in the right direction and making it fit for purpose for, obviously, this larger segment that we are growing into.
Oleg Movchan: Yeah. Just, Gabriela, for clarity, this is, all the logic that I discussed and Neal just outlined is not Portfolio Workbench-specific, obviously, and I hope that’s understood. It’s just across the Board, we have other differentiated product offerings in the pipeline that are not generic and so the same framework will and should apply when we price those layers of functionality on a go-forward basis.
Gabriela Borges: Right. No. Thank you. I appreciate the color. The follow up is for Brad on how to think about the seasonality of the business, and specifically as we see companies move upmarket, sometimes that seasonality tends to shift more back half weighted because large deals tend to get done more in the back half of the year. Is that something that you are observing or have observed over the last couple of years with your pipeline and help us think about how you think about the changing seasonality of Enfusion as you move upmarket?
Brad Herring: No. It’s a great question. There is — if you think about it, let’s talk about it in the front book, back book delineation we have used before. In the back book, you don’t see much seasonality, other than what I mentioned, Q1 tends to be the quarter where customers’ kind of reassess their cost structure, whether it’s they survive or not, which is the churn comment I made, but also whether they do some downgrading along the way. That typically is a little bit more heavily weighted in the first quarter even in the first half of the year. When you go to the front book, there’s definitely some seasonality there. You tend to see less front book booking in the Q4, I am sorry, in Q1 as customers are coming out of the prior year and then that begins to pick up more in the back half.
But what Neal mentioned earlier, when you get into some of the implementation times that get longer with the asset managers, it begins to monetize for us a little smoother. So, what you don’t see is necessarily a bunch of bookings in the second half of the year and then revenue gets accelerated in the second half of the year, because the revenue from those longer term booking clients that take longer to Board tends to drag out for, what we mentioned, seven months to nine months. So while there’s some seasonal pattern in the booking itself, how it affects revenue is not near as significant.
Neal Pawar: Yeah. I would like to actually emphasize that, because this is an analysis we have seen in the past. You asked how we think about it on a go-forward basis. In the past, the seasonality has been more related to hedge funds, to launches, to closures, to capital flows in and out of the space. As we go into more traditional segments, what Brad just described, I would expect to be prevalent framework for us from seasonality perspective. As bookings sort of stagger, the onboardings will stagger as well, right? And so, once we kind of dial in and perfect that machine, hopefully the onboardings themselves will start flowing up to the revenue and we will start converting bookings into revenue in a way that is much smoother and kind of smooths those seasonality patterns, if you will, as part of our revenue recognition.
Gabriela Borges: Thank you. Appreciate the color.
Oleg Movchan: Thanks, Gabriela.
Operator: Your next questions is from the line of Koji Ikeda with Bank of America. Please go ahead.
Koji Ikeda: Yeah. Hey, guys. Thanks for taking the questions. I wanted to circle back on the guidance, the reiteration of the guidance range of $200 million to $210 million for this year. And the reason why I ask is the guidance tells really two stories here, the low end of the guide, growth deceleration story for 2024, while the high end is a much more attractive story of growth acceleration. So, as I look at the key metrics here, ARR, NRR, clients and average contract value, maybe help us take one or two of those metrics as the key metrics going forward to help us triangulate where you could end up in the 2024 guidance?
Brad Herring: Hey, Koji. This is Brad. I will take that. It’s exactly why we put a range on it. There’s still — we are one quarter in. We still got three quarters left to play out. So, we want to — we are watching a lot of things. We are watching our booking patterns. We are watching the back book. We are watching our front book revenue production. Any one of those in combination starts to give some insight on full year. ARR is a good number to look at. That’s a good indication of how the book is performing in and of itself, but we are a little bit non-committal at this point to kind of place it into range or we certainly wanted to make sure we reaffirmed our guide to provide confidence for this group that we do feel comfortable with the range we have provided, but we have still got a long way to go. So, I would look at ARR. I would look at the patterns in NDR. I mean, that’s probably the two best numbers I would look at if I was in your seat.
Koji Ikeda: Yeah. No. That makes sense. Thank you for that. And a follow up and maybe just kind of digging in deeper on the demand environment. Just from a holistic level, let’s say, the markets are very similar to what we have been seeing over the past six months and we will just project that out over the next 24 months. Does that potentially change the way you think about the growth algorithm for the business?
Oleg Movchan: No. It doesn’t. Not at all. I mean, it’s the same approach, the same machine you have. We discussed it on multiple occasions, basically client retention plus net new growth and we just have to get better at retaining clients and capturing more economics with the clients, and that will get us to Rule of 40, combined with new sales in institutional asset management market. It’s a relatively simple growth algorithm.
Neal Pawar: And maybe just to add, we are seeing clients still are under fee pressure, they are still under budget constraints. And so when they look at their total cost of ownership of their systems, they are still looking for ways they can operate their platform more efficiently, and, obviously, Enfusion gives them an option to do that in a very different way. And so, we don’t see that changing in the foreseeable future and we think that that works well, given our business model.
Oleg Movchan: Yeah. And look at how our book mix evolves over time and how we balance launches versus conversions. Like this quarter, we had a pretty good quarter in terms of launches. There is nothing to be ashamed of. We control that market space. We defend the market share and we grow market share there. Although, as you know, our strategic direction is to extend around that. APAC slowed down, EMEA reaccelerated. So, there is this diversification benefit that our strategy delivers. Can the world potentially fall apart and everything would go bad? Of course, we have all lived through 1998, 2008 and COVID environment. And as we discussed, especially in those situations, oftentimes, it’s a great opportunity for Enfusion to shine and capture the downside complexity profile of our business.
Koji Ikeda: Got it. Thanks, guys. Thanks for taking the questions.
Oleg Movchan: Thanks.
Operator: And at this time, there are no further questions. I will turn the call back over to Oleg for any closing remarks.
Oleg Movchan: Well, thank you so much for the insightful questions, for the framework, for sort of keeping us on our toes and focus on what matters. We, of course, remain very excited about what Enfusion is, what it’s going to be and we feel strongly that we are differentiated vis-à-vis our competition. There’s a lot of work to do for us to capture full potential of what this company can be, but we are absolutely focused on creating shareholder value and making sure we deliver on our promises to the shareholders.
Operator: This concludes today’s Enfusion first quarter 2024 earnings conference call. Thank you for joining. You may now disconnect.
