Q2 Earnings Roundup: Mixed Results and Cautious Outlooks Across Various Sectors

Earnings call: Dun & Bradstreet maintains guidance amid mixed Q2 results By Investing.com

Dun & Bradstreet (D&B) has reported a steady increase in financial performance for the second quarter of 2024, with a 3.9% revenue rise to $576 million and a 6% jump in adjusted EBITDA to $218 million. Organic revenue growth was recorded at 4.3%, driven by strong demand in supply chain and risk management solutions. Despite challenges in digital marketing solutions due to adverse macroeconomic conditions, the company is optimistic about future growth and maintains its full-year guidance for revenues at the lower end of the $2,400 million to $2,440 million range, with adjusted EBITDA between $930 million to $950 million. D&B is also focusing on sustainable growth, balance sheet deleveraging, and strategic acquisitions and share repurchases, having bought back approximately 960,000 shares in the quarter. Dun & Bradstreet (D&B), a leading global provider of business decisioning data and analytics, has shown resilience in its second-quarter financial results for 2024. Despite certain segments facing headwinds due to broader market conditions, the company has managed to maintain a positive outlook, backed by strong performance in key areas and strategic initiatives aimed at long-term growth. Dun & Bradstreet (D&B) has not only reported solid financial numbers for the second quarter of 2024 but also exhibited impressive underlying metrics that suggest a robust business model. According to InvestingPro data, D&B boasts a substantial gross profit margin of 63.76% for the last twelve months as of Q2 2024, which underscores the company's efficiency and pricing power within its sector. This aligns with the firm's focus on high-margin supply chain and risk management solutions, which have contributed to organic revenue growth. The company's commitment to shareholder value is evident through its share repurchases, and recent price performance data from InvestingPro reinforces this positive sentiment. D&B has seen a significant return over the last week, with a price total return of 9.34%, and even more impressive over the last month, at 28.48%. This strong short-term return could be a reflection of investor confidence in the company's strategic direction and growth prospects. In terms of valuation, the company's Price / Book ratio stands at 1.57, suggesting that the stock is trading at a reasonable valuation relative to its book value. This could indicate that the stock is potentially undervalued, offering an attractive entry point for investors. InvestingPro Tips highlight that, despite facing short-term liquidity concerns with short-term obligations exceeding liquid assets, analysts predict the company will be profitable this year. This is a crucial piece of information for investors considering the company's future earnings potential. Moreover, with 10 additional tips available on InvestingPro, interested parties can delve deeper into the company's financial nuances to make more informed investment decisions. For more detailed analysis and additional insights, investors can visit the dedicated InvestingPro page for Dun & Bradstreet: https://www.investing.com/pro/DNB. Operator: Good morning, and welcome to Dun & Bradstreet's Financial Results for the Second Quarter of 2024. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Sean Anthony, Vice President of FP&A and Investor Relations. Please go ahead. Sean Anthony: Thank you. Good morning, everyone, and thank you for joining us for Dun & Bradstreet's financial results conference call for the second quarter of 2024. On the call today, we have Dun & Bradstreet's CEO, Anthony Jabbour; and CFO, Bryan Hipsher. Anthony will begin with an overview of our second quarter results and then pass it to Bryan for an in-depth financial review. We will then finish up with Q&A and a few closing remarks. Before we begin, allow me to provide a disclaimer regarding forward-looking statements. This call, including the Q&A portion of the call, may include forward-looking statements related to the expected future results for our company, and are therefore forward-looking statements. Our actual results may differ materially from our projections due to a number of risks and uncertainties. The risks and uncertainties that forward-looking statements are subject to are described in our earnings release and other SEC filings. Today's remarks will also include references to non-GAAP financial measures. Additional information, including the reconciliation between non-GAAP financial information to the GAAP financial information is provided in the press release and supplemental slide presentation. This conference call will be available for replay via webcast through Dun & Bradstreet's Investor Relations website at investor.dnb.com. With that, I'll now turn the call over to Anthony. Anthony Jabbour: Thank you, Sean. Good morning, everyone, and thank you for joining us for our second quarter earnings call. Overall, we delivered another solid result in both top and bottom lines. Organic revenue growth was 4.3%, up 40 basis points from the first quarter of 2023 and represents our fourth consecutive quarter of reported mid-single-digit growth. With 90% of our revenues growing slightly over 6% in the quarter and on a trailing 12-month basis, we saw continued strong demand for our third-party, supply chain, risk and master data management solutions in both our North America and International segments. We've seen continued strength in these 2 areas of strategic investment and believe there is much more opportunity to grow in the coming years. The remaining 10% of our revenues, comprised of credibility and digital marketing solutions, continue to be negatively impacted by a variety of factors, including broader macro conditions. However, we have work underway to reduce their impact on the overall growth rate, and I'll spend some time in my prepared remarks discussing our remediation efforts and the timing thereof. From a profitability perspective, EBITDA grew 6% in the quarter, driving 60 basis points of margin expansion. We continue to operate more efficiently, and along with lower revenue growth from areas that have below average incremental margins, we were able to deliver strong profitability in the quarter. We continue to focus our capital allocation on sustainable organic growth acceleration, deleveraging the balance sheet and maintaining our dividend while being opportunistic in both M&A and share buybacks when circumstances allow. And while we continue to execute well, our share price provided an attractive valuation throughout the quarter and we began to utilize our share repurchase authorization. Throughout the quarter, we were able to purchase around 960,000 shares at an average price per share of around $9.70. We accomplished this while maintaining our net leverage ratio at 3.7x, with visibility to around 3.5x by year-end. As we expect capitalized spend and other extraordinary investments to come down in the second half, we continue to expect improved free cash flow conversion for the full year, and we'll look to deploy it efficiently and effectively. And now turning to what's driving our financial results, I'll start with an update on our Finance and Risk solutions. Across both segments, we saw a strong performance in our core Finance and Risk solutions. Finance Solutions continues to be a deeply embedded solution set that creates an excellent platform for cross-selling our Risk Solutions. While our Finance and Risk solutions are a key part of our 96% overall gross retention rate, they are also a key part of our 36% vitality index, with third-party risk management delivering another stellar quarter of over 20% growth. We are seeing strong demand for our risk analytics platform and even stronger demand for our risk data block solutions delivered via direct API integrations. While medium- to larger-sized clients prefer a platform approach, we are seeing the largest and mega-sized clients prefer direct integrations into their core applications. And while we continue to see growth and expansion with our medium and larger-sized customers throughout the world, smaller clients are still a great opportunity for us in both North America and internationally. For instance, in Asia, we saw high single-digit growth driven by some of our more localized finance solutions. As smaller companies throughout the region look to validate themselves as worthy suppliers to large multinational businesses, D&B stands as a trusted provider of authentication and confidence. And while we have continued to transform our SMB businesses in North America, credibility continued to see some softness in the second quarter, largely as expected. The second quarter was down $2.3 million or a 7% decline versus prior year, and $4.1 million or a 6.4% decline year-to-date. The declines up to this point have been solutions that are directly impacted by the consent order and its impact on those renewals throughout last year and into early this year. We still expect the business to be near flat in Q3 and then begin to slightly grow in Q4, and remain positive as we are seeing green shoots in our new solution sales and, in particular, the improved performance of our Credit Insights product. While it took us a little longer to launch than expected, I'm particularly excited about the early results we are seeing from the July 17 launch of our money back guarantee. And that, coupled with the product enhancements we have made significantly, increased the value we are providing to our clients and prospects. These efforts, combined with several others, are transforming the Credibility Solutions and give us confidence in our ability to turn this part of our negative 10% into a more positive contributor by the end of this year. Now turning to our Sales and Marketing solutions. We grew mid-single digits overall, driven by strong performance in master data management and improving performance and sales acceleration. The overall market remained constrained as delayed interest rate cuts persisted throughout the second quarter. But through the mission-critical nature of our MDM solutions and improving sales acceleration offerings, we were able to offset much of the lackluster spending. That being said, the majority of the business was growing nicely. Our transactional volumes in digital marketing solutions remain depressed. While things didn't deteriorate further from the prior trends, they certainly didn't improve at the rate we had expected. While the vast majority of our revenues are subscription-based, our Digital Marketing solutions are more cyclical in nature and, therefore, impacted both positively and negatively by volume trends. For context, these solutions were down $4.6 million or 14% in the second quarter, and $7.7 million or 12% year-to-date. We anticipate improvement in the back half of this year for 3 reasons. The first is we expect the Fed to begin to reduce interest rates, driving increased spend. Second, Google will no longer be deprecating cookies, which should help with traditional volumes. And third, we are expanding into rapidly growing areas such as connected TV, retail media and further into social media. Overall, things have largely played out as we expected through the first 2 quarters of the year. And while we are tweaking our full year organic revenue guidance to take into account the lower-than-expected transactional revenues from Digital Marketing, we are maintaining our previous adjusted EBITDA and adjusted EPS guidance. We will stay close to credibility and digital marketing that comprise the 10% of our revenues that are challenged throughout the remainder of this year and make any changes necessary to be set up to achieve a 2025 growth rate that is within the 5% to 7% range we previously discussed. Another important element in our growth plan is continued innovation. In the second quarter, we introduced Hoover Smart Mail, which allows automated messaging and deployment to high-targeted contacts for more individualized content creation. And in combination with Smart Search, launched in Q1, both now have over 4,000 clients using these new Gen AI capabilities. In addition, we have our new chat D&B Gen AI assistant. This is a patent-pending autonomous AI agent that speaks to all of our data assets. There isn't a question about a business we can't answer. And this new assistant is being used by over 500 internal users and an early adopter testing with our clients. Lastly, our continued partnership with IBM (NYSE:IBM) has the new Ask Procurement Assistant in early trials as well. As a reminder, all of our Gen AI solutions are based on APE, our foundational architecture for quickly building, testing and launching new solutions. Along with the exciting progress in Gen AI, we continue to expand our DUNS and data graphs from the offline world to the online world. Our business-to-person, or B2P, service, combining specific consumer marketing characteristics to our best-in-class B2B identity graph, creating a uniquely blended offering. Think about the B2P connection as focusing not on the individual as a consumer, but the individual in his or her role within the defined organization. It's still early stages, but we believe this could be a game changer in the ability to effectively market to key business audiences in an ever-evolving landscape. And as we continue to develop and execute within our key product lines, I'm also very pleased in our continued progress to finalize our cloud migration project. Our technology team has made huge progress in the first half of this year upgrading and migrating our solutions to the cloud, and we look forward to completing a majority of the heavy lifting by the end of this year. Before I update you on some client successes in the quarter, I wanted to provide a quick update on the general buying environment. Similar to the comments you've heard from other industry peers, the general sales environment has stayed relatively stable to the slower one that started late last year. Our belief is that as the Fed begins to take its first actions to reduce interest rates in the late fall, businesses will become more constructive in their spending around new solutions and sales and marketing investments. And now turning back to Q2, I want to start off with North America and a 5-year renewal and expansion with a Fortune 500 company and one of the world's largest industrial supply companies. This client has been with us for over 25 years and continues to leverage the unparalleled breadth and depth of our data and analytics to create predictive risk scoring and automated credit decisioning. By leveraging our data and analytics to support over 2 million customers, this company was able to create increased ROI relative to automated upfront credit limits at onboarding and an analytics-driven onboarding process that is helping to streamline the quote-to-cash process. Another 5-year renewal in the F&R segment was with another Fortune 500 company and one of the world's premier providers of technology products and services for business, government and education. The client has been with us for 25 years and continues to look for new and innovative ways to automate their credit and risk functions. Through the addition of our new capabilities, such as FA account manager, we were able to provide them incremental tools to reduce the friction and, ultimately, time between sales, credit and close. The team did a great job solutioning with our clients and delivering significant value through our latest D&B Finance Solutions. We also continue to see strong expansion within our master data management client base. One of the world's largest technology companies has engaged us to assist in continuing to build out the uniform and structured process for sales and marketing programs across their enterprise. The leveraging of our specialized match capabilities, contact management and support by our unique business-to-person data on the programmatic and social marketing channels were able to support them with enhancing their market-leading position. They have one of, if not the premier, first-party data sets in the world and by allowing us, a trusted third-party provider, add on to those exceptional capabilities has put them in an even more differentiated position. Before turning to our International segment, I wanted to finish up with a 3-year deal in Sales and Marketing with another Fortune 500 company and one of the largest human resources management software and services providers, who has also been a client of ours for 25 years. Through our differentiated data and enhanced match capabilities, we're able to support our client's lead optimization for customer cross-sell through enhancing the foundation of their market research planning and customer segmentation efforts. By testing our data against other providers and focusing on streamlining to high-quality process, we're able to grow our relationship with this client and create not only significant improvements to their marketing efforts, but reduce costs overall for them by eliminating process inefficiencies driven by a multi-vendor strategy. On the international front, we continue to see strong demand across our European and Asian regions. In early Q2, we signed a 3-year deal for D&B data blocks for Finance with Hapag-Lloyd AG, one of the leading global liner shipping companies, to support their credit management automation. Hapag-Lloyd is among the top 5 largest shipping and container transportation companies in the world, and we are pleased to support their global need to manage financial risk in a more efficient and effective manner. HDI Global SE, one of the largest insurance companies in Europe, signed a 3-year contract for D&B data blocks, to organize and manage its master data management, support sales and marketing, and optimize its risk management. This is a great example of how we can help create efficiencies across several use cases by clients leveraging our master data management capabilities. We also landed new business with a large global energy provider out of Norway, to manage their third-party risk management. This is a 3-year contract and represents the largest sale to date of our new RACI or Risk Analytics Compliance Intelligence solution. RACI is an intelligent KYC/KYB monitoring and assessment solution for compliance risk management. It allows clients to streamline their onboarding processes, quickly identify and verify entities and people their company looks to do business with, defines risk relevancy and materiality based on the company's specific risk policies, monitor changes to business partners so they can proactively mitigate risk, and regularly screen business partners against sanctions, watch lists, PEP lists, and adverse media. We are very excited about how the RACI pipeline is building and the early wins we are seeing with this newly introduced solution. And finally, in Asia, we expanded our relationship with China Mobile (NYSE:CHL) International with our finance analytics and compliance solutions that allow them global coverage of their overseas client credit risk, and also drove new business with Reliance Industries in India, a Fortune 500 company and the largest private sector corporation in India, to support their potential expansion into new locations. Overall, I'm proud of our team's focused execution against our long-term strategy and the results we are driving. Over the trailing 12 months, 90% of our revenues have grown 6% and with margins close to 40%, putting us in a great position for continued future growth. With that, I'd now like to turn the call over to Bryan to discuss our financials in more detail and give a quick update on our outlook for the remainder of the year. Bryan Hipsher: Thank you, Anthony, and good morning, everyone. Turning to Slide 1. On a GAAP basis, second quarter revenues were $576 million, an increase of 3.9% compared to the prior year quarter and an increase of 4.2% before the effect of foreign exchange. Net loss for the second quarter was $16 million or a diluted loss per share of $0.04, compared to a net loss of $19 million for the prior year quarter. The $3 million decrease in net loss for the 3 months ended June 30, 2024 compared to the prior year quarter was primarily due to higher operating income, partially offset by a lower tax benefit and the amortization loss related to the interest rate swap amendment completed in the third quarter of 2023. Turning now to Slide 2. I'll now discuss our adjusted results for the second quarter. Second quarter revenues for the total company were $576 million, an increase of 3.9% compared to the prior year quarter and an increase of 4.2% before the effect of foreign exchange. The increase in revenues was attributable to growth in the underlying business, partially offset by the negative impact of foreign exchange and the impact of the divestiture of a business-to-consumer business in Finland in the fourth quarter of 2023. And therefore, our revenues on an organic constant currency basis were up 4.3%. Second quarter adjusted EBITDA for the total company was $218 million, an increase of $12 million or 6%. This was primarily due to revenue growth, partially offset by higher costs driven by cloud infrastructure costs and net personnel expenses. Second quarter adjusted EBITDA margin was 38%, an increase of 60 basis points compared to the prior year quarter. Second quarter adjusted net income was $99 million or adjusted earnings per share of $0.23, compared to $95 million or $0.22 per share in the second quarter of 2023. The increase was primarily attributable to higher adjusted EBITDA and lower interest expense in the current year quarter, partially offset by higher depreciation and amortization and tax expenses. Turning now to Slide 3. I'll now discuss the results from our 2 segments, North America and International. In North America, revenues for the second quarter were $405 million, an increase of 3% from prior year quarter and 3.4% on an organic constant currency basis. In Finance and Risk, revenues were $216 million, an increase of $5 million or 3%, due to a net increase in revenue across our third-party risk, supply chain management and finance solutions, partially offset by decreased revenues from our credibility solutions. For Sales and Marketing, revenue were $189 million, an increase of $8 million or 4%. Sales and Marketing growth was primarily driven by higher data sales and higher revenues from our master data management solutions, partially offset by decreased revenues from our other digital marketing solutions. North America second quarter adjusted EBITDA was $178 million, an increase of $5 million or 3%. And North America EBITDA margin was 44%, a decrease of 30 basis points from the prior year quarter. This was primarily due to revenue growth, partially offset by higher costs driven by cloud infrastructure costs, selling and marketing expenses as well as personnel costs supporting our overall solution innovation. Turning to Slide 4. In our International segment, second quarter revenues increased 5% to $172 million, or an increase of 6% before the effect of foreign exchange and an increase of 6.4% on an organic constant currency basis. Finance and Risk revenues were $160 million, an increase of 8% or an increase of 9% before the effect of foreign exchange. All markets contributed to the growth, including higher revenue from our API solutions in the United Kingdom, growth in Europe from third-party risk and compliance, finance analytics and API solutions, and growth in Greater China from finance analytics and API solutions, along with increased revenues from Worldwide Network (LON:NETW) alliances due to increased cross-border activity. Sales and Marketing revenues were $55 million, a decrease of 0.3% or an increase of 1% before the effect of foreign exchange. On an organic basis, revenues grew 2%, primarily due to higher revenues from the U.K. driven by growth in our API solutions. Second quarter International adjusted EBITDA of $54 million increased $5 million or 9.5%. And adjusted EBITDA margin was 31%, an increase of 120 basis points compared to the prior year quarter. The increase in adjusted EBITDA was due to revenue growth from the underlying business, partially offset by higher net personnel costs and foreign exchange loss. Turning to Slide 5. Slide 5 contains the details of our capital structure as of the quarter-end. At the end of June 30, 2024, we had cash and cash equivalents of $263 million and total principal amount of debt of $3,676 million with a weighted average interest rate of 5.8%. Currently, 87% of our debt is either fixed or hedged. And as of June 30, 2024, we had $730 million available on our $850 million revolving credit facility. Our leverage ratio was 3.7x on a net basis and the credit facility senior secured net leverage ratio was 3.2x. We expect to be at around 3.5x on a net basis by the end of this year as we continue to migrate towards our medium-term range of 3 to 3.25x by 2025. Turning now to our share repurchase program. As Anthony mentioned, during the second quarter, we repurchased 961,360 shares of Dun & Bradstreet common stock for $9.3 million, net of accrued excise tax, at an average price of $9.71 per share. We currently have over 9 million shares remaining under our existing buyback authorization. Now turning to Slide 6. Our outlook for 2024 is as follows: Total revenues after the effect of foreign currency are expected to be at the low end of our previously communicated range of $2,400 million to $2,440 million, or an increase of approximately 3.7% to 5.4%. This includes an assumption of a modestly increased headwind in the first 3 quarters of the year, partially offset by a modest tailwind in the fourth quarter due to the effect of foreign currency related to the expected variances between the U.S. dollar, euro, British pound and Swedish krona. Revenues on an organic constant currency basis are expected to be at the low end of our previously communicated range of 4.1% to 5.1% for the full year. Adjusted EBITDA is expected to continue to be in the range of $930 million to $950 million, and adjusted EPS is expected to continue to be in the range of $1 to $1.04. Additional modeling details underlying our outlook are as follows. We expect interest expense to be around $220 million, depreciation and amortization expense to be in the range of $125 million to $135 million, excluding incremental depreciation and amortization expense resulting from purchase accounting. Adjusted effective tax rate of approximately 22% to 23%, weighted average diluted shares outstanding of approximately 436 million. And for CapEx, we expect approximately $150 million to $160 million of internally developed software, and $45 million of property, plant and equipment and purchased software, as capitalized spend begins to moderate in the second half of this year. With the exception of some lower transactional revenues in North America, the first 2 quarters played out largely as expected. And as we head into the second half of the year, our expectations for the cadence of the remaining quarters remains unchanged, with third quarter below the low end of the range and fourth quarter being slightly above the high end of the range. And finally, with a heightened level of investment beginning to abate, we continue to anticipate operating free cash flow conversion as a percentage of adjusted net income, excluding the impact of the AR securitization, to improve versus the prior year as previously discussed. With that, we're now happy to open the call for questions. Operator, will you please open up the line for Q&A? Operator: [Operator Instructions] And the first question will be from Andrew Steinerman from JPMorgan (NYSE:JPM). Andrew Steinerman: Anthony, I wanted to hear more about the D&B Credit Insights launch. I'm looking through the product on the website. But if you could just help us understand why you feel like this will help revenue for the credibility section and how it differs really from the existing products within the credibility suite. Anthony Jabbour: Sure, Andrew. So a couple of points. The first is on the product itself. We've updated it in a significant way in terms of consolidating it, making it easier for our clients to navigate. And as part of that, we've also implemented different sales techniques around engagement with the clients. And what we've seen so far is a material improvement in our attrition in that base. So hanging on to clients and keeping them close. The second that we talk about with the money back guarantee, is a really powerful one. And it took a little longer because, like I said, with compliance, wanted to dot all the I's, cross all the T's around the money back guarantee. But essentially, what that's saying to clients is, if we can't help you improve it, then you don't pay. So it creates a really simple value proposition compared to, I'd say, the consent order that we have to read with clients at the time. So I think for those reasons -- and like I said, we launched that July 17, and in the later part of July we saw a nice improvement versus July last year on the sales side. So I'd say from a product improvement perspective, the money back guarantee perspective, our sales go-to-market changes that we've put in place, and also that we're adding some of our sales and marketing capabilities like Hoovers, and if these businesses are trying to improve their credit, that's also trying to help them improve their business through sales and marketing capability. So it's the combination of all of that, Andrew, is why we feel good about this. Andrew Steinerman: And is the product priced above or below, let's say, the legacy credibility products? Anthony Jabbour: Sorry, can you repeat that question? Andrew Steinerman: Just pricing for the D&B Credit insights, is it priced higher than the legacy products within credibility? Or is it a more attractive price points to customers? Bryan Hipsher: No, Andrew, it's pretty consistent from a pricing perspective. And so as Anthony said, obviously, with the guarantee we're putting, is a net benefit from that perspective. And then opening the aperture as we have in a lot of areas for alternative data assets, the utilization of things outside of just manual trades. So we're bringing in financial statements, utility account payments, other broader business, credit card usage, et cetera, that gives a more holistic picture of a firm and allows them to continue to drive incremental benefit. But again, from a cost perspective, it will be on par with where we were before. Anthony Jabbour: And the only thing I'll add on to that is with the additional data that will be required for the money back guarantee access to a credit card statement, bank accounts, et cetera, what we're seeing in our [indiscernible] a 20% lift in credit when we have the additional data. And so from our perspective, we've got confidence that we can help improve credit for small business, which is great for the industry, for the country. And also in the instances where we can't, we'll also have more data, adding on to the lead that we have in terms of data quality. Operator: The next question will be from Heather Balsky from Bank of America (NYSE:BAC). Wahid Amin: It's Wahid Amin on for Heather. Just want to touch on the Digital Marketing Solutions. The issues sound more external macro related. Can you discuss what you and the team are doing internally, so you can offset these macro challenges if things potentially get worse? Anthony Jabbour: Sure, Wahid. So a couple of things. We certainly think, and you see it broadly in the sales and marketing industry in terms of the reduction in spend in the space, and as there's more certainty on interest rate cuts coming, we believe that will free up the spend and that will help, not just us, but the industry more generally. But also, there's a number of things that are going on. So recently, Google announced that they're not going to deprecate the cookie any longer. And that will drive more traditional volume for us and other players, which will be positive. The other new channels that we're starting in what was going to be just a cookie-less world around connected TV, retail, media and social, we're penetrating those very got very nice growth rates in those, albeit they're small businesses and not contributing, but the growth rate is very significant in those. So we feel good about it from that perspective as well, and also going more directly to our clients where we've got broader relationships with, and bringing this additional capability versus more traditionally leveraging agencies and the broader industry approach in the space. We've got a great client relationship. There's lots of ways that we can bring additional data and capability to those clients. And probably the last is we had very strong comps in this space last year, at the beginning of the year, and so the comps become more favorable at the back half of this year. Wahid Amin: Got it. And then on Sales and Marketing, there was quite a bit of a step down sequentially internationally. Can you talk about what's going on there differently compared to North America? Anthony Jabbour: Yes, sure. I think there -- like I said, our revenues aren't consistently following quarter-to-quarter all the time. We've seen that in the business -- a number of parts of our business domestically and internationally. I think the better approach in terms of the normalized for the timing of certain deliveries, for example, our client usage, is looking at a broader range versus just a quarter, and so we feel pretty confident about how that business is growing. Bryan Hipsher: And Wahid, that one is obviously a smaller business,. And as we went through some of the major migrations on the Finance and Risk side throughout last year, there are some smaller ones that we're working through this year. And so again, quarter-to-quarter, as Anthony said, you could have a little bit of movement. But if you look at the consistency throughout the year, I think you'll see that ultimately play out. Operator: And our next question will be from Surinder Thind from Jefferies. Surinder Thind: First question I'd like to just follow up on is, I believe on the prepared remarks, I heard about a willingness to make any changes to some of the revenues that are challenged. Can you expand upon that comment? It sounds like perhaps strategic options, or maybe I misheard. Anthony Jabbour: Yes, Surinder, I'd say everything is on the table for us. We've been working hard in terms of transforming this business. We're really proud of it. When we look at 90% of our revenues growing 6%, that's in the sweet spot, and the margins near 40%, the sweet spot of the best players right now in the industry. And so with the remaining, we'll do whatever we need to do in terms of addressing those. And as you could see from my answers on SMB and Digital Marketing, we have a number of initiatives underway in terms of turning those around. But we're open to -- I'd say everything is on the table, from strategic partnerships, different sort of licensing agreements, et cetera, to other strategic options. Surinder Thind: Understood. And then how integrated are those into the business or the ability to separate those, how should we think about that? Or maybe some data dependencies between the various business lines? Anthony Jabbour: Sure. I'd say on the digital marketing side, it's not as integrated. And on the SMB side, like I said, the data that we collect is valuable in terms of it's what enriches the strong data quality that we have that we're known for and our clients benefit. And so there's ways to solve for, I'd say, for both of those on a go-forward basis. But clearly, our data, if we were to pursue strategic options, there would need to be the ongoing licensing agreements, et cetera. Surinder Thind: That's helpful. And then in terms of just investment back in the business, obviously, some color around the tech transformation and where we are and moving some of the products to the cloud. So as we think about other products and technologies that you're exploring, let's say, within AI, how should we think about the rapid changes that are going on there and your ability to kind of invest at the pace that you want? I mean would accelerated investments help? Or how do you think about balancing that? Anthony Jabbour: Yes, that's a great question, and it's one that we're obviously very focused on. The beauty is we're seeing some of our projects roll off, which are helping us with our efficiency, right? So number one, that in and of itself is great, but also just we continue to build confidence internally in terms of hills that we want to take, we take. And I'm really proud of the team and all their efforts that way. We've made investments. I shared the AI initiatives that we've got underway. The Chat GPT one, for example, that also has a lot of internal use for it in terms of efficiency that we can say with our own customer service and on internal processes that we have today to create more efficiency. So I'd say from an investment perspective, we've been very consistent and making the right long-term decisions for our company versus short term. And we'll continue to do that in terms of making sure we are in a position to always be successful in putting our clients in a similar position. So we feel really confident with the amount of investment that we have today based on where we see the market and the needs. And I'm excited with the capabilities that we're coming up with. They're, candidly, faster and better than I thought they would be by this stage if you had asked me a year ago. Operator: The next question will be from Ashish Sabadra from RBC Capital Markets. Ashish Sabadra: It's good to see the third-party risk management continue to grow at such a robust 20%-plus pace. I was wondering, you obviously mentioned a couple of good wins there and some of the new technology innovations that you're putting in place, which are gaining traction. I was thinking, as you think about, are you seeing any kind of slowdown from a macro challenge perspective? But also anything from a regulatory perspective which is driving it? How are you thinking about cross-selling into the existing customer base versus winning new clients there as well? So any incremental color there will be helpful. Anthony Jabbour: Yes, Ashish, great questions. I'd say from a slowdown perspective, your first one, we're seeing what the industry is seeing. You've seen on other calls that you've been on. It's been pretty consistent since Q4 of last year what the industry and the spend has been. I'd say we've -- we publish a Global Optimism Report where we survey clients and see what -- how they're feeling. And the majority of the indices that we track, it's positive, right? So the future looks brighter. But I'd say currently, where the industry is at has been pretty consistent since Q4 of last year. I'd say, from our perspective, I don't really see anything coming from a regulatory perspective that could hurt. Typically, when regulatory creeps in, it creates more burden for clients. Therefore, more opportunity for us to help solve the pain for our clients. So as we talk about regulatory -- new regulatory requirements create pain for our clients, and if we could sell pain killers, those are easy to sell, right? Because obviously, our clients want the pain to go away as quickly as possible. I'd say on the cross-sell side, look, we're constantly looking at ways to cross-sell. We're cross-selling very nicely into our Finance Solutions base, which is great. But also we're looking at cross-selling everything that we have to all of our existing clients. The one example I gave in my prepared remarks about a client who was leveraging us for their onboarding, what they had discovered was, when they provided a credit limit to a client at the time of onboarding, there was an increased ROI on those clients. And so as we find examples like that simple one, for example, we're going to take that to all of our existing clients and cross-sell that use case and find ways to help them grow and cross-sell more capability. So I'd say as I look to the future, I believe the budgets will grow, businesses feel more optimistic. And like said, I feel that the success that we're having will continue or accelerate. So that's why I said we feel very good about the upcoming years, and building on the 90% that we have in this business growing at 6%. Ashish Sabadra: That's very helpful color. And again, it is very encouraging to see the steps that have been taken to turn around Credibility and the Marketing Solution, Digital Marketing. I was just wondering, other than that, are there any other legacy products which may be a drag on growth? And any strategic plan to either divest or turn them around? Anthony Jabbour: I'd say from a focus perspective, our focus is on the 10% right now, right? We get that solved, we're looking very strong. And so that's what our focus is. So I don't see others popping up. What we have done, we've migrated thousands and thousands of clients from legacy solutions to our most modern solutions. And that's helped us in so many ways, from cross-sell capabilities, from a retention perspective, multiyear contracts, expense reductions on our side. So we've done a lot of that work. But like I said, our real focus is the 10%. Operator: And ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Anthony Jabbour for any closing remarks. Anthony Jabbour: Thank you. As always, I'd like to thank my Dun & Bradstreet colleagues for their exceptional efforts to sustainably grow our business for the years to come, and to our great clients for their partnership and guidance. Thank you for your interest in Dun & Bradstreet, for joining us on this call. I hope you enjoy the rest of your summer. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Earnings call: Thomson Reuters raises 2024 revenue outlook on strong Q2 By Investing.com

Thomson Reuters (NYSE:TRI) has reported robust second-quarter results, with a significant increase in organic revenue growth and the completion of a substantial share repurchase program. The company raised its full-year 2024 revenue outlook, citing strong performance in key segments and a successful focus on strategic mergers and acquisitions (M&A) and shareholder returns. The monetization of its stake in the London Stock Exchange Group (LON:LSEG) contributed to the positive financial outcomes. In conclusion, Thomson Reuters has presented a strong financial performance and optimistic future outlook during its earnings call. The company's strategic investments in AI and emerging technologies, along with its focus on M&A and shareholder returns, have positioned it for continued growth. Despite some expected deceleration in the second half of the year, the overall trajectory for Thomson Reuters remains positive. Thomson Reuters (TRI) has not only delivered a strong performance in its second-quarter results but also presents an interesting picture when viewed through the lens of InvestingPro metrics and tips. With a Market Cap of approximately $70.75 billion and a P/E Ratio of 30.73, the company is valued significantly by the market, reflecting confidence in its future earnings potential. The P/E Ratio adjusted for the last twelve months as of Q2 2024 stands at a similar level of 30.59, indicating a consistent valuation over the recent period. InvestingPro Tips suggest that Thomson Reuters has a track record of rewarding its shareholders, having raised its dividend for 4 consecutive years. This aligns with the company's recent report of robust financials and the completion of a substantial share repurchase program. However, 10 analysts have revised their earnings downwards for the upcoming period, which may signify potential headwinds or a conservative outlook on future earnings. Despite the positive revenue growth indicated in the article, the company is trading at high valuation multiples such as a Price / Book multiple of 6.09 and a PEG Ratio of 1.81, which may raise questions about the sustainability of its current stock price in relation to near-term earnings growth. For readers interested in a deeper analysis, there are additional InvestingPro Tips available on https://www.investing.com/pro/TRI, which could provide further insights into Thomson Reuters' financial health and stock performance. These tips are part of a comprehensive suite of data and analytics that can help investors make more informed decisions. Operator: Good day, everyone, and welcome to the Thomson Reuters Second Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the call over to Gary Bisbee, Head of Investor Relations. Please go ahead. Gary Bisbee: Thank you, Melinda. Good morning, and thank you, everybody, for joining us today for our second quarter 2024 earnings call. I'm joined today by our CEO, Steve Hasker; and our CFO, Mike Eastwood, each of whom will discuss our results, take your questions following their remarks. To enable us to get to as many questions as possible, we would appreciate it if you'd limit yourself to one question and one follow-up each when we open the phone lines. Throughout today's presentation, when we compare performance period-on-period, we discuss revenue growth before currency as well as on an organic basis. We believe this provides the best basis to measure the underlying performance of our business. Today's presentation contains forward-looking statements and non-IFRS financial measures. Actual results may differ materially due to a number of risks and uncertainties discussed in reports and filings that we provide to regulatory agencies. You may access these documents on our website or by contacting our Investor Relations Department. Let me now turn it over to Steve Hasker. Steve Hasker: Thank you, Gary, and thanks to all of you for joining us today. Good momentum continued in the second quarter, with revenue in line and margins modestly ahead of our expectations. Total company organic revenues rose 6% with the Big 3 segments growing by 8%. As we predicted, the pace of organic and inorganic investments picked up in the second quarter as we work to position the company for faster revenue growth in 2025 and beyond. To incorporate a strong first half, we are raising our full year 2024 revenue outlook to the high end of the prior ranges and now see organic growth of approximately 6.5%, including approximately 8% for the Big 3 segments. We continue to see growing momentum from many areas in our portfolio. This includes double-digit growth from key products, including Practical Law, Confirmation, SurePrep, Pagero, Indirect Tax and our international businesses. Interest in our generative AI offerings remain strong with Westlaw Precision and CoCounsel momentum continuing. Our second annual Future of Professionals Report supports this narrative as it indicates that knowledge workers are optimistic about significant boost to productivity with AI poised to redefine workflows, drive innovation and unlock new opportunities for growth. Our 2024 investment plans are on track as we execute against the ambitious product roadmap we discussed at our March Investor Day. To this point, we recently launched two additional GenAI capabilities. The first is CoCounsel Drafting, a new legal drafting solution that works in Microsoft (NASDAQ:MSFT) Word and leverages Practical Law content as well as a customer's own documents. The second is Checkpoint Edge with CoCounsel, which brings better, faster answers to complex tax research questions through a chat-based search experience. This is the first launch of GenAI capabilities into our Tax & Accounting portfolio. Customer feedback on both of these offerings has been strong, and we continue to work towards delivering additional enhancements and launches over the next few quarters. Our capital capacity and liquidity remain a key asset that we are focused on deploying to create shareholder value, and we've made good progress on this during the second quarter. We completed the monetization of our stake in London Stock Exchange Group, bringing gross proceeds to date to $8.3 billion. We also completed the $1 billion share repurchase program launched last November. On the M&A front, Pagero integration efforts are underway, and we continue to assess additional inorganic opportunities. As a reminder, we estimate $8 billion of capital capacity through 2026. Now to the results for the quarter. Second quarter organic revenues grew 6%, in line with our expectations. Organic recurring and transactional revenue grew 8% and 5%, respectively, while Print revenue declined 7%. Reported revenue grew 6%. Adjusted EBITDA fell 2% to $646 million, reflecting a 300 basis point margin decline to 37.1%. This lower profitability was expected and results from organic and inorganic investments we are making in 2024 to position the company for accelerating profitable revenue growth. Turning to the second quarter results by segment. The Big 3 businesses delivered 8% organic revenue growth. Legal organic revenue grew 7% driven by continued momentum from Westlaw Precision and CoCounsel. Demand for our key offerings remains healthy led by Westlaw, Practical Law, CoCounsel and strong performance in our international businesses. FindLaw remains a headwind to the segment growth rate. Corporates organic revenue grew 8%. Practical Law, Indirect Tax, CLEAR, Pagero and our international businesses were key growth drivers in the second quarter. Tax & Accounting organic revenues grew 10%. Our Latin American business, SurePrep and Audit were all key contributors. Reuters News organic revenues rose 4% driven by our agency business and the news agreement with the Data & Analytics business of LSEG. And lastly, Global Print organic revenues met our expectations, declining 7% year-on-year, impacted by the migration of customers from a Global Print product to Westlaw, which we discussed on our Q4 earnings call. In summary, we're pleased with our results. Let me close my prepared remarks with a few thoughts on Thomson Reuters Ventures, our in-house venture fund. As background, in October of 2021, we announced the creation of a $100 million venture fund to support and accelerate our innovation efforts. We subsequently hired a team led by Tamara Steffens, an experienced corporate venture investor. The team is tasked with understanding and investing in emerging companies that are building differentiated technologies in the end markets we serve while also bring important insight and intelligence for Thomson Reuters. The fund invests in early-stage companies with a focus on Series A fundraising and has a global mandate. AI and emerging technologies are a focus as are workflow automation and other themes that align with the strategic priorities of our Big 3 segments. Since the inception of the fund, the team has invested approximately $50 million in 18 companies. While we expect the team to deliver attractive financial returns, there are greater benefits to Thomson Reuters from the Ventures team and fund. First, they bring significant insight and understanding about our markets, emerging technologies and start-up players and activity. This knowledge has been built up through meetings with more than 1,500 start-ups since the fund's inception. The team facilitates introductions and product demonstrations for TR leaders and leverages TR's broader product and engineering talent to help vet [ph] potential investments. In addition to insight, the Ventures team contributes to our growth strategy by surfacing opportunities for select product integrations and go-to-market partnerships. To date, this has yielded several agreements with many others in development. We also see the Ventures portfolio as a pipeline for potential future M&A candidates. We highlight on the slide the fund's investments by end market and capability. I'll quickly mention two investments to illustrate some of the opportunities that the portfolio brings to Thomson Reuters. First, I'll highlight Neo.Tax, which uses generative AI to automate research and development tax credit preparation. Their product is highly complementary to our Direct Tax offering, and we have a commercial partnership where our sales force can sell Neo.Tax offerings with ONESOURCE Direct Tax. I'd also note that our internal tax team is adopting Neo.Tax's solution after being introduced to the company by our Ventures team. And second, I'll mention Field Guide, which provides next-generation AI-based audit workflow technology. We are working to formalize a partnership, and we see its offerings as complementary to our audit methodology content. With that, I'll now turn it over to Mike to review our financial performance. Mike Eastwood: Thanks, Steve. Thanks again for joining us today. As a reminder, I will talk to revenue growth before currency and on an organic basis. Let me start by discussing the second quarter revenue performance for our Big 3 segments. Organic revenue grew 8% for the second quarter, the third consecutive quarter the Big 3 has grown 8% or better. Including the impact of acquisitions and divestitures, revenues rose 8%. Legal Professionals organic revenue grew 7%, consistent with the first quarter. Key drivers from a product perspective remain Westlaw, Practical Law, CoCounsel and our international businesses. Government grew 7% in the quarter, while FindLaw remains a headwind to the segment growth rate. Legal Professionals revenue growth continues to benefit from the migration of customers from a Global Print product to Westlaw. This added just under $5 million to year-over-year revenue growth in the quarter. In our Corporates segment, organic revenues grew 8%. Recurring revenue grew 10%, while transactional rose 1%. As expected, growth moderated from the Q1 level, which had benefited from strength in seasonal tax-related offerings. Pagero, Practical Law, CLEAR, Indirect Tax and our international businesses were key contributors. Tax & Accounting delivered a net strong quarter with organic growth of 10%. Recurring and transactional revenues grew 10% and 11%, respectively. Our Latin American business, SurePrep and Audit products, were key drivers. Moving to Reuters News. Organic revenue rose 4% for the quarter driven by the agency business and the news agreement with the Data & Analytics business of LSEG. Finally, Global Print revenues decreased 7% on an organic basis. Excluding the impact from the revenue shift to Legal Professionals, which I mentioned earlier, Global Print declined 5%. On a consolidated basis, second quarter organic revenues increased 6%. Turning to our profitability. Adjusted EBITDA for the Big 3 segments was $581 million, down 3% from the prior year period with a 41% margin. The lower profitability results from organic and inorganic investments we're making in 2024 to position the company for improving profitable revenue growth in 2025 and beyond. We expect the higher level of investments to continue in the second half. Moving to Reuters News. Adjusted EBITDA was $51 million with a margin of 24.8%. Global Print's adjusted EBITDA was $43 million with a margin of 35.2%. In aggregate, total company adjusted EBITDA was $646 million, a 2% decline versus Q2 2023. Turning to earnings per share. Adjusted EPS was $0.85 for the quarter versus $0.88 in the prior year period. Currency had a $0.01 positive impact on adjusted EPS in the quarter. Let me now turn to our free cash flow. You will see a change in presentation for this slide from the past few years. Our formal presentation of comparable free cash flow provided more clarity into the underlying performance when excluding change program payments and the impact of the 2018 divestiture of our former Refinitiv segment. With those now largely in the past, we have shifted to the free cash flow schedule shown in our earnings press releases, which we believe provides a more insightful view. For the first half of 2024, our free cash flow was $812 million, up 11% from $729 million in the prior year period. Higher EBITDA was the largest driver of the increase. I am pleased to announce we completed the monetization of our LSEG stake, selling 5.9 million shares in the second quarter for gross proceeds of $610 million. This brings the total gross proceeds to date to approximately $8.3 billion, a significant return from the $3 billion at which our equity stake in Refinitiv was valued in the fall of 2018. In the second quarter, we also completed the $1 billion NCIB or share repurchase program launched last November. And given the strength of our capital position, we plan to use cash on hand to repay the small bond issues scheduled to mature this September. From a capital allocation perspective, strategic M&A remains a key focus within our broader balanced capital allocation approach. This includes annual dividend growth, strategic M&A and shareholder returns. I will conclude with our updated 2024 outlook. As Steve outlined, we are raising our 2024 outlooks for total and organic revenue growth for TR and Big 3 to the high end of the prior ranges to incorporate a strong first half. We now see total revenue growth of approximately 7%, up from the prior 6.5% to 7%; organic revenue growth of approximately 6.5%, up from 6% to 6.5%; total Big 3 revenue growth of approximately 8.5%, up from 8% to 8.5%; and organic Big 3 revenue growth of approximately 8%, up from 7.5% to 8%. In addition to revenue, we're also adjusting two other guidance metrics. While the total outlook for depreciation and amortization of computer software remains unchanged, we are shifting $15 million from D&A of internally developed software to amortization of acquired software. This reflects updated purchase price accounting allocations for the Pagero acquisition. We are also reducing our outlook for interest expense to $125 million to $145 million from $150 million to $170 million previously. This reduction results from an earlier-than-expected completion of our LSEG monetization and the impact of higher interest rates on our cash balances. For the third quarter of 2024, we see organic revenue growth of approximately 6% and an adjusted EBITDA margin of approximately 34%. We expect the third quarter margin to be the low point for the year as our investment spending increases during the seasonally lowest revenue quarter of the year. Let me now turn it back to Gary for questions. Gary Bisbee: Thank you. Melinda, we're happy to begin the Q&A session. Operator: Thank you. [Operator Instructions] And we'll take our first question from Drew McReynolds with RBC. Please go ahead. Drew McReynolds: Yes, thanks very much. Good morning and nice to see the momentum continue here. I think three relatively quick ones for me. Just on the M&A environment, you've made it pretty clear. It is your kind of priority focus. Just if you can provide us update on - at a high level, how the pipeline is progressing and what you're seeing in terms of dynamics? Secondly, good granularity on the TR Ventures. So much appreciated. Just would love an update on the competitive environment just with respect to the start-up activity, particularly around AI and gen AI? And then lastly, on the CoCounsel pricing strategy just as you launch here, just kind of remind us how you're monetizing that out of the gate here. Thank you. Steve Hasker: Yes. Drew, it's Steve. I'll start, and I'm sure Mike will add to my comments. So on the M&A pipeline, we have a new Head of Corp Dev and Strategy, Taneli Ruda. He's been with TR for many years, but he stepped into that role in the last six months and brought a fresh perspective to our pipeline. So we're excited about where that pipeline is, and we're assessing a number of different opportunities. Nothing to announce today. And I think everything we do will be consistent with our playbook of taking products that are showing real value to our customers that we can push through our distribution and take advantage of that footprint and our customer relationships. So that's on the M&A front. With regard to Ventures and the competitive environment, we do see an uptick in competitive activity, both from our traditional competitors and from a relatively small number to date but a number of start-ups. And we view this as a good thing insofar as I think it speaks to the opportunity to use generative AI to transform the professions that we serve. So it suggests to us that we're on the right track. It suggests to us that the kind of TAM expansions that we have alluded to on our March 12 Investor Day are, in fact, very likely to eventuate over the fullness of time. And as I said in my remarks, the response to each and every one of our new product launches to date, which have been numerous and I think unprecedented in the history of TR, has been uniformly positive from our customers and from prospects. So we're sort of very respectful of our existing and new competitors, but increasingly confident of our outlook and our trajectory in this environment. In terms of CoCounsel pricing, one of the things that we've done - I think like everyone, we've been testing and learning in terms of generative AI pricing. Mike's team have done, I think, a tremendous amount of work to sort of understand the cost structure of these new products and make sure that they provide value to our customers first and foremost, and they're priced to reflect that value. And secondly, that they more than adequately cover our costs and protect our margin profile. What we try to avoid is per seat pricing. We prefer the sort of enterprise-wide model where we can drive that because we think these products are going to drive significant efficiencies within our customer base. So we want to be a beneficiary of that alongside our customers rather than on the wrong side of that trade, so to speak. Let me stop there, Drew, and turn it to Mike for any other thoughts. Scott Fletcher: Good morning. My follow-up on one of your answers there, Steve, just regarding efficiencies that you think you're going to drive for your customers. Are you starting to get a better sense of what the magnitude of those efficiencies might look like and subsequently being able to price a little more accurately based on that? Steve Hasker: Yes. It's a great question, Scott. Look, I think it's early days for us and for everyone. But if you had a chance to read our future professionals report that we put out a few weeks ago, we quantified the impact this year from applying our CoCounsel legal AI assistant as 4 hours per week per lawyer, and we think that will grow to something like 12 hours per week in a couple of years' time. And when you play that out across a sizable general counsel's office or a law firm of any size is pretty significant. So that's really what our pricing team has been focused on aligning with. And I would say, so far, so good. Scott Fletcher: Okay. And then secondly, another sort of follow-up on the earlier question in terms of looking for enterprise-wide deals and sort of that approach. Are you finding the customers as it stands, are more look - are looking for more targeted initial deals and sort of like in certain areas of the business and then hoping to expand? Is that sort of the approach at the moment? Or are you able to go in with the full enterprise-wide license right off the bat? Steve Hasker: Yes. I would say we see a pretty normal distribution here, Scott, insofar as there are a number of customers who are particularly law firms but also general counsels who are very forward-looking and very aggressive. So they've basically gone through the test of our products and said, "Okay, let's go all in and move forward." I would say, you've then got the sort of bulk of customers who, for example, as a partnership group have decided that they need to adopt generative AI, that it's going to be transformative, but they're really in test-and-learn phase. So they're evaluating their products, they're evaluating others. They're doing trials and looking to move forward. And then, of course, there's always those that would prefer to go wind the clock back a couple of years. And with them, what we're trying to do is just make the products available in test form and get them more and more comfortable with generative AI as a concept and as a set of tools, and we're confident that they'll sort of move through that cycle. So long way of saying I think we're seeing a bit of everything. And our teams under Raghu and Laura, I think, are doing a great job of ensuring that each of those different customer personas has been catered to. Manav Patnaik: Thank you. Steve, I just had a question on - it sounds like the PR machines that your firm and the competitor is obviously rolling with all the different rollouts of AI and gen AI and offerings. Just in your discussions with your clients, is there a potential for share shifts given who rolls out the better product? Or is this everyone kind of also just reestablishing their current market dynamics, which have been pretty consistent over the years? Steve Hasker: Manav, I think it's a great question. I think too early to tell how this is going to play out. I mean, we are, as I said earlier, respectful about sort of existing and emerging competitors, but we're very focused on our customers and serving them in new and improved ways and creating more value for them and driving more profit for them. And that's a shift for us in terms of our selling motion. Traditionally, we've been focused on accuracy, completeness of information, efficient use of our software tools and embedded in the workflow. And we're expanding that proposition and the sort of ROI story we tell. I think it's too early to tell as to sort of whether there will be share shifts. But as I say, I hope you can tell we're respectful of competition, but very confident as to where we sit in the investments that we've made so far and the investments we have planned for the back end of this year and into next. Heather Balsky: Hi, thanks for taking the question. I just had a question on Legal, the Legal segment during the quarter just because there's some moving pieces with those sales coming from the Print business. When you look at the organic growth kind of ex the Print shift, how are the organic sales trending sequentially? Are you seeing the modest sequential improvement that's kind of baked into your longer-term outlook? And also just now that you're a couple of quarters into this, kind of what has been the biggest learnings with regards to the gen AI rollout? And how have you been kind of adjusting your strategy as you go? Mike Eastwood: Sure, Heather. I'll start with that. In regards to Legal Professionals organic growth rate, Q2 2024 was stable with Q1 of 2024. However, when you compare it with Q2 of 2023, it's nearly 200 basis points higher. What you would see, given that we round - we provide rounding not to the decimal on a rounding basis is six versus seven. But given I have visibility in to the decimal, it's about 200 basis points higher than Q2 of 2023. Your question focused on the sequential performance of the business. So once again, stable in Q2. As we look at Q3, Q4, we see a modest improvement step up in the second half of this year, which is a result of the performance of not just the gen AI products, but the products overall for Legal. That include Westlaw, Practical Law, CoCounsel, our international businesses, along with drafting and HighQ. I mentioned during the call today that the Government business was 7% in Q2, which was a slight uptick in Q2 versus Q1. The business that continues to provide some headwinds is the FindLaw business, which I've now mentioned, I think, for three, four quarters consecutively. The growth rate for FindLaw is slower than the other portions of the business, which creates some suppression. As we go into the second half of this year, we do see a modest step-up, Heather, in the Legal - the total Legal Professionals organic growth rate. Steve Hasker: And then, Heather, on - with regard to your second part of your question on learnings, look, I think there have been many and varied. I'd point to three in particular. So the first is that lawyers and tax and accounting professionals, auditors are leaning in to generative AI. And I think as it pertains to particularly the legal profession, I think it's certainly against where I thought they'd be. I think they are more open-minded about it and certainly pressing for solutions and to test and learn and adopt. The legal profession, depending on how you define it, is 350 or 400 years old, and it's been characterized as sort of moving very slowly. That is not what we are seeing here. So I think that's the first learning. The second learning is a real drumbeat around the importance of trusted information and content to train and tune large language models and the need for the provider of these tools to be a responsible and ethical arbitrary generative AI. And those themes are in every conversation to sort of need to assure our customers that the output of these products can be relied upon. And I think the third one, which is slightly different, is the interest in demand has been just as large from the smallest customers as the very large global firms. And that's been really interesting to see. Typically, when we put out a new version of Practical Law or Westlaw, it's typically the biggest firms with the deepest pockets who sign up, whereas what we've seen is really good uptake within Aaron Rademacher's business, which is our small law firms and also [indiscernible] which is mid law. Just the sort of uptake in demand has been just as strong within those segments as it has within [indiscernible] global large law segment. Heather Balsky: Thank you both very much. Operator: [Operator Instructions] And we'll go next to Andrew Steinerman with JPMorgan (NYSE:JPM). Your line is open. Stephanie Yee: Hi, good morning. This is Stephanie Yee stepping in for Andrew. The corporate organic revenue growth was a little bit faster than we were expecting. Would you say that you've seen a pickup in sales activity? And I know you called out a few products, but would you attribute the growth as primarily driven by legal products or tax products? Mike Eastwood: Yes. Stephanie, happy to start there. We're pleased with the Corporates segment. I know we're focusing today on the second quarter. But for the first half of this year, it's a 10% organic growth for the total Corporates segment. And if you look at the underlying net sales of book of business, we had comparable growth, Stephanie, which gives us confidence as we go into Q3 and Q4. We have called out in prior quarters elongated sales cycles for the Corporates sales team. We're cautiously optimistic with the performance that we see right now. And once we go into Q3 and get another quarter behind us, I think we'll be able to provide further visibility, but certainly incredibly pleased. In regards to the products right now, we're seeing really strong performance from all that I mentioned, Practical Law, CLEAR, Indirect Tax and our international businesses. As a reminder, when we reference Indirect Tax, that includes the Pagero acquisition from Q1 of this year, which includes e-invoicing. So we've had really strong performance from the overall portfolio in Corporates thus far. As we look at our sales pipeline for Q3, Q4, we remain optimistic that we just have to continue to earn it each day, Stephanie, but off to a really good track there. That 10% organic growth for the first half is that's 300 basis points higher than full year 2023, so look forward to providing a further update on Q3, but good traction thus far. I would say a key point, Stephanie is execution by Laura Clayton McDonnell and our full team there. Toni Kaplan: Thanks so much. Wanted to go back to TR Ventures. Looks like you still have about half the capital left to invest. But I guess, looking ahead, is this an area that you would look to put additional investment dollars in? And Mike, how are you thinking about ROI on this? Because I feel like there's a lot of innovation benefits, and that's maybe hard to measure contribution. So I guess, just talk about how you think about ROI with related to the Ventures. Mike Eastwood: Sure, Toni. We have ongoing discussions with Tamara, who Steve mentioned in his prepared remarks. Given that we have roughly half the capital, still a fair amount left this year. But as we go into 2025 and beyond, we are prepared to make additional investments in these areas. We're pleased with the investments that we've made thus far, Toni. You mentioned the financial return is important, but also the strategic return importance to the company in regards to the innovation and really fueling our product pipeline. But we apply similar financial metrics and rigor to Ventures as we do to other parts of our business. And I went into pretty lengthy detail during the March 12 Investor Day in regards to the financial metrics that we apply, Toni. But we are committed to incremental investments as we go forward in 2025 and beyond, Toni. Toni Kaplan: Terrific. And then as a follow-up, I guess the first half EBITDA margin increased about 50 basis points year-over-year. If I look at the full year guide, that would imply a pretty steep deceleration in the back half year-over-year. Is there seasonality or acquisition dilution that we should be thinking about? Or what would maybe drive or maybe it's just conservatism? So I guess, what would sort of drive that implied margin decel in the second half? Thanks. Mike Eastwood: Sure. We - Toni, we remain committed to achieving our full year EBITDA margin guidance of 38%, approximately 38% that we provided back in February. We reaffirmed on that today. We've been very consistent in the last nine months, stating that 2024 is a year of investment, both in organic investments and inorganic. By inorganic, I mean the integration-related costs that we have with the acquisitions we've done in the last 12 months to 15 months. If you look at Q3 specifically, Toni, I would call out the convergence of four factors that contribute to that 34% margin guidance. Number one, Q3 will be the lowest revenue quarter due to the seasonality of our TAM business. So in absolute dollar terms, you have the lowest revenue in Q3. Second item, yes, organic investments that we committed to making. If you go back to the March 12 Investor Day, I went into lengthy detail there in regards to product innovation, infrastructure, go-to-market and customer experience initiatives, including partnerships. The third item that is incremental investments for us in Q3, Q4 is the inorganic investments that you referenced, specifically integration work related to Pagero, SurePrep, Casetext and other acquisitions. And fourth item, which is to a lesser extent, we did have higher incentive compensation expense in Q3, Q4 due to us exceeding our revenue expectations, which aligns with us improving our guidance on today's call. So those four items really converge, Toni, in regards to the margin expectations for Q3, Q4. But once again, full year, we're committed to the approximately 38%, and we remain committed to the expansion in 2025, 2026. So we are proceeding as we planned at the beginning of the year with these investments. And given the ebbs and flows of our absolute revenue and the timing of the investments, those converge to the 34% margin. Maher Yaghi: Great. Thank you for taking my question. I wanted to just understand the puts and takes in your guidance. As we finish the first half of the year, the Big 3 revenue organic growth rate was 9%, and your guidance is calling for 8%, so basically, at 7% in the back half or 7.5%, something like that, so some deceleration. You discussed that corporate might see some deceleration in the back half. I'm trying to just put that into context with your forward-looking statement about acceleration of revenue growth in 2025, 2026. So I'm trying to figure out why the deceleration happening in the second half and how we're going to move to an acceleration in 2025, 2026. Thank you. Mike Eastwood: Sure, Maher. Happy to start there. First, I'd just remind you, in the first semester for total TR in Q1, we had $25 million worth of orders GenAI licensing deal, which we stated was transactional one-time. We had a similar $18 million in Q4 of 2023. So that $25 million of orders GenAI licensing deals was a strong contributor to Q1 and H1. Second item I would mention is that we spent quite a bit of time during our Q1 earnings call explaining that we had some seasonal benefit in the first quarter in our Corporates business and also in our Tax & Accounting Professionals. Just a reminder that if you look at our Tax & Accounting Professional business and in the Corporates business, we are impacted by seasonality in regards to when the Tax Professionals will regenerate the revenue from our Tax products, which were both in Tax and also in our Corporates segment. Next factor I would mention, as you look at year-over-year comparability in Q4 of 2023, we had that $18 million of GenAI. That creates about 100 basis points of organic growth dilution when you do comps year-over-year. So those are some of the factors, Maher, that relate to the puts and takes this year. But we are very confident in achieving the 6.5% organic growth for total TR, the 8% for the Big 3, and we remain confident in further acceleration into 2025. Maher Yaghi: Thanks, Mike. And just a follow-up on your AI initiative on the - in Legal. Now in addition to the potential cost savings to lawyers and law firms, is there a potential revenue augmentation for these firms as they adopt AI? Or cutting cost is going to be the main focus for them by adopting these products, i.e., can they turn around and with the lower time used by lawyers, can - is there a potential for them to get revenues upside? Or the market is so mature that the focus is mainly on cost savings? Thank you. Steve Hasker: Maher, it's Steve. I would say, it's probably too early to sort of declare one way or another. But what we're seeing from customers is a focus on both in the early going. So on the revenue side, we have a number of particularly innovative customers who are starting to use our products combined with their own internal capabilities to experiment with new lines of business. And this is very early, but to say the least, very interesting. So we'll see how that plays out. But it's definitely an area of focus. It's not entirely cost. And on the cost side, I'd point to the experience for the history of the application of e-discovery tools within the legal profession. Before the e-discovery tools were rolled out, the profession - a large firm may have several hundred people doing largely discovery-type tasks, and they were charging that out by the billable hour. And then e-discovery tools were rolled out. That - those couple of hundred people were no longer required to do e-discovery and yet the size of the firms grew and the revenues grew. So in other words, the firms did two things successfully. Firstly, they migrated that talent to different tasks; and secondly, they were able to adopt value-based billing or other revenue-generation techniques to overcome the sort of decline in hours on that particular task. So history is not a perfect predictor of the future. But certainly, that is one example, I think, that points to where the firms will try to go and they're increasingly experimenting with at the moment. I hope that answers your question. Sami Kassab: Thank you very much, and good morning, everyone. Can you please comment on the feedback from CoCounsel early adopters, especially on reliability, given the context of the Stanford University study? In other words, are we seeing early adopters broaden their pilots to include a larger number of professionals within the firm? Or is it too early to tell? Thank you, Steve. Steve Hasker: So Sami, the feedback on CoCounsel from its early days when it was part of Casetext under Jake Heller's leadership all the way today with the significant investments that we've made in it under the ownership of TR has been very positive. So we're excited - increasingly excited about that acquisition, not only for the legal AI assistant and the skills therein, but also in the application of those skills across all of our products. And the launch of Checkpoint with CoCounsel is the first of many examples of that. And if you like a sort of a broader explanation as to where we're going, please go back to our Investor Day and David Wong's presentation of the sort of integrated product set from March 12. The - you mentioned the Stanford study. The Stanford study did not cover CoCounsel. Initially, it focused on Practical Law and incorrectly - on Practical Law and then Westlaw. And just to be really clear on this, we disagree with the findings of the Stanford study. Our internal testing of Westlaw Precision AI-assisted research shows an accuracy rate of 90%. And that's what our customer testing is bearing out. So the short answer is, we don't agree with the Stanford study. And we'll welcome as we go forward more robust independent research efforts, which will inevitably occur. Sami Kassab: And is it too early to say whether the pilots are more being broadened to more lawyers and members of the firm? Are we seeing that trend happening now? Steve Hasker: We're seeing that. That process is starting, that process is starting. So typically, a firm will apply the product to a portion of their population, and then in success, they'll broaden it out. Operator: Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.

Earnings call: Kinaxis posts solid Q2 growth, eyes cautious outlook By Investing.com

On August 1, 2024, Kinaxis Incorporated (ticker: KXS), a leader in supply chain management software, reported notable growth in its Fiscal 2024 Second Quarter earnings call. The company announced an 18% increase in SaaS revenue, totaling $75.4 million, and a 12% rise in total revenue to $118.3 million. Despite facing delays in large enterprise deals and a cautious market outlook due to the upcoming US presidential election, Kinaxis remains optimistic about its long-term growth, backed by a strong pipeline and strategic partnerships. In summary, Kinaxis Incorporated has demonstrated resilience and growth in the second quarter of Fiscal 2024, backed by strong SaaS revenue and customer acquisition. While facing some headwinds in deal closures and market uncertainties, the company's strategic initiatives and focus on profitability suggest a steady path forward. With the introduction of new products like Maestro and an emphasis on strategic partnerships, Kinaxis is positioning itself for sustained success in the dynamic supply chain management industry. Operator: Good morning, ladies and gentlemen. Welcome to the Kinaxis Incorporated Fiscal 2024 Second Quarter Results Conference Call. [Operator Instructions]. I'd like to remind everyone that this call is being recorded today, Thursday, August 1, 2024. I will now turn the call over to Rick Wadsworth, Vice President of Investor Relations at Kinaxis Incorporated. Please go ahead, Mr. Wadsworth. Rick Wadsworth: Thanks, operator. Good morning and welcome to the Kinaxis earnings call. Today, we will be discussing our first quarter results, which we issued after close of markets yesterday. With me on the call are John Sicard, our President and Chief Executive Officer; and Blaine Fitzgerald, our Chief Financial Officer. Before we get started, I want to emphasize that some of the information discussed in this call is based on information as of today, August 1, 2024, and contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statements disclosure in the earnings press release as well as in Kinaxis's SEDAR filings. During this call, we will discuss IFRS results and non-IFRS financial measures, including adjusted EBITDA. A reconciliation between adjusted EBITDA and the corresponding IFRS result is available in our earnings press release and in our MD&A, both of which can be found on the Investor Relations section of our website and on SEDAR+. Participants are advised that the webcast is live and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations section of our website. Neither this call nor the webcast archive may be rerecorded or otherwise reproduced or distributed without prior written permission from Kinaxis. To begin our call, John will discuss the highlights of quarter as well as recent business developments, followed by Blaine, who will review our financial results and outlook. Finally, John will make some closing statements before opening the line for questions. We have a presentation to accompany today's call, which can be downloaded from the Investor Relations homepage of our website kinaxis.com. We will let you know when to change slides. Over to you, John. John Sicard: Thank you, Rick. Good morning, everyone, and thank you for joining us today. Let's get started on slide 4. We delivered solid results for our second quarter, including $75.4 million in SaaS revenue, representing 18% growth. Total revenue grew 12% to $118.3 million, an outcome that reflects being in a lower part of the normal term license renewal cycle. We reported almost $22 million in adjusted EBITDA and a 19% margin, a strong result. I'm very pleased with the steps we've taken to enhance our profitability. We added approximately $12 million to our ARR balance despite foreign exchange headwinds and an ongoing choppy buying environment, particularly for large enterprise prospects. It is worthy of note that roughly 75% of our ARR growth this quarter came from new customers, which will provide exceptional fuel for future expansion opportunities. On to slide 5. We won a record number of customers for a Q2 and the second highest number of any quarter in our history, a tangible reflection of the strength and persistence of demand for supply chain orchestration and of our superior position in the market. We continue to have strong win rates against all of our key competitors and continue to sustain an elite customer retention rate. Let me share a sample set of those new customers with you now. I'm absolutely thrilled to announce that we were selected to orchestrate the supply chain of Eli Lilly, a medicine company turning science into healing to make life better for people around the world. Our dominance among pharmaceutical companies continues. Today, fully half of the top 20 pharma companies by 2023 revenue are customers of Kinaxis, a truly impressive accomplishment. We recently announced a Q2 win at Syensqo, an enterprise class specialty chemicals company that contributes to safer, cleaner, and more sustainable products such as EV battery materials and sustainable technologies in agriculture. The Asia-Pacific team contributed an all-time record quarter for their region, including wins at Brother Industries -- you may own one of their well-known printers or sewing machines or other electronics; Kioxia, a leading provider of flash memory products; and Daedong, an agricultural machinery manufacturer. We won Italian mid-market pharmaceutical company, Zambon, which manages the production of drugs for Parkinson's, cystic fibrosis, and other challenging diseases. KimRay, a US-based manufacturer of valves and controllers for oil and gas companies joined the customer base also. We added Arcor, an enterprise class maker of consumer food products, agro-industrial products, and packaging. All these successes and more have been earned in an environment where buying decisions, particularly, for the largest enterprise opportunities continue to be subject to elevated levels of scrutiny. I'm pleased to announce that we have started executing on the go-to-market reinvestment plans we talked about last quarter. For example, we just finalized a new strategic relationship with one of our largest and longest-standing consultancy partners. Together, we will co-invest towards significantly expanding our joint go-to-market opportunities in key verticals and create new deployment capacity and expertise for delivering our solutions. Details will come soon. We see this strategic partnership and other similar relationships we're exploring as potential game changers for our market reach and sales capacity. Stay tuned as we expect to formalize and publicly promote these very, very soon. Moving to slide 6, Gartner (NYSE:IT)'s Supply Chain Top 25 was released in May and we are extremely proud that the top three have chosen Kinaxis as their supply chain orchestration partner as did half of the top 10. Gartner also reserves an even higher level category called supply chain masters for companies that have maintained top five scores for at least 7 of the preceding 10 years. It's an absolute honor that Kinaxis serves two of those prestigious companies as well. In short, being the leader and ability to execute is leading us to becoming the trusted choice for supply chain leaders globally. Over the last three years, we've more than doubled the customer base growing at a fast pace 28% cumulative average rate. This simple fact positions us extremely well for the long term as we increase our emphasis on expansion sales to a rapidly expanding base. Onto slide 7. Kinexions, our amazing annual community conference held this past June is another excellent reflection of both our long-term opportunity and the strength of our current demand. Once again, we experienced record attendance with over 730 attendees, including a healthy number of prospective customers. They made their way to Miami for a jam-packed three days of thought-provoking leadership, networking, and some major announcements. This year, our big announcement at Kinexions was the introduction of Maestro, the evolution of our flagship product rapid response. Maestro is our AI-infused supply chain orchestration platform that provides full real-time transparency and agility across the entire supply chain, fusing together planning and execution and managing everything from multi-year planning horizons to down to the second factory execution and last mile delivery. Just as we broke down silos in supply chain planning functions, with Maestro, we'll break down silos across the full supply chain end to end. Maestro will be the conductor taking in data from the full supply chain ecosystem, ultimately including functions like network design, procurement, production, planning, finance, risk management, sustainability, fulfillment, and other areas, and serving the full supply chain community concurrently throughout as only Kinaxis can. So that manufacturers have one real-time view of their supply chain network at any moment in time. This is what it takes for a supply chain to be in tune, on time, and orchestrated in total harmony. Through fully integrated AI engine, we will automate the obvious actions, sends issues and opportunities as they arise, proactively suggest optimum course corrections, and democratize access to the machine learning power behind Maestro to even the most high level of users. A recent IDC study sponsored by Kinaxis revealed that 97% of global supply chain leaders agreed that better orchestration would have a positive impact on supply chain performance. So we're thrilled to be leading the industry towards that future. I'll now turn the call over to Blaine to review the financials for the quarter and discuss our updated outlook in detail. I'll conclude with a few remarks after that. Blaine? Blaine Fitzgerald: Thank you, John, and good morning. As a reminder, unless noted otherwise, all figures reported on today's call are in US dollars under IFRS. Starting on slide 8, I'm pleased to report solid Q2 financial results, which included strong profitability and free cash flow. ARR growth was dominated by new customer wins, including some large enterprises, while we continue to see exceptionally strong growth in our RPO balance. All despite some foreign exchange headwinds, restructuring charges, and ongoing elevated scrutiny in the buying environment. Total revenue in the first quarter was up 12% to $118.3 million, reflecting a normal low in the subscription term license renewal cycle. Our SaaS revenue grew 18% to $75.4 million and would have been 1% higher without the foreign exchange headwind in the quarter, particularly around Japanese yen. Our subscription term license revenue was $1.4 million, which is in line with the outlook we provided at the outset of the year. Subscription term licenses largely follow the normal cadence of renewals among our small group of on-premise customers or those that have the option to move their deployments on-premise. Professional services activity resulted in $36.5 million in revenue, for 22% growth over Q2 2023, a reflection of strong customer additions and expansions in recent periods. Maintenance and support revenue for the quarter was up 9% to $5 million. First-quarter gross profit increased 10% to $70.2 million and gross margin in the quarter was 59%, down slightly from 60% in the comparative period. The lower gross margin is attributable to the decline in high-margin subscription term license revenue in the period and a lower software gross margin reflects our ongoing transition to a public cloud-first hosting model. This is partially offset by a very strong 27% professional services gross margin. Adjusted EBITDA was $21.9 million, up 44% from $15.2 million and representing a strong 19% margin compared to 14% in the second quarter last year. The higher margin reflects our heightened focus on profitability and relates to very successful initiatives aimed at gaining operating leverage as we scale. Our profit in the quarter was $3.4 million, or $0.12 per diluted share compared to a loss of $2.5 million or $0.09 per share in Q2 last year. Profit this quarter includes $5.5 million related to the restructuring initiative we previously announced, so the improvement would otherwise have been much more significant. Cash flow from operating activities was $13.1 million compared to $13.9 million in Q2 2023. Cash, cash equivalents, and short-term investments were $282.3 million compared to $293 million at the end of 2023. Moving on to slide 9, given the nature of our business, free cash flow margin tends to vary considerably period to period based on billing and collection cycles, capital investments, and other factors. As a result, I focus on the trend of our last 12 months free cash flow compared to our last 12 months revenue rather than just current period results. As you can see on this basis, our free cash flow margin is at 15.1% and has been improving nicely since 2022 and reflects our heightened focus on profitability. Our cash flow from operating activities and our cash balances would have been even stronger this period without the restructuring charges. And in the case of our cash balances, our very active share buyback program . On slide 10, our annual recurring revenue or ARR grew to $339 million, an increase of 15% from Q2 2023. Thanks to winning a record number of new accounts for Q2, we observed that over 75% of the incremental ARR generated during the quarter came from new customers. I would also like to note that the ARR balance was impacted by just under 1% by foreign exchange fluctuations. We are delighted to have secured some large enterprise customers this quarter. With these accounts, we continue to observe phase deals. We start with a smaller initial subscription amount and include increases in both value and project scoped in later years of the contract term. As a result, the incremental average annual contract value or ACV of all deals we won in the first half of 2024 outpaced the incremental ARR that we recognized by a factor of 1.18, the highest we have seen yet. To illustrate, if a three-year phase contract starts with $1 million subscription in year one and increased to $2 million and then $3 million in years two and three, the ACV is $2 million but we would pick up only $1 million in ARR. We look forward to adding the free ARR related to these phase deals in future periods. Turning to slide 11, at quarter end, our total RPO and SaaS RPO remained extremely healthy at $748 million and $705 million and grew 28% and 30%, respectively, year over year. One reason that RPO is growing faster than ARR is the phase deal phenomenon, I just mentioned, as RPO includes the fully ramped contract values. The three-year CAGR for both our total RPO and our SaaS RPO is 25%. I encourage you to focus on these excellent longer-term results as quarterly RPO can fluctuate significantly with normal customer renewal cycles. Further details on our RPO can be found in the revenue note to our financials. On slide 12, while Q2 new customer wins were robust and RPO growth remains strong, we needed more large enterprise deals at higher average amounts to preserve SaaS guidance for the year. Kinaxis and many of our peers have recently talked about longer sales cycles and smaller initial deal sizes with large enterprise prospects in several recent periods. And we haven't seen the environment change yet. As a result, we now expect SaaS revenue growth of 15% to 17%. We are maintaining our total revenue guidance, so I fully expect the result to be at the lower end of the range. Subscription term license guidance is unchanged and we still expect to recognize roughly 15% of the full-year amount in Q3 and a similar amount in Q4. For SaaS growth to accelerate meaningfully in 2025, the large enterprise buying environment need to return to normal conditions by the end of this year and persist. A steadier foreign exchange environment would also be beneficial. We fully expect the reinvestments we are making in go-to-market, including the recently signed strategic partnership with one of our major solution integration partners, to have a positive impact, but more substantially in 2026 and beyond. I'm very pleased to raise our 2024 adjusted EBITDA margin guidance for the second consecutive quarter. We now expect to achieve a margin of 19% to 21% for the year. It is gratifying to see our heightened focus on profitability translate to results. I remain confident in our goal of consistently delivering 25% adjusted EBITDA margin in the midterm, normalized only for expected subscription term license variability, and expect to take another step towards that next year too. Finally, on slide 13, we have continued to be very active on our normal course issuer bid, which allows us to purchase up to 5% of our stock or approximately 1.4 million shares by November 5, of this year. We've repurchased over 529,000 shares in the first half of 2024, representing an investment of $57.4 million. Since inception, we have repurchased approximately 858,000 and have roughly 567,000 shares still available for purchase under the program. We're very happy with our investments. Overall, I'm very pleased with our longer-term trajectory. We've made many important strategic changes in recent periods that will have a positive impact on results ahead. We look forward to a more typical buying environment that will allow the full potential of our new strategies to be realized. I'll now turn the call back to John. John Sicard: Thank you, Blaine. Hopefully, you all saw our recent announcement in June that José Alberto Duarte has joined the Kinaxis Board. José lives in Portugal. He has worked in France, the Netherlands, and the US, and comes to us with over 30 years of senior leadership experience, including as CEO for three separate companies. He's held multiple leadership roles at SAP, including President of EMEA and India and President of Latin America. Among his board positions, José currently serves as Chair at ProAlpha. Kinaxis is a global company and I look forward to seeing José bring his unique global experience and perspectives to bear in his new role as Director. Despite the large enterprise deal delays that we are experiencing alongside many SaaS peers, we remain focused on our excellent long-term opportunities and are making important progress. We're winning customers at a record pace, including marquee names like Eli Lilly. And when we win a customer, we keep them for a very long time. This success is reflected in a committed backlog of business that has grown at a 25% three-year CAGR. We started to reinvest in targeted go-to-market initiatives, including the first of multiple major new partnerships with global SI partners that we anticipate will greatly expand our joint opportunities and significantly expand our selling capacity. Our heightened focus on profitability has translated to steadily improving free cash flow and a second raise in our annual adjusted EBITDA guidance. We've launched a groundbreaking AI-infused platform that is leading the market towards a much needed end-to-end orchestration of their supply chains. And we're still only in the early days of the digital transformation of supply chains. In short, we remain very excited about the excellent growth opportunities ahead and seeing our strategies come to full fruition. As always, thank you for your ongoing interest and support in the company. I welcome your questions, and we'll turn the line over to the operator to start the Q&A session. Operator: [Operator Instructions]. Your first question comes from the line of Paul Treiber from RBC Capital Markets. Paul Treiber: Well, thanks very much and good morning. Just hoping could you elaborate further on the delayed large enterprise deals? Typically, how many do you see per quarter that are that are delayed or take longer than you expect? And then how long are the delays on average? And then have you seen any delays turn into deals just being lost and never materialize? John Sicard: It's a great question, Paul. And first, we started seeing these, I'd say, in 2023, and they persisted in 2024. I would say that the timing between being sort of vendor of choice and getting ink dry on paper, I'd say, has elongated by roughly twice. We see sort of 2x delay in getting those deals signed. I wouldn't categorize it as losing opportunities as much as I would categorize it as scrutiny on the signing process, often requiring a Board-level approval for things that, quite frankly, we didn't see in 2022 or prior to 2022. We're thrilled obviously with Eli Lilly and the magnitude of that opportunity. That's a classic representation of an extremely large enterprise deal. Phenomenal win for us. Very long, I'd say, longer-than-normal contractual terms and a pretty steep ramp. So we're pretty thrilled with that, going forward. There are multiple enterprise, large-enterprise opportunities ahead of us for the remainder of the year. And obviously, we're tracking those and the timing of those very, very closely. Paul Treiber: I think the change in '24 SaaS revenue guidance is obviously in light of those delays. But Baline, you mentioned '25, there could also be some impact. The question really is, if these are delays in closing and also face deals, it's a timing issue. So why wouldn't at a certain point the growth normalize, even if it just takes longer for the deals to close and to ramp? Blaine Fitzgerald: What we're seeing is -- we're looking for a stabilization of that sales cycle at this stage and indicators that things will go back to normal from what we've seen before. We haven't seen those indicators as of this agent. So we're continuing on the path based on our best assumptions. And obviously, what we're building in 2024 will have the biggest impact on what we do in 2025. And so regardless, if 2025 picks up, which we do have some belief that that will happen based on a lot of early discussions and also the Maestro discussions that we've been able to communicate to our prospect base. We do think it's -- based on what we've built on right now, what we see is a slightly depressed 2025 unless there are some indicators that the Q4 numbers are much higher than we would have anticipated the beginning of the year. Paul Treiber: And just a quick follow-up. Slightly depressed relative to the -- your longer-term outlook you previously gave for SaaS growth. Blaine Fitzgerald: So we have a longer-term outlook right now. We obviously continue to look at our next 12 months in 2024 as the guidance we provided. We do think that there is an opportunity to grow from where we're at right now. And I think that's something that we're still continuing to look at in terms of our prospect discussions that we're having. However, there is -- I think, 2025 is going to be contingent upon how ARR does this year. And right now, from what we see on ARR, we want to make sure that we're not getting too far in front of our . We do see that there is a good opportunity, but I want to make sure that we use the metrics and the data in front of us right now. John Sicard: Let me just add to that. We've been extremely pleased with the win rates that we're experiencing and the customer adds with multiple large enterprise deals I've closed in the first half of this of this year. The other thing that we're seeing alongside scrutiny for signing authorities and things of that nature, just like Eli Lilly, they started much smaller than perhaps we would have seen them start two or three years ago. And so the ramps tend to be a little steeper. So there's two sides to this large enterprise phenomenon. One is the elongation of signing contracts, and two, starting with smaller footprints and ramping steeper along the way, which is why we've been focusing also on RPO growth because the RPO number has the full amount in it. Operator: Your next question comes from the line of Thanos Moschopoulos from BMO Capital Markets. Thanos Moschopoulos: Hi. Good morning. The RPO growth is obviously very strong up. Just wondering was there a renewal tailwind for the quarter that was more pronounced than perhaps we saw in the March quarter? Or was that not the case? Blaine Fitzgerald: It's a good question, Thanos. Obviously, renews would help an RPO quarter -- a strong quarter. We didn't have a strong or a big renewals quarter in Q2. It was one of our lower renewal quarters in the last year. So this will become more related to the strong TCV growth or total contract value that we got from the new logos that we brought in the door. Thanos Moschopoulos: Okay. And you don't disclose an ARR, but qualitatively, can you speak to whether that's increasing just given the investments you've made in customer success and perhaps some of those your two ramps starting to kick in, are you seeing ARR pickup or not yet? Blaine Fitzgerald: Yeah, right now, it's pretty consistent with what we've seen historically. I think that -- I mentioned in the script or in the discussion that 75% of our ARR came from new logos. We are continuing to hit the gas on bringing as many new logos as possible and that expansion and upsell muscle is something that we are -- we currently continue to strengthen. And that strategic partnership that I mentioned, which I think is to be extremely important, has identified a number of opportunities on the upsell and cross-sell, obviously, that impacts our expansion needs ARR in the future. So we think that thesis is our back pocket trump card that we're getting ready to use. Thanos Moschopoulos: Great. Finally, John, just to be clear, you obviously had a bunch of mid-market wins. And so would you say that mid markets remain a lot more resilient relative to the macro condition or what's the macro dynamic in that segment? John Sicard: Yes. It's a great question, I'd say. First, we categorize mid-market separate from what we would categorize enterprise, separate from what we would categorize large enterprise. And I'd say roughly 50% of the quarter came from enterprise and 50% came from mid-market or the SMB kind of space. And so more importantly, and obviously, some of the wins came from large enterprise as well as we just announced Eli Lilly and there were others. In any case, the win rates that we continue to focus our attention on, as Blaine said, and fueling future expansion opportunities. That's really the primary focus. I'd say that to apply a little bit of color on to Q2, slightly less contribution than we had had in the previous quarters from our initiative which is more of the S of the SMB. So it was primarily, I'd say, mid-market and enterprise. Operator: Your next question comes from the line of Doug Taylor from Canaccord Genuity. Doug Taylor: Yeah, thank you. Good morning. Blaine, I'll ask perhaps you to clarify on earlier line of question. I think it was Paul's. When you speak to 2025 potentially being also exhibiting some depressed trades due to lower -- slower large deal signings, I just wanted to be crystal clear, you're referring to growth below maybe your longer-term growth aspirations and not necessarily lower relative to the performance we're expecting here in 2024? Blaine Fitzgerald: Yeah. No, I think that's absolutely right. We're looking at large enterprise. The particular impact that we have for 2025 happens on how we grow ARR in 2024. And as of right now, we're seeing large enterprise coming in on longer sales cycle. We do expect to benefit from the go-to-market reinvestment that we've just been going through. That's a big contributor to where we think ARR can reaccelerate in 2025. But I want to make sure that everyone understands that there is a strong correlation to our short term based on the ARR that happens in a particular period. The long-term RPO that we have, it obviously points to a direction that we do expect to have a lot of committed opportunity that's in front of us because that's growing absolutely quite quickly right now. I mean, in fact, I'll just go back to that new logo comment. The new logo TCV or ACV or ARR increment, whatever you want to use, is one of the highest we've ever seen. In fact, I think it's in the top two of what we've ever seen in the particular quarter. So we're building that group to be able to grow in the future. That committed backlog is in our forecast right now, but we still want to make sure that everyone understands that ARR drives the short-term, RPO drives long term. And we have a good future in front of us. Doug Taylor: And so just as we step back and look at that phenomenon you mentioned with the staged deployments we've seen over the last couple of quarters or a year, I just wanted to again ask maybe a different way about the question of when we should expect that to normalize? I mean, if you're talking about three- to five-year contracts, I mean, would it take a total of three years for that to completely wash its way through the model and you're picking up as much revenue from previously signed contracts as you may be having held back from new contracts? Is that a fair way to think about that? In '26, '27, we should be, you know, this should have completely washed its way through the model or could it happen sooner? Blaine Fitzgerald: I think '26, '27 is a fair assumption of when the majority will wash its way through. But as we keep adding, obviously that extends over time. I think, obviously, we don't try and ramp our deals at the very, very end of the contract. We want to make sure that our users are able to get the benefits of using additional modules or having more users and have that before they come up for renewal. So yeah, I think it's a good assumption that the ramp impact will happen generally in the first half of the contract. Doug Taylor: That's helpful. Thank you. Last question for me. I just wanted to clarify, I mean, EBITDA guidance once again raised. I just wanted to ask, I mean, is that to any degree a positive benefit on the bottom line from currency? Is that a factor at all? Or maybe you could expand on where you're finding savings, if that's not the case? Blaine Fitzgerald: Yeah, currency is -- we have one of those -- we have phenomenons that the topline is getting depressed because of the weakness against USD. So Japanese yen and euro are the two culprits on outside. Canadian dollar is benefiting. But right now, what we're seeing is a complete offset because of the revenue side. What we're actually seeing is a lot of efficiencies as a result of the restructuring that we've just gone through. We think that we've found some areas that we're able to manage the costs a little bit better based on like changes where our workforce are be dispersed throughout the geography as well as the fact that we had some inefficiencies that we've rectified as a result of the restructuring. Operator: Your next question comes from the line of Lachlan Brown from Redburn Atlantic. Lachlan Brown: Hi, John, Blaine. Thanks for the question. I was just wondering, just in terms of bookings, it seems like it was quite a healthy quarter with several large new customer wins. But obviously you've called out a subpar buying environment going forward. What in particular has changed from what seems to be a good buying environment this quarter to expectations in the second half? John Sicard: Yeah. The biggest thing to point to here is large enterprise. And obviously, when we look at the results and record number of logos for Q2 in the history of our company, second largest in the history of our company across any quarter, to me, I see that as a healthy sign of the market. There are certainly a lot of companies out there that are recognizing the need to transform. And people have asked me this before, what's the likelihood that people are going to move away from this cascaded waterfall lethargic kind of a model towards one that is fully concurrent and fully connected. I answer the same way every time. There's a 100% chance that people are going to move there. The question is timing. It's kind of like when the Internet was born and people could send e-mails, there were still some people looking stamps, but eventually, people realize that maybe email is a better way to go. And so we feel the same way about supply chain. So to your question, I'd say it's still a very healthy buying environment. We have some wonderful logos in the pipeline right now in the large enterprise space that we're working on and the enterprise and mid-market and SMB space are necessarily suffering, I'd say, the same level of scrutiny that we're seeing in the extra-large deals that we have on the table. So that's how I would color the circumstance that we're in. And as Blaine said, we're constantly monitoring this to see a more normalized approach into the future. We do think that this may persist through the remainder of this calendar year, at least. But we'll monitor things as we go. It's not affecting our win rates. Our win rates are north of 60% across all our cohorts, say, competitors. All of that is very, very healthy. So really, it's large enterprise where we're seeing this particular phenomenon. Lachlan Brown: That's very clear. Do you feel like the uncertainty around the US presidential election having an impact on the timing of these large deal? John Sicard: Yeah, I'm not sure whether it's having an impact on the scrutiny of spend. It may. I feel somewhat unqualified to link the two, quite frankly, but it very well may in the US as monetary policy, fiscal policy are being evaluated depending on who is in power. Quite frankly, I would not say specifically experienced that as the underlying phenomenon. Lachlan Brown: Yeah. Thank you. And last question, yesterday made a comment in its release that customer investments in response to COVID-19 supply chain disruptions are showing signs of leveling off. I'm just curious, in your view, are you seeing this in the market or it's just the soft buying environment purely attributed to the macro delay timing? John Sicard: It's the latter for us. Like I said, we have a healthy pipeline. We have healthy prospects across the spectrum in multiple geographies. We're thrilled with the Asia-Pacific contribution, an all-time record from that region. with some phenomenal name. Some are allowed, obviously, to mention, others not. So we're thrilled with the activity there. And again, we keep looking at this, saying, well, we're gaining market share. There's a healthy market and healthy demand. And so if we scrutinize where the challenges are, they tend to be in that large enterprise area. And again, we continue to be very successful in large enterprise. We had -- obviously more than Eli Lilly in the quarter, but this one, we're thrilled to be able to announce. And we have others in the second half that we're working on and look really, really good for us in the quarter. It's always, I'd say -- I'll give you this. It's sometimes a surprise to the executives that we're working with, the grant of authority has changed dramatically during the process, and we find out very late in the stages of signing a contract that it has to go to the Board. So that's how I would describe or answer your question. Operator: Your next question comes from the line of Richard Tse from National Bank Financial Markets. Richard Tse: Yes. Thank you. So I'm going to continue on the large enterprise side, if we just step back a bit and you sort of look at the growth in the large enterprise pipeline, what does that look like today versus what it's been in the past? John Sicard: Yeah, I'd say it hasn't really changed all that much, notwithstanding the sales cycle. And even in the sales cycle, within the sales cycle, the distance between vendor of choice -- VOC, what we call VOC, and negotiations began and having signed contracts is roughly 2x and in some cases longer than 2x is really what we're seeing. I don't see -- I'd say, a difference where large enterprises is no longer interested in transforming their supply chain. That is not the case whatsoever. Richard Tse: Okay. And then -- appreciate you being really upfront about the mechanics of how ARR scales, but you've got all these sorts of initiatives here. You're investing in growth, go to market. You've got the strategic partnership. You've got these sorts of delays right now. Deals are starting out smaller. Is it fair to say that when that market normalizes here that your SaaS growth rate is going to be potentially even north of the former peak? Blaine Fitzgerald: I will say that we do have models in that direction. I think what we were talked about earlier on is we do see -- think that there's an inflection point with ARR, and we see that coming in 2025 where that momentum starts to push. And when that moment of changes, we will see the follow-on effect which comes from -- comes into SaaS revenue. So everything we've been talking about in terms of the normalized conditions in the large enterprises, that sales cycle starting to temper down a little bit. We think it's [indiscernible] is in the right direction for, again, increased momentum, where we're obviously seeing a little momentum right now, but we always see more momentum on the ARR front end. Right now, but based on the pipeline and the opportunities we see in our pipeline and the reinvestment we're making, we think that 2025 and then 2026 when you get into the strategic partnership that we that we have and it's a three-year deal that ramps over time where we have targets that we've allocated to both our side and our strategic partner. We see some very big opportunities that will help with the acceleration on the growth right now. And this part that we've done with -- they've been around the block enough times and they're big enough that we have a lot of confidence that they can help us get to that next level. And we're very actually honored that they've chosen us as the right partner for supply chain orchestration. John Sicard: Yes, we're one of them, literally less than a handful. So we're thrilled with that. That announcement, hopefully the tone of the earlier commentary and the primary focus of the strategic relationship is to augment our selling engine quite significantly. It's really the motive behind it. Early days, and we will be announcing in very short order, at least this one and perhaps another. Richard Tse: Okay. Just one last quick one from me. You're obviously incredibly successful on the pharma market. In the case of Eli Lilly and perhaps the other sort of wins that you've had, what's really the main thing that you're offering in this market that the incumbents are not able to do? John Sicard: Well, there's a few things that matter in that space that are unique to pharma industry, notwithstanding, I'd say, it starts at its foundation with a belief that end-to-end orchestration is the way of the future, right? This cascaded, lethargic, functional way of doing supply chain of the past isn't going to survive what's required in the future. So it starts with our foundational belief that concurrency end-to-end orchestration is the way to the future. Beyond that, there are specific areas like jurisdictional control, for example, where the same product being manufactured in two identical factories in the world. Those two products can't necessarily be sold exactly to the same country, right? So there's areas like that. There's expiry type, I'd say, analytics associated with that space. There is a very unique stop sell dates, very unique to that industry that you end up leveraging when you sell to a life science customer. Now above and beyond that, we speak their language. With the success that we've had in life science when we walk through the door, what we are offering because we unlike many of our competitors who do a lot of custom code, we leveraged the combined intellect of all others in one connected platform. And so when we walk into an Eli Lilly, they know that is the sum of the collective intellect of all of their peers that has been infused in our platform and they get to leverage that. It's not like you walk in and say, what would you like me to code for you like so many other competitors do. I think that's really, really the anchors to why we've been successful. Operator: And your next question comes from the line of Stephanie Price from CIBC. Stephanie Price: Good morning. We've been hearing from some other software peers that they've experienced some implementation delays or longer implementation cycles as customers undergo large strategic projects such as migrating ERP systems or preparing for AI investments. Is that something that you've been seeing in the context to implementation cycles who have rapid response? John Sicard: We haven't seen that necessarily. No. I'd say once we win a customer, it's quite the opposite. They're exceptionally eager to get us live -- to get them live. And we've been leveraging, obviously, our partner ecosystem to support that. In general, we are seeing customers start with a smaller footprint. And again, partially it is to get live faster, right? Rather than attempting to boil the ocean and do too much inside of the first year, they focus on what's urgent to them and have and focus on getting live as quickly as possible. So we haven't seen that friction, frankly. We just haven't seen it. Blaine Fitzgerald: I would just add in that what John said is actually is very accurate in terms of like, the implementation of our software, once we get going, is happening at record levels. And we're extremely happy with the fact that we invested in rapid a number of years ago and are able to almost templatize our way into deploying our product at a much more efficient manner than most of our competitors. I think what you might be referring to, though, is another element of the longer sales cycles we are seeing, in particularly around SAP's S4/Hana migration. What we're seeing is that because those transformations are so big, obviously, you need to have a certain amount of resources to be able to deploy your products and to balance the migration of their ERP system as well as implementing a supply chain planning solution or orchestration solution. And so that that is part of the reason why we're seeing the elongated sales cycle. But once we get into the door, generally, the first thing they say is can this be done tomorrow? And we're very lucky to have a very rapid deployment that we're able to leverage off of. Stephanie Price: That makes sense. Great. Thank you. And then, Blaine, just one for you as well. Maybe on capital allocation, it looks like share buybacks, you're pretty active in the quarter. Just curious how you're thinking about capital allocation here. Blaine Fitzgerald: We're really happy with our uses of capital on the buyback. We're going to continue that exercise. I did mention November 5, is when the end of that period comes up. And I don't mind saying that we'll probably renew for something in the future. We think it's good governance to continue to do this. And otherwise, I mean, we obviously keep our eyes open for M&A opportunities. As at this stage, we haven't seen anything that makes any sense for our current midterm projections, but we do keep our eyes open and we're active in that market. Operator: Your next question comes from the line of Christian Sgro from Eight Capital. Christian Sgro: Hi, good morning. Blaine, thanks for the color around the phase deals and the mechanics of how they work through the model. And my question on that would be, is there a way you could maybe quantify or frame what the average increase year to year would be for the become more common? Blaine Fitzgerald: I won't get into the specifics of the numbers. I'll give -- always like giving examples of deals. I think I talked about last quarter, the largest deal that we had was a -- they were growing two times in size. And so there the ARR that we had was growing -- was going to grow to be at least 2 times on average. And then you can obviously imagine that over that time, there's an extra element of [indiscernible] a peak amount. And as I said earlier on the call, that generally get happened in the first half of these contracts. Now for this current quarter and the first half of the year, we're sitting at 1.18 times multiple for that ACV over the ARR. And so I think the biggest thing to kind of highlight is that's been a big trend. We've gone from 1.04 a number of years ago up to 1.18. We are seeing a lot more phase deals. But to answer directly to your question, we don't talk about exactly when those deals will play out over time. Christian Sgro: That's all helpful color. And thank you. A follow on here. Can I just ask about the duration of new contracts signed? Are you seeing -- are there any shorter or longer than a historical trend for Kinaxis? Blaine Fitzgerald: It's tipping up a little bit. We do have some long deals that have already been signed this year. Obviously, very happy with our reputation and the loyalty of our customers. Have shown us way through this by committing to long-term deals. And that is part of the reason why our RPO is, for SaaS, year-over-year growth of 30%, that CAGR at 25% in total RPO. A lot of that has to do with the fact that we have very committed and loyal customers that want to stay with us for the long term. Now I will say that we don't include all of our contractual value in RPO because we don't include our customers that come in with an option to terminate early. And so if they decide to do that, we won't include that in RPO. And so we do have some of that, that is coming due, which will help us with our RPO even more. So as of right now, we are continuing to focus on that long-term projection. RPO is a very big impact from phase deals, longer deals, and really strong renewals, which we have that gross retention of, what we always talk about 95% to 100%, which is, I think, one of the phenomenons that we have. Operator: And your final question comes from the line of Mark Schappel from Loop Capital Markets. Mark Schappel: Hi. Thank you for taking my question. John, the sales team has a lot on its plate right now, given the recent talent rebalancing and the new head of sales that was announced last quarter. I was wondering if you just provide some additional details around some of the go-to-market changes that are being implemented at the company to drive the execution. John Sicard: Yeah, the most significant is this a major partnership as part of our reinvestment strategy. And as I commented, it's primarily -- and I might say dramatically increasing our sales engine capacity. Through that relationship, we were honored to be included in that. And so we're full steam ahead on those reinvestment plans. And obviously, that includes internal sales as well. So we're not letting putting the foot off the gas. And again, coming off of a record Q2, new name logo, second largest in our history, there's a lot going on. And you add to that this strategic partnership, which we'll announce shortly and the motivations behind that strategic partner, this is not like a marketing kind of an agreement. And so there's already a very tight collaboration and then expansion, I'd say, in the overall opportunity that we're going after together. And so that's the largest, I'd say, most exciting, for Kinaxis, opportunity ahead. Operator: Thank you. I will now turn the call back over to Rick Wadsworth for closing remarks. Rick Wadsworth: Thanks, operator, and thank you, everyone, for participating on today's call. We appreciate your questions and your ongoing interest in supporting Kinaxis. We look forward to speaking with you again when we report our third-quarter results. Thanks very much. Operator: Ladies and gentlemen, that concludes today's conference. Thank you for joining. You may now disconnect.

Earnings call: Thryv reports robust SaaS growth in Q2 2024 By Investing.com

Thryv Holdings, Inc. (NASDAQ: THRY) has demonstrated a strong performance in the second quarter of 2024, particularly in their Software as a Service (SaaS) segment. The company reported a significant 25% year-over-year increase in SaaS revenue, reaching $77.8 million. This growth is attributed to a surge in subscribers and the successful transition of legacy clients to their SaaS platform. Thryv's adjusted SaaS EBITDA also saw an impressive rise, exceeding 60% year-over-year to $10 million. Looking ahead, the company is optimistic about its SaaS business, expecting it to become a major revenue contributor and is also exploring mergers and acquisitions opportunities to bolster its market position. Key Takeaways Company Outlook Bearish Highlights Bullish Highlights Misses Q&A Highlights In conclusion, Thryv Holdings, Inc. is capitalizing on the growing trend of small businesses adopting cloud-based services. With a robust SaaS business model, an expanding subscriber base, and strategic plans for future product development and potential acquisitions, Thryv is poised to strengthen its position in the SaaS market. The company's financial outlook remains positive with expectations of continued revenue growth and profitability in the upcoming quarters. InvestingPro Insights Thryv Holdings, Inc. (NASDAQ: THRY) has shown a commendable increase in their SaaS segment, backed by a growing subscriber base and a strategic shift of legacy clients to their SaaS platform. As the company continues to explore growth opportunities, it's essential to consider key financial metrics and expert analysis to understand its market position. InvestingPro data indicates a market capitalization of $658.17 million, reflecting the company's size and investor valuation. Despite recent growth, analysts anticipate a sales decline in the current year, which could impact future revenue streams. This is an important consideration for investors looking at the long-term viability of Thryv's growth strategy. The company's P/E Ratio stands at -2.37, with an adjusted P/E Ratio for the last twelve months as of Q2 2024 at -11.19. While currently not profitable over the last twelve months, analysts predict the company will turn a profit this year, which could signal a turning point for Thryv's financial health. An InvestingPro Tip worth noting is Thryv's high shareholder yield, which can be an attractive aspect for investors seeking companies with the potential to return value. However, it's important to mention that Thryv does not pay a dividend to shareholders, which may influence investment decisions for those prioritizing regular income streams. Investors can find additional insights and tips on Thryv Holdings, Inc. by visiting https://www.investing.com/pro/THRY, where there are currently 7 InvestingPro Tips available that delve deeper into the company's financial health and market prospects. These tips can provide valuable context alongside the SaaS revenue growth and strategic initiatives discussed in the article. Full transcript - Dex Media Inc (THRY) Q2 2024: Operator: Thank you for standing by. My name is Laila, and I will be your conference operator today. At this time, I would like to welcome everyone to Thryv's Second Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. [Operator Instructions]. Thank you. I would now like to turn the conference over to Cameron Lessard, Head of IR. You may begin. Cameron Lessard: Thank you, operator. Hello, and good day to everyone. Welcome to Thryv's second quarter 2024 earnings conference call. On the call today are Joe Walsh, Chairman and Chief Executive Officer; and Paul Rouse, Chief Financial Officer. A copy of our earnings press release and investor presentation can be found on our website at thryv.com or in the Investors section at investor.thryv.com. Please acknowledge comments made on today's call and responses to your questions may contain forward-looking statements about the operations and future results of the company. These statements are subject to the risks and uncertainties described in the company's earnings release and other filings with the SEC. Thryv has no obligation to update the information presented on this conference call. With that introduction, I will now turn the call over to Chairman and CEO, Joe Walsh. Joe Walsh: Good morning, Cameron and thank you all for joining us on the call today to discuss our second quarter results. SaaS revenue grew by 25% year-over-year to $77.8 million and within our guidance range. SaaS adjusted gross margin increased 460 basis points year-over-year to 69.7%. SaaS EBITDA outperformed significantly, growing over 60% year-over-year to $10 million and ending the quarter with a 13.1% adjusted EBITDA margin. That's the highest point we've reached as a public company. I'll let Paul get more into the numbers. But now I want to dive into some exciting metrics and updates about the business. Once again, we delivered excellent subscriber growth. We were up 52%, ending at 85,000 clients as we continue to be successful in upgrading our marketing services clients to our SaaS platform. This milestone is driven by our strategic transition of legacy marketing services clients to our innovative SaaS platform. A key factor in this success is our recently launched marketing center, which empowers businesses to efficiently manage advertising campaigns, enhance their online presence, and make insightful data-driven decisions. This tool is not just a product, it's a game changer that positions our clients for sustained success in a digital-first world. Our center strategy is continuing to gain traction with more than 10% of our current clients having two or more paid centers. This is up 200 basis points sequentially and a significant increase of 800 basis points from this time last year. This means more clients are experiencing the tangible benefits of our marketing center in growing their business. Our local sales channel and consistent referrals are effectively demonstrating the value we deliver. Turning to our product initiatives, we remain focused on enhancing our Thryv AI capabilities to further empower small businesses, building on the efficiency and time savings already realized by our clients. Our AI-enabled customer support now accessible across all centers is designed to assist users by answering their questions and guiding them through our software's functionality. In addition, our social media feature in business center generates engaging social post captions complete with relevant hashtags and emojis. This not only makes the post more relatable and engaging but also boosts their marketing signal by increasing visibility and fostering a deeper emotional connection with potential customers. We are actively developing and testing several new AI enhancements and are enthusiastic about their potential. So more on that at a later date. With that, I'm going to turn it over to our CFO, Paul Rouse, to discuss this quarter's numbers. Paul Rouse: Thanks, Joe. Alright, let's dive into our results beginning with SaaS. SaaS revenue was $77.8 million in the second quarter and within our guidance range, representing an increase of 25% year-over-year and up 5% sequentially. SaaS adjusted gross margin increased 460 basis points year-over-year and 130 basis points quarter-over-quarter to 69.7%. We are pleased with the positive impact from the sale of our higher-margin SaaS products. This progress further strengthens our expectation of exiting the year with SaaS adjusted gross margin exceeding 70%. First quarter SaaS adjusted EBITDA was $10.2 million, above our guidance and resulting in a SaaS adjusted EBITDA margin of 13.1%. Our SaaS adjusted EBITDA was favorable primarily due to the restructuring of our company-wide commission plan that we spoke of previously this year. We streamlined our sales process to prioritize and incentivize the sale of high-margin products while also enhancing efforts to boost spending from our existing customer base. SaaS subscribers grew to approximately 85,000 at the end of the second quarter compared to 70,000 at the end of the first quarter. This was an increase of 21% sequentially and 52% year-over-year as a result of the continued migration of marketing services clients to our SaaS platform. SaaS ARPU decreased to $333 due to promotional pricing discounts and the timing of billing for many customers who were onboarded in the last month of the quarter. As a result, we received only a prorated portion of their billing, which negatively impacted ARPU for the quarter. However, we expect ARPU to recover in the second half of the year as these customers are billed for the full period, and we continue to upsell additional centers to existing clients and the expiration of promotional pricing. Second quarter seasoned net dollar retention was 94%, an increase of 500 basis points year-over-year. Moving over to Marketing Services. Second quarter revenue was $146.3 million and above guidance, primarily due to the strength of digital revenue above expectations. Second quarter marketing services adjusted EBITDA was $49.1 million, resulting in an adjusted EBITDA margin of 34%. Second quarter marketing services billings were $125.5 million, representing a decline of 28% year-over-year. Our marketing services billings were impacted by the ongoing success in transitioning our marketing services clients to our SaaS platform. Second quarter consolidated adjusted gross margin was 69%, an increase of 220 basis points year-over-year. Second quarter consolidated adjusted EBITDA was $59.3 million, representing an adjusted EBITDA margin of 26%. Finally, our net debt position was $339 million at the end of the second quarter. Our leverage ratio was 1.96 times net debt to EBITDA, which is well below our covenant of 3 times. Now let's discuss guidance for the third quarter. For the third quarter, we expect SaaS revenue in the range of $82 million to $84 million. We are reiterating our full-year guidance range of $326 million to $329 million. For the third quarter, we expect SaaS adjusted EBITDA in the range of $9 million to $10 million, and we are increasing our full-year guidance range to $30 million to $32 million. For the third quarter, we expect Marketing Services revenue in the range of $94 million to $97 million. And for the full year, the range is adjusted to $485 million to $492 million. For the full year, we expect Marketing Services adjusted EBITDA to be in the range of $128 million to $131 million. As a helpful guide, you can model EBITDA margins to be in the mid-teens in the second half of the year. I'll now turn the call back over to Joe. Joe Walsh: Thanks, Paul. You will have noticed that our ARPU was down a little bit this quarter. I want to just mention that that's a part of the choppy metrics we see as we're transitioning this business from one business to another. Some things happen in clumps, so you can't always draw a perfect straight line on these things. But we have a defined process for growing these customers, where they're getting tech touch, they're getting automated follow-ups, they're getting sales contacts, and we are, in fact, seeing our seasoned customers grow in the mid-teens, and that's happening because they're using the product and with usage comes more seats, buying more signature packs, more add-ons by upgrading the higher levels of software so they can access more of the AI elements. So we are seeing a steady conveyor belt of growth once our customers get in and embedded down. And we have a defined kind of automated process that's working it. It's not happening by chance. So please don't worry about ARPU. ARPU, we've guided was going to go from about 4,000 a year to about 7,000 a year. All that's still in place. We're still tracking with that sort of result even as the number bounces around a little bit. And I think even this year, you'll see it begin to trend back up. So also, part of the reason that we're able to upsell customers is that we have more products to sell them. We've been building and improving the products, adding more packs. And you can expect, as we finish this year going into next year, we're adding more products. So there'll be even more product to sell as we move forward. Another question we're often asked is, might we do any M&A. And frankly, with our prior debt structure, we were really constrained. The new one does begin to breathe some flexibility into our world as time goes by. And we believe that M&A is at least now doable, and we've been able to begin to look at some things. So that could add some interest going forward. So just to wind up here, we had a really strong start to the year, and we are on track for our SaaS revenue to account for over 40% of our consolidated revenues in 2024. And as I've said previously, as we look forward to 2025, it will be more than 50%. And so during 2025, we'll actually our SaaS business will be bigger than our Marketing Services business. So we're pretty excited about getting to that milestone. With that, I'll turn it over to the operator for questions. Operator: Thank you. [Operator Instructions]. Your first question comes from the line of Arjun Bhatia with William Blair. Please go ahead. Arjun Bhatia: Hi, thank you and very nice to see the accelerated transition from Marketing Services. Wanted to start out with, Joe, I think usually when I look at your SaaS performance in any given quarter, it would come in above the midpoint of your guidance range and I think we were slightly below this quarter. Was there anything outside of the ARPU dynamics and the transition that surprised you this quarter in terms of the SaaS performance? Joe Walsh: Well look, I mean, these metrics are always a little noisy as we work our way through. You've asked me and others have asked me what's the environment like. And we've said we broadly sell to a different customer. Our customers are the folks in the world that do the nasty things in life, the things that the guys have fixed broken things, and not a lot of optional things. But they are certainly feeling the challenging environment and we're seeing good strong sales volume because we're riding this unstoppable wave of small business adoption. But when presented with a choice of good, better, best, they're opting for the lower priced options which as far as our consumer we're getting them on our platform, we're adding subs, we're moving forward, and we have a system to grow those customers sort of a defined process that they go through. And for seasoned customers, we see double-digit ARPU growth from those guys. We see them really moving forward. So I think you've asked me, others have asked me what's the climate. It's not fantastic out there. But we also -- I want to hasten to add, we're not selling to the new start-ups, the new businesses. We don't sell -- honestly; we don't want them. We're looking for businesses that are more established either from our base or referrals out of our base that have been around for a while. So anyway, I think Arjun, it's not a frothy environment where people are just going, "Yes, give me the big one." They're kind of moving a little bit more cautiously. But as you can see, we're still making steady progress in adding new subscribers, and this trend is still playing out. Arjun Bhatia: Alright. Yes, certainly makes sense. I appreciate that. And then as these customers do migrate over and you see this kind of acceleration in the number of SaaS clients that you have, I assume a lot of them are coming into marketing centers, as you've pointed out. But when you think about -- when they get to that one-year mark and is growing 15%, when you're targeting the expansion, is it -- do you want them to grow their usage of marketing center and expand within a particular product, do you want them to cross-sell into the business center, like what are your expansion priorities as you kind of grow this big influx of customers that you're seeing on the SaaS side? Joe Walsh: Yes, I think the Mac Daddy home run best thing that can happen is they add another center because that comes with a lot of margin and a lot of additional engagement with the company. So adding another center is the home run. But there are lots of little singles before the home run, where maybe they begin to use our signatures and maybe they begin to use our team chat, maybe they get -- they start getting involved with other things. So SaaS center is the big one. And as I think we pointed out in the information here, we're seeing really strong month over month over month over month uptake of additional centers. And I know you understand this really well. The cost of acquiring that customer for the first time and getting them set up as you guys call it, CAP, right, THERE'S a big CAP to get them set up. But as time goes by, you add additional centers, there's real operating leverage that comes from that. And that's the page that we're now getting on. We've got another center coming later this year. And as we look at next year, customers, not just on a single center, but on two on three in some cases, that's where things really start to ramp for us. And I know you've followed other companies in the space that are platform strategies that have added other centers or other hubs or whatever and seems the way each of those cohorts lights off another sort of lift of growth and lift of margin. Operator: Your next question comes from the line of Scott Berg from Needham & Company. Please go ahead. Scott Berg: Hi, everyone. Nice quarter. Thanks for taking my questions here. I guess I got a couple starting on the customer acquisitions or the SaaS additions in the quarter. Obviously, it was a really large jump quarter-over-quarter. I think we probably all assume, and I think Joe, you commented on most of them are coming aboard as marketing center customers. But did you see customers come aboard maybe more in any of the other centers as well or is it really all just kind of marketing center-driven? Joe Walsh: Marketing centers have eclipsed the business center as our fastest-growing product. It's not the biggest product because the business center has been around for a long time, but sales coming in day over day, week over week, we're seeing marketing center just roll. And I think I've described this in the past, but it's a much smaller leap from buying marketing and advertising services from the legacy company over the last century to buying a -- grow your business tool and marketing services tool, a marketing center tool, that jump is pretty small. We're asking them to actually incorporate a big change to their business and go on to a CRM and begin to embrace all the functions that were in the business center. We've kiddingly internally said, that's like kind of asking them to eat the broccoli. It's good for them. It will make their business better. But marketing centers is French fries baby. It makes the phone ring, it gives you more business, and so there's just been a lot of enthusiasm and energy around marketing center. So it's really the hot one at the moment. Scott Berg: Fair enough, good thing I like my broccoli I guess. I am cool with that. [Multiple Speakers]. That is certainly not the truth, not the case. Excellence, I guess in the -- to kind of follow-up on the SaaS additions in the quarter on your -- Joe, you gave a lot of kind of color around the monthly ARPU number and in this environment, you can certainly understand promotional pricing to get customers on board. How do we think about that trending, is that a 90-day price, is that a 60-day, maybe 180-day price, how do you expect that pricing to trend for those customers over the year and then do you expect to run similar promotional opportunities through the end of the year? Joe Walsh: I want to be clear. I think the biggest impact was when they came in because the way our billing works is sort of a prorated credit thing. And some of them made the move over very late in the quarter, even late in the month in the final quarter. So we only picked up partial billing. So I think you're going to see it correct right away. It's really a bit of anomalous there. It isn't like we threw in some gigantic discount. We are stepping customers over to make it easy for them. And honestly, that's going to give us scope for rate later. We will migrate them to the full rack rate over time. And that will give us a little bit of a rate lift when we look ahead to the year ahead. But yes, to answer your question, as far as the go forward, we have other specific playbooks that we're running against the marketing services base where we're taking people that aren't exactly at the rate of the unit they're going over to and offering them to make the move over without a big bucket of cold water in the face price up initially to get them on, get them in the new platform, get them enjoying the benefits, and then we begin to grow them from there. So yes, there'll be more of it. To answer your question, your point and question I want to deduct that. There will be more of this type of thing as we keep going. We've got a very big kind of Zoom (NASDAQ:ZM) base that we're hunting in, and we're finding all of a sudden with marketing center much, much higher level of interest to make the migration over. And I also want to point out, and please don't lose sight of this, that this decade of small business SaaS is another year or two further along. And it's much more obvious to people that they should be making this move now than it was even two or three years ago. Operator: Your next question comes from the line of Daniel Moore from CJS Securities. Please go ahead. Daniel Moore: Thank you. Good morning Joe, good morning Paul. Joe, you touched on a few of these in the prepared remarks, but can you elaborate on some of the examples of AI that you've implemented there and maybe some of those you're developing and are those tools more critical as a selling tool or retention tool from your perspective? Joe Walsh: Well, those are great questions. So what we've done is we are trying to make it -- look, our base are sort of the dirty fingernails people. We're out there doing roofing, plumbing, electrical work. We're doing body work on your car. We do have dentists and chiropractors. Hopefully, their fingers are clean. But we have a lot of service-based businesses, and they're busy doing that stuff. And a lot of times, when they're presented with a blank page to figure out how to write content about their services or about their products, they just get stumped. They're unable to really move forward. And so one of the simplest things that we're doing is using AI to help them develop content for their landing pages and for their promotional offers and for their product descriptions and importantly, for their social posts, which in today's day and age is almost table stakes if you're running a small business, you've got to be actively posting. So we've got our pro editor and some other services that will really guide them and aid them and they're not looking at a blank page. They're looking at something that's sort of prebuilt and formatted and they can go through and edit and improve it, but that's just a lot easier thing to do. So that's been kind of a killer app. And we're finding that people get excited about that at the time of sale. So it is a sales aid. But furthermore, customers that bought long ago when we didn't have that as we introduced it to them, their level of kind of NPS score satisfaction with us has risen and their engagement on the platform has improved. And I think they're getting more benefit from it even though they might have bought two years before we put that in. So what we like to say is your Thryv just got better. And so that's been a really good thing for us. Daniel Moore: Helpful. Just a quick housekeeping, I assume the tweaking guide slightly higher profitability in SaaS, slightly lower in marketing services. Is that simply a function of your concerted push to convert more customers or is there anything else going on there? Joe Walsh: I think that's a big piece of it. I think the margin lift is largely coming from what I described earlier that when you sell a new customer, you have all this CAP that comes with it. But when you just add an additional center to a standing account, it just has great leverage. And you're seeing that. We're seeing -- I mean, month-over-month over month, really brisk uptake now. I think the story you guys are going to be writing about a lot in 2025 is this platform strategy is really playing out here. And that's -- it's giving them real gross margin lift, real profitability lift. And I've said all along, we're driving hard to be a Rule of 40 company. And I think we can get it strongly from the EBITDA line. We can get a lot there. I think we can run this thing really profitably. It's already fully scaled. It's a pretty big company, our SaaS business. And it's been profitable for many, many quarters, and that's really beginning to lift now as we add new centers. We've got another center coming out before the end of the year. So there will be even more product to sell going into next year. Daniel Moore: Still my last question, which is just update on timing of potential rollout of the next new center and whether there's likely to be a freemium option for that, at least early on as well? Thanks again for the color. Joe Walsh: Yes. I don't have details to reveal today as far as the exact timing. What we've guided is that we get it out before the end of the year, and I can confirm that that's definitely going to happen. And to your second question, we're slowly learning about this premium thing and how to do it. We are planning to allow customers to benefit a bit from this new offering on a sort of three included get some benefit from it basis, try before you buy, all that kind of stuff. So there is a plan to do that, where it won't just be -- you have to buy to get some benefit from it. And we're learning that when you deliver value to a customer before you have to -- they have to give you any money, it just starts things off on a nice foot. So we're kind of excited about the way that will unfold. Operator: Your next question comes from the line of Rob Oliver from Baird. Please go ahead. Robert Oliver: Great, thanks, good morning. Joe, yes, the standard strategy appears to be playing out nicely for you guys. I was just wondering if we can get an update on Command Center and also as you think about sort of the cadence of center rollouts over the next couple of years, how should we think about that, I mean, I know you spent a lot of time with customers, you're pretty in tune with the opportunity there, there must be certain things within the platform that are percolating up that have your folks excited. So how should we think about the cadence of incremental center rollouts? And then I had a follow-up to work Paul into a conversation here. Joe Walsh: Yes. So I think the biggest thing I would add is that we do have some really strong demand from the market from our customers to do more stuff. Now some of that they can achieve in our app store and our marketplace and connect up with other things. But we have designed on filling some more of their needs, and we've been working for a couple of years in the back office on those. And as I mentioned, one is done and about to be revealed, and another is really far along and about to come. So we're still pretty comfortable with that center-of-year guidance that we've given. The one thing I want to hasten to add is that these opportunities or these problems that we're solving are not all the same size. So every one of them isn't going to have the exact same pricing as business center did or whatever. I mean there are going to be bigger ones and smaller ones. There's going to be some that are really kind of game-changing and some that are smaller as we go along. It's just as we keep building out the platform. We can't make them all exactly bricks that are the same size. So I would underscore that. You asked about the Command Center, which was the center that we got out late last year. And I would describe that first one that we got out as V1. And we're working like crazy iterating that into the V2 V3 and improving it. We've had good interest in it. But like a lot of brand-new software products, especially cutting-edge things and it's very cutting edge, what we've tried to do there. There were a couple of sharp hedges that we've run into that we're working our way through. And so it's developing. We've got lots of sign-ups, lots of people using it, but it's not currently as good as I want it to be or we're developing as fast as I want it to. And our product team is working really hard, engineering team are working really hard on some refinements and some perfection now that we've been in the market with it for a little while. Customers have really given us direct feedback about it. So I expect that -- and if you go back and you look at the marketing center, it didn't take off like a rocket when we first rolled it out either. It's now our number one selling product. It took us a minute to kind of get it dialed in the product itself and to get our way of marketing and selling it dialed in. We're sort of in the same phase right now with Command Center. But I just want to remind you that what Command Center will do as it's perfected in B2 and B3, and we look ahead to 2025 and 2026, it will be out in front as kind of a wedge product, collecting new customers. They'll be building a new zoo. It goes out into the world, and it offers you an experience with Thryv that lets you not pay anything, try it, play with it, work with it, and have Thryv in your life right brand, right product. And after you see the benefits you can get from it, I think there's a conversation that we can have. So, I'm sometimes asked, well, what happens when your zoo runs out? You guys are going to someday run out of your zoo, if I project out how fast you're going through it in 2031, you'll run out of zoo animals to go bring in. Well, we're building that new zoo through Command Center. So it is a long-term plan. It's not something that has to happen this quarter. We're looking more in the fullness of time. And if you look at around the industry at other PLG plays, a lot of them did take a couple of years to dial before they just took off. And we're in that mode here. And as I was asked in an earlier question, we're thinking more about sort of PLG elements even as we develop new centers going forward. So being thoughtful about using the product as a marketing tool, I guess, to bring us product-qualified leads as we move along. Did that answer your question? Robert Oliver: It does. Yes, that's great color. Thanks Joe, I appreciate that. Paul, a question for you. Just to go back to the ARPU topic. I know Joe told us not to worry about it, but I guess our job in part is to worry a little bit. So you did mention that you expected ARPU would be better in the second half. It's been down four quarters in a row when it kind of accelerated down this quarter. You do have some, I think, some easier comps coming, but just wanted to get a sense for what gives you the confidence that we should see the ARPU start to head back up? Thank you. Paul Rouse: Yes. There are a number of things like Joe mentioned. A lot of the drive, we are working to move these customers over. We made a change in our commission plan to drive the number of center sales, and you're seeing the effect here with the number of ads we've had. And like as everything comes into the last month of the quarter for bonuses. So there was a big push to bring those clients in. And a large majority of them came in partially in the year in June and so on. So this naturally as you get a full month of billing coming out in July, August, September, as you make the ads, ARPU is going to naturally rise. So we are confident that this was -- this is a temporary thing. When we start heading north on ARPU as we move out into the second half of the year. So yes, I wouldn't be concerned about that. That's going to be coming back up. Operator: Your last question comes from the line of Zach Cummins (NYSE:CMI) from B. Riley Securities. Please go ahead. Zachary Cummins: Hi, good morning Joe and Paul. Thanks for taking my questions. Joe, I just really had a question around the potential leverage we could see in the SaaS segment. I mean, nice to see the adjusted EBITDA guidance raised there for this year. But how are you thinking about that potential leverage as you exit this year and going into 2025, it seems like we're potentially getting to an inflection point where adjusted EBITDA on a consolidated basis could be maybe remaining steady or potentially moving up from these 2024 levels? Joe Walsh: Well, that's such a good question because, I mean, look, you're a student of the industry, and so am I. If you look at some of these other companies that have platform strategies, where they've added that second product, third product, fourth product, you really start to see an overall margin lift that comes through. And we're seeing that now come through in our SaaS business. And as we look at our own internal models, we look at the fast growth of EBITDA out of SaaS, replacing the melting iceberg EBITDA that's coming out of marketing services. And so I don't think I'm allowed to give really finite guidance right now. I don't think that's what you were asking for. I just wanted to kind of talk about it for a minute, I think, at a high level. But yes, the way we're thinking about it is that the growth of EBITDA coming out of the SaaS business will form a replacement for the gradual decline of the melting iceberg part coming out of marketing services. So we're sort of reaching that nadir in the process now. And again, I don't think I've authorized a step in front of Paul and give EBITDA guidance specifically. But directionally, you got it exactly right. We're at that moment now. The other moment that we're at is -- as we -- just another, I mean, a number of weeks here, we finished this year at 40%. And as we go into next year, we'll cross over, and the SaaS business at the revenue line will be our largest source of revenue. It will be our majority business. And we're looking forward to hopefully being bumped up against the metrics of other excellent SaaS companies out there and sort of joining the SaaS league tables. And we think we show up with some pretty kickass metrics. We've mentioned before, we believe our net dollar retention, which is in the mid-90s now, will rise to 100. And we think that doesn't -- it's not that far away at the rate we're selling additional centers now. We think that's coming now in the medium term. And so that sort of hole in the boat from a metric standpoint will be gone. Our gross margins are strong and rising now. So that sort of nick has sort of gone. So we're -- I think we're a really strong Rule of 40 type company. And when we eventually do join those SaaS league tables, I think we'll stand in pretty good stead. We're looking forward to standing on that stage imposing. Zachary Cummins: Got it. That's very helpful. And then my one final question, maybe here towards Paul is how should we be thinking about free cash flow generation with new debt facility and just given the accelerated conversion activity that we're seeing within marketing services. Paul Rouse: Yes. I guess the overall thing I just want to say is if there's any concern about us meeting our amortization, don't be concerned. We're going to do that. And that's what we're focused on. We took down the mandatory amortization pretty significantly from where it was previously. So we feel very confident in free cash flow to manage that amortization. But as Joe mentioned earlier, with the additional flexibility, we might be able to do other things with the cash flow above that. But I just want to lay any fears about the amortization. We're going to meet that and should be no issue. And we're still trying to figure out if there's a better place we can put our money in the future with the free cash flow. So I guess I'll leave it there. Zachary Cummins: Understood, that's helpful. Well, thanks again for taking my questions and best of luck with rest of the quarter. Operator: [Technical Difficulty]. I will now turn the call over for closing remarks. Please go ahead. Joe Walsh: Thank you very much. Yes, I guess just to wrap up, we were talking there just a minute ago about cash and the company has always thrown off a lot of cash. All of that cash kind of went to debt repayment in the past. And now with the new credit facility we have, over time, we will begin to develop some flexibility. We no longer have 100% cash sweep. We have some flexibility built in and we're enthused about what we'll be able to do with that. Our first priority as always is obviously product and engineering, making sure we have the best software, making sure it's developing quickly, making sure it's interoperable where it works well with other software in the market to make it easy for our customers to adopt. And we've got always really specific conversations going with our engaged customers about what they'd like next, where they might have any sharp edges or pain points within the product that we're improving. So that's always first priority. We obviously have a super low share price so we buying shares is another opportunity. We're beginning to see the bid-ask out in the marketplace for some of these SaaS companies that we might tuck in. They're beginning to modulate a little bit, so there are some opportunities there. So I think the fact that we've come this far really with one hand tied behind our back, virtually no cash flexibility, and we will have some going forward. You guys should think about that because I think it does give us an added kick going forward. And we feel like we're really well positioned on this unstoppable trend, unstoppable megatrend really of small businesses moving to the cloud. And 25% SaaS growth and 50% subs growth are numbers that we're really proud of, and we think there are more good numbers ahead. So with the crossover point coming up, we think it's time for people to take a look at Thryv. Thanks, everyone. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Earnings call: EXLService reports robust growth, revises full-year guidance By Investing.com

EXLService Holdings, Inc. (NASDAQ: EXLS), a leading operations management and analytics company, has announced strong financial results for the second quarter of 2024, with revenue increasing by 11% year-over-year (YoY) to $448 million. The company's adjusted earnings per share (EPS) also grew by 11% to $0.40. This performance is attributed to the successful execution of their data and AI-led strategy across the Analytics and Digital Operations and Solutions businesses. EXLService also announced the strategic acquisition of ITI Data, which is expected to enhance their data management capabilities and expand their client base. The company has raised its full-year revenue guidance to between $1.805 billion and $1.83 billion, indicating an 11% to 12% growth YoY, and anticipates an adjusted EPS in the range of $1.59 to $1.62, reflecting a growth of 11% to 13% YoY. Key Takeaways Company Outlook Bearish Highlights Bullish Highlights Misses Q&A Highlights EXLService's financial performance in the second quarter showcases the company's robust strategy and ability to adapt to market demands. The emphasis on data and AI-led services, cost efficiency, and digital transformation has positioned EXLService for sustained growth. The company's strategic moves, including the ITI Data acquisition and NVIDIA collaboration, are set to further enhance their offerings and market position. Despite increased spending and restructuring costs, EXLService's upward revision of its full-year guidance reflects confidence in its business model and future prospects. With a healthy pipeline and backlog, along with a focus on proprietary LLMs and digital solutions, EXLService appears poised to capitalize on the growing demand for its services, even in a potentially challenging economic environment. InvestingPro Insights EXLService Holdings, Inc. (NASDAQ: EXLS) continues to demonstrate financial resilience and strategic growth, as reflected in the recent quarter's performance. Here are some insights based on the latest data and analysis from InvestingPro: InvestingPro Data highlights that EXLS is trading at a P/E ratio of 31.53, which is relatively high and indicates that the market has strong expectations of future earnings growth. This aligns with the company's positive revenue growth of 10.91% over the last twelve months as of Q2 2024. The company's ability to maintain a gross profit margin of 37.2% during this period showcases its efficiency in managing costs relative to its revenue. An InvestingPro Tip notes that EXLS has been actively managing its share count, with management aggressively buying back shares. This could be a signal of the company's confidence in its future prospects and a commitment to delivering value to shareholders. Additionally, with liquid assets exceeding short-term obligations, EXLS operates with a moderate level of debt, suggesting a stable financial position that could support ongoing investments and strategic acquisitions such as ITI Data. For readers interested in a deeper dive into EXLS's financials and strategic outlook, InvestingPro offers additional tips and insights. Currently, there are 13 additional InvestingPro Tips available that could provide further context on the company's valuation, profitability, and analysts' expectations. To explore these additional InvestingPro Tips and gain a comprehensive understanding of EXLS's financial health and market position, visit https://www.investing.com/pro/EXLS. Full transcript - ExlService Holdin (EXLS) Q2 2024: Operator: Good day, and thank you for standing by. Welcome to the Second Quarter 2024 ExlService Holdings, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker for today, John Kristoff, VP of Investor Relations. John, please go ahead. John Kristoff: Thanks, Felicia. Hello, and thank you for joining EXL's second quarter 2024 financial results conference call. On the call with me today are Rohit Kapoor, Chairman and Chief Executive Officer; and Maurizio Nicolelli, Chief Financial Officer. We hope you've had an opportunity to review the second quarter earnings release we issued this morning. We also have posted an earnings release slide deck and investor factsheet in the Investor Relations' section of our website. As a reminder, some of the matters we'll discuss this morning are forward-looking. Please keep in mind that these forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, general economic conditions, those factors set forth in today's press release discussed in the company's periodic reports and other documents filed with the SEC from time-to-time. EXL assumes no obligation to update the information presented on this conference call today. During our call, we may reference certain non-GAAP financial measures, which we believe provide useful information for investors. Reconciliation of these measures to GAAP can be found in our press release, slide deck and investor fact sheet. And with that, I'll turn the call over to Rohit. Rohit Kapoor: Thanks, John. Good morning, everyone. Welcome to EXL's second quarter 2024 earnings call. I'm pleased to be with you this morning sharing our strong financial results. In the second quarter, we generated revenue of $448 million, an increase of 11% year-over-year. We also grew second quarter adjusted EPS by 11% to $0.40 per share. The execution of our data and AI-led strategy enabled us to accelerate our growth momentum across both our Analytics and Digital Operations and Solutions businesses during the quarter. In Analytics, we delivered revenue of $194 million for the quarter, up 2% sequentially and 6% year-over-year, driven by strong double-digit growth in healthcare payment services and data management. I am pleased to share that this marks the second consecutive quarter of sequential growth for Analytics, which positions us well to accelerate our growth rate in the second half of the year. Data management continues to be a major focus area for EXL and for our clients on their AI journey. The ability to generate insights and outcomes using AI hinges on accessible quality data, both structured and unstructured. In line with our strategy, I'm thrilled to announce our acquisition of ITI Data, a leading information and data management company serving the world's largest banks, financial services and healthcare firms. This acquisition not only bolsters our data management capabilities, but also greatly complements EXL's existing vertical markets, expanding our data and AI partner ecosystem and grows our geographic and global 1,000 client footprint. This acquisition is an example of our commitment to further enhance our competitive differentiation by acquiring wider skill sets and deeper expertise in data management, as we strengthen our position as a data and AI-led company. In our Digital Operations and Solutions business during the second quarter, we once again delivered strong double-digit growth as we leverage our domain data and AI capabilities to win in the market. We grew revenue 4% sequentially and 14% year-over-year to $255 million. This acceleration of growth was driven by our insurance and emerging business segments, which grew 16% and 15% respectively. Our clients continue to focus on cost efficiency and digital transformation, creating a favorable demand environment for us. Last month marked EXL's 25th anniversary, and we commemorated the milestone by ringing the opening bell on NASDAQ. As I reflect on our journey over the past 2.5 decades, our transformation from a traditional outsourcing company to a recognized leader in data and AI has been truly remarkable and stands out. Our strategic decisions to make timely pivots and evolve into a data and AI-led company has contributed to our industry-leading growth rates. More importantly, we have positioned EXL for success in the rapidly evolving and expanding AI era. As we shared in our Investor Strategy Update Event in May, AI has changed the business transformation landscape from one that was historically technology-led to one that is now increasingly domain and data led. This plays to our core strengths in domain expertise, data mastery and AI implementation capabilities. It has significantly expanded our total addressable market and accelerated our growth rates. Data and AI-led revenue now accounts for more than half of the company's total revenue, and we anticipate that percentage to grow over time. We recently announced a strategic collaboration with NVIDIA to create enterprise-wide data and AI applications for insurance, healthcare, banking, retail and other industries. EXL's adoption of advanced AI technologies powered by NVIDIA AI helps our clients with fast and scalable AI in complex enterprise production environments. As a leader in helping clients redesign customer journeys and reinvent business models by integrating data, analytics and AI directly into critical workflows, EXL will play a pivotal role in fine-tuning and applying the NVIDIA AI platform to highly specialized use cases. I am happy to share that our first insurance specific LLM, which has been fine-tuned on 2 billion tokens curated from insurance domain data is now production-ready. Our fine-tuned model outperforms several foundational models such as GPT-4o, Claude Sonnet and Llama 3, 70 billion on insurance-specific tasks in the medical claims space. We leveraged a number of proprietary data pre-processing and fine-tuning techniques in close collaboration with NVIDIA's engineering teams to achieve this outcome. Given our success, we will continue to create additional domain-specific LLMs across our chosen industries. Our growing ability to tangibly improve our clients' businesses through domain, data and AI is reflected in the continued strength of our sales pipeline. We are particularly encouraged by the year-over-year growth we have experienced in the data and AI portion of our pipeline. Let me share a couple of recent examples of how we are harnessing our differentiated capabilities to deliver meaningful value for our clients. We partnered with a global personal and commercial lines insurer to help them improve underwriter utilization and drive higher premium growth. As part of the engagement, we deployed our SaaS-based underwriting solution on our proprietary AI platform. This included our patented GenAI-based XTRAKTO.AI solution for structured and unstructured data processing and advanced scoring engine to generate a risk core for all incoming leads and automated decision-making algorithms. The whole underwriting process now just takes a few hours, where it used to take multiple days. This solution not only improves our client quote to policy conversion, but it also helps them improve the broker experience and drives better underwriter productivity and higher premium growth. This is a great example of how EXL is combining our insurance domain expertise along with our data and AI solutions to help our clients transform their operating model. In another example, we have been working with a Fortune 50 consumer goods company to help them solve challenges in their rapidly-growing e-commerce business. They were experiencing a surge in data volume, which had strained their internal resources, resulting in frequent data pipeline failures and unreliable data quality. Leveraging our data engineering experience and capabilities, we helped the clients streamline data flow and improve data quality. This included combining data in various disparate formats across supply chain, marketing and sales into a comprehensive data warehouse. We also optimized their data extraction algorithms and developed various actionable executive dashboards, empowering leaders to make informed decisions faster. This resulted in a reduction in pipeline failures of approximately 95% with consistent data availability and smooth processing. In addition, we were able to reduce their computing costs related to extracting, transforming and loading data for those pipelines by over a third. These impressive results demonstrate our ability to leverage our deep data management capabilities to become the data and AI partner of choice for some of the largest companies in the world. We continue to see growing opportunities in data management and engineering, as more clients focus on complex foundational work necessary to prepare for broader AI deployment in the future. And we continue to successfully attract new specialized talents to EXL as well as train and develop our existing talent in data and AI. In summary, we delivered strong results in the second quarter and we are encouraged by the acceleration of growth across our Analytics and Digital Operations and Solutions businesses. The consistent execution of our data and AI-led strategy, combined with our growing data and AI sales pipeline, puts us in a strong position for further growth in the second half of the year. With that, I'll turn the call over to Maurizio to cover our financial performance in detail. Maurizio Nicolelli: Thank you, Rohit, and thanks, everyone, for joining us this morning. I will provide insights into our financial performance for the second quarter and the first six months of 2024, followed by our revised outlook for the full year. We delivered a strong second quarter with revenue of $448.4 million, up10.7% year-over-year on a reported basis. On a constant currency basis, we grew revenue 10.8% year-over-year and 2.8% sequentially. All revenue growth percentages mentioned hereafter are on a constant currency basis. Revenue from our Digital Operations and Solutions businesses, as defined by three reportable segments excluding Analytics, was $254.6 million, which represents year-over-year growth of 14.3%. Sequentially from the first quarter of 2024, we grew revenue 3.6%. In the Insurance segment, we generated revenue of $149.3 million, an increase of 16.2% year-over-year and 2.8% sequentially. This growth was driven by the expansion of existing client relationships and new client wins. The insurance vertical consisting of both our Digital Operations and Solutions and Analytics businesses grew 12.9% year-over-year with revenue of $185.7 million. In the Emerging segment, we grew revenue 15.1% year-over-year and 4% sequentially to $77.2 million. This growth was primarily driven by the expansion of existing client relationships. The emerging vertical consisting of both our Digital Operations and Solutions and Analytics businesses grew 5% year-over-year with revenue of $159.7 million. The Healthcare segment reported revenue of $28.1 million, growing 3.5% year-over-year and 7% sequentially. This growth was driven by higher volumes in our clinical services business. The healthcare vertical consisting of our Digital Operations and Solutions and Analytics businesses grew 16.8% year-over-year with revenue of $103 million. In the Analytics segment, we generated revenue of $193.8 million, up 6.4% year-over-year and 1.7% sequentially. Growth in Analytics was driven by higher volumes in payment services and growth in our data management business. SG&A expenses as a percentage of revenue increased by 230 basis points year-over-year to 20.5%, driven by investments in sales and marketing, generative AI and digital solutions as well as restructuring and litigation settlement costs. In the second quarter, we incurred $6.2 million in restructuring and litigation settlement costs to realign a portion of our employee workforce to better meet the evolving needs of our clients. This was largely completed in the second quarter. We do not expect to incur any additional material costs in the third quarter. Our adjusted operating margin for the quarter was 19.8%, down 20 basis points year-over-year, primarily due to increased SG&A investments. Our effective tax rate for the quarter was 23.2%, down 70 basis points year-over-year. This was driven by higher profits in lower tax jurisdictions. Our adjusted EPS for the quarter was $0.40, a 10.8% increase year-over-year on a reported basis. Turning to our first half performance, our revenue for the period was $884.9 million, up 9.8% year-over-year on a reported and constant currency basis. This growth was driven by both our Digital Operations and Solutions and Analytics businesses. Adjusted operating margin for the period was 19.4%, down 30 basis points year-over-year. Our first half adjusted EPS was $0.78, up 9.9% year-over-year on a reported basis. Our balance sheet remains strong. Our cash, including short- and long-term investments, as of June 30th was $285 million and our revolver debt was $335 million for a net debt position of $50 million. We generated cash flow from operations of $75 million in the second quarter compared to $48 million for the same period in 2023, driven by improved working capital management. During the first six months, we spent $23 million on capital expenditures and repurchased approximately 4.3 million shares at an average cost of $30 per share for a total of $128.3 million. This includes 3.35 million shares received upfront as part of our previously announced a $125 million accelerated share repurchase plan. We received the remaining shares in July. Now, moving onto our outlook for 2024. Although the macroeconomic environment remains unpredictable, we are raising our guidance range for revenue based on our strong first six months results and the recent acquisition of ITI Data. We now anticipate revenue to be in the range of $1.805 billion to $1.83 billion, representing year-over-year growth of 11% to 12% on both reported and constant currency basis. This represents an increase of $13 million at the midpoint from our previous guidance of $1.79 billion to $1.82 billion. The current revenue guidance includes $7 million to $9 million from ITI Data for the remaining five months of 2024. We expect a foreign exchange gain of approximately $1 million, net interest expense of approximately $5 million to $6 million and our full year effective tax rate to be in the range of 23% to 24%. Based on this, we anticipate our adjusted EPS to be in the range of $1.59 to $1.62, representing year-over-year growth of 11% to 13%, which is an increase from our prior adjusted EPS guidance of $1.58 to $1.52. The ITI Data acquisition is expected to be neutral to adjusted EPS in 2024. We expect capital expenditures to be in the range of $50 million to $55 million. In summary, we are pleased with our second quarter results and encouraged by the acceleration of our growth momentum. By continuing to execute on our data and AI-led strategy, we are confident in our ability to maintain our double-digit growth trajectory. With that, Rohit and I would now be happy to take your questions. Operator: Thank you. At this time, we will now conduct the Q&A session. [Operator Instructions] The first call comes from the line of Maggie Nolan of William Blair. Maggie, please go ahead. Margaret Nolan: Hi, thank you. I'm hoping you can break down your Analytics segment in a little bit more detail for us. Where you're seeing incremental tailwinds versus where you're seeing headwinds by kind of offering and vertical alignment within the Analytics segment as well? Rohit Kapoor: Sure, Maggie. So, as we mentioned, the places where we are seeing a tremendous amount of growth is around some of the work that we do on healthcare payment services as well as data management. Both of these continued to drive the growth in our Analytics business very nicely in double digits. We are also seeing some of the strength come back across some of the industry verticals. The work that we do in Analytics, particularly in some of the other industry verticals like retail and banking, and that's encouraging for us. And then, as we mentioned previously, marketing Analytics for us continues to be a tailwind. And that's something which has been a drag in terms of our growth rate for the second quarter. Margaret Nolan: Thank you. And can you talk in a little bit more detail about the adjusted operating margin expansion -- expectations on a quarterly basis, and in particular, what we should expect in terms of SG&A investments over the remainder of the year? Maurizio Nicolelli: Sure, Maggie. So, when you take a look at our adjusted operating margin, in 2023, our margin expanded 100 basis points to 19.3%. And we had guided this year to be flat -- fairly flat with 2023. If you look at the first half of the year, we ended the first half of the year at 19.4%. We had a lower first quarter because of a number of investments that we were -- that we planned on making and we made that brought that AOPM down to 18.9%. But now that we've made those investments in the first quarter, we get to much more of a normalized AOPM for the rest of the year. So, you can anticipate or expect the second half of the year of AOPM to be right in line with our guidance to being flat with 2023, right, right around that 19.3%, 19.4% range. In terms of SG&A investments, we made a number of investments, both in AI and also in our front-end sales, in the first half of the year. So our second half investments in SG&A should be fairly reasonable, nothing significant in SG&A. Margaret Nolan: Thank you. Solid quarter. Operator: One moment for your next question. The next question comes from the line of Bryan Bergin of TD Cowen. Bryan, please go ahead. Bryan Bergin: Thanks. Good morning. Maybe on ITI, can you give more detail on how that target complements your existing data management practice? I'm curious if it's about -- more about scale or more so additive solutions and kind of the industry penetration. And then just on the financial side, has that -- can you comment on how growth has been performing there? Rohit Kapoor: Sure. So first of all, we are very excited to welcome the ITI team to become part of EXL. We -- as we've kind of gotten to know them, we find that there is exceptional talent within ITI Data. I think what it does for us is from a strategic lens, it further strengthens our capability in data management and it allows us to be able to provide a wider array of services to our clients around data management. It also brings to us a much more global 1,000 customer base and so a number of new large client relationships that we think we can leverage together and add to the capabilities out there. It also brings some IP as well as some partnerships, which we think would be additive and would be helpful. And then finally, it's got a very nice global mix of business that complements the capabilities that EXL has. So, we are excited about this combination and we think with this combination, we should be able to grow the business in a -- at a much faster pace and be able to add to the service offerings that we currently have for our clients around data management. Bryan Bergin: Okay. And then my follow-up, just on the GenAI front, the insurance specific LLM you trained here is interesting. Can you comment on how you intend to contract engagements that may leverage that as well as just any other details on kind of the productivity and delivery implications? Rohit Kapoor: Yeah. So that's exciting for us. It's our first domain-specific trained LLM and we naturally chose to do that in our insurance vertical, which is where we got the maximum amount of domain knowledge as well as access to data. And I think the -- there are a number of things that we are learning as we are experimenting with this and as we are building up these LLMs. Number one, what we are finding is, foundational models are good, but when you have to deploy them into the workflow, these need to be specifically trained on the domain and data from that domain and that's what allows them to be a lot more effective and be able to be a lot more productive. So, one of the things which we have done is to create our own insurance LLM, which can now be a Plug and Play. So, it actually allows us to be able to offer that service to multiple clients simultaneously and it requires a one-time effort upfront, which is what we have done and trained that LLM on 2 billion parameters. And we are finding that the efficacy of that LLM is far superior to the foundational models that we are kind of testing it out against. And so, it allows us to be able to deploy the solution with speed at much lower cost and get great results. I think in terms of the commercial model, that's something which is going to evolve as we go forward. It will depend upon the kind of engagement that our clients want to kind of have with us. If they want to have an engagement, which is a total outsourcing engagement, we will embed this as part of the cost structure and be able to offer them a benefit and an outcome. And it might be a commercial model that integrates in our operations management capabilities, our analytics capabilities and the LLM. In other situations where clients may want to adopt this as a standalone capability, there would be perhaps a licensing agreement as well as a payment for the use of this LLM. And obviously, this is just the beginning for us. We hope to be able to continue to kind of keep improving on this and also building out LLMs in other industry verticals. I think our viewpoint is that that's where the market is headed and we are excited that we are able to kind of take the lead in terms of going forward with one of these LLMs and be able to demonstrate its performance and its efficacy. Bryan Bergin: All right, very good. Thank you. Operator: One moment for your next question. The next question comes from the line of Surinder Thind of Jefferies. Surinder, please go ahead. Surinder Thind: Thank you. Rohit, just following up on the prior question about proprietary LLMs that are industry-specific. Can you help me understand how the training of the models work, in the sense that where are you getting that data from? And then are you able to then go to the client? And does it have to be further trained with client data, or where does the IP for some of that exist? Rohit Kapoor: Sure, Surinder. So first-off, as you know, for us, we go deep into industry verticals and we work with multiple clients across each of our industry verticals. So, take insurance as an example, we work with several leading carriers in that space and we have a deep knowledge and understanding about the workflow, the processes, the data and everything that needs to happen there. Second, we do have contractual rights to be able to use the data across some of our client relationships. And those situations where we have permissioning to be able to use the data as well as to be able to use derivative actionable data, we're basically using both of this. So we're using the primary data as well as some of the derivative data to be able to train our models on these insurance processes. Now, going forward, in terms of the work that we will do, certainly, in terms of areas where we have invested in terms of creating that model and we have trained that data, that IP will belong to us. But as we deploy it in client workflows, that IP will jointly be owned by us and by our clients. So it's going to be no different than other technology solutions that we create or we deploy across our client portfolio. But I think the exciting part out here is the efficacy that we are able to get, I mean, that is beating the foundational models, which are trained on much, much more larger parameters. I think that's what is exciting for us and for our clients. Surinder Thind: That's helpful. And then just in terms of -- a bigger picture question here, I think you've noted that the current environment from a Digital Ops perspective has been highly supportive with considerations around cost and efficiency, but as we move towards maybe rates coming down, perhaps a bit more growth on the discretionary spend in part, how are you thinking about the potential impact on the Digital Ops business? So how much of that tailwind should go away as we think over the next two, three years or whenever the demand normalizes? Rohit Kapoor: Sure. So fundamentally, when we think about our business and what we are helping our clients with at the highest level, there are two things that we are helping them with. Number one is helping them drive down cost, and number two, helping them transform their businesses. That's what we focus in on the digital operations side. We've said always that for us, the demand environment continues to be strong as long as the penetration is low and the adoption of our capabilities can be used to leverage for clients being able to benefit from the cost reduction as well as transformation of their operating processes. In an economic environment where the growth rates are slowing down, the interest rates are coming down, the propensity of clients to focus in on a lot more cost savings becomes even more significant. So frankly, at that point of time, we would expect more and more immediacy in terms of client actions, outsourcing their work and entrusting that work to us so that we can actually lower and reduce their cost structure in a very significant way. In terms of transformation, the way in which clients are approaching this is, they want to be able to get the benefit of the transformation in the current period itself. And therefore, they want to work with those providers that have the necessary tools and the skillsets and the capabilities that can be deployed immediately where the return on investment can be very, very high, very quickly. So, I think we end up being a very credible partner for our clients in terms of helping them engage on the transformation initiative as well. So that's why I think for us, the Digital Operations and Solutions business is strong and we would expect it to continue to remain strong. Our expectation is that our growth rate has accelerated in the second quarter, both in Analytics and in Digital Operations, and we do expect that acceleration to continue in the second half of this year. Surinder Thind: Thank you. Operator: One moment for our next question. The next question comes from the line of Puneet Jain of JPMorgan (NYSE:JPM). Puneet, please go ahead. Puneet Jain: Yeah, hi. Thanks for taking my question. I have like a follow-up on Digital Ops. So it seems like in the industry, clients' in-house operations are ramping up on an overall basis. Are you seeing that trend in operations management as well? And broadly, what do you expect for insourcing versus outsourcing decisions by your clients in Digital Ops? Rohit Kapoor: Hi, Puneet. Yes, I think clients do use multiple avenues for being able to manage and run their operations efficiently and certainly creating in-house operations or captive operations or global captive centers. That is certainly part of their portfolio. I think the place where we tend to have an advantage is where there is leading and cutting-edge technology that needs to be applied, where data flows need to be integrated in the customer workflows, where AI needs to be deployed, that's where I think we have advantage because we tend to see this across multiple clients and across multiple use cases. And therefore, our understanding of being able to deploy this effectively in a shorter time period and quickly tends to be a little bit better. So, it actually works quite well because we end up complementing some of the work that the in-house captives are doing. And many times we might do the work initially and subsequently the captive might do that work or vice versa, right? So, it actually is a good ecosystem. I think the key is, can we continue to remain competitive and continue to innovate and continue to be adding value to our client relationships across the board. And I think by virtue of us going deep into the domain, by going deep into data, by going deep into AI, which is our strategy, we are able to maintain that differentiation and that competitive edge. Puneet Jain: Got it. No, that makes sense. And then you had like accelerated repurchase this year, just completed an acquisition. From here on, how should we think about use of cash? And also like how much you are paying for the ITI acquisition? Maurizio Nicolelli: Sure, Puneet. So, to answer your latter question, the ITI acquisition was $26 million in cash that we purchased the company for. So, we use that from existing cash resources. Going forward, we have been pretty aggressive on share repurchase in the first seven months of the year. We closed the ASR in July, and we've repurchased right around $160 million worth of stock so far this year, right around $30 per share. So, it's been very -- we've been fairly aggressive and we've gotten a good price on our share repurchases for the year. We got approval of $0.5 billion back in March by the Board for the next two years for share repurchases. So at least for 2025, our minimum for share repurchases that we plan on is at least half that number, which would require us to do about another $90 million in share repurchases in the final five months of the year. So when we allocate capital for the remainder of 2024, you'll see a portion of that go towards share repurchases and then any other opportunities that come up on the M&A side going forward. Puneet Jain: Got it. Thank you. Operator: [Operator Instructions] One moment for your next question. The next question comes from the line of Dave Koning of Baird. Dave, please go ahead. Dave Koning: Yeah. Hey, guys. Nice quarter. And I guess my first question, new wins were really strong, new client wins in the quarter, I think the best, I think we've ever seen, certainly a lot higher than many of the recent quarters. I guess, is that an indication in part that macro is getting a lot better? And maybe what are the size of those -- is the size also bigger? And what's the lag again? Like when you win this quarter a lot, is that kind of really a 2025 impact more so than the next six months? Rohit Kapoor: Yeah. Thanks, Dave. So, we're very pleased with the number of new client wins that we had in the second quarter. And also, if you saw our first quarter, new client wins was pretty healthy. So, I think in the first half of the year, we've signed up 39 new clients, 23 of them coming in the second quarter. I think what this is showing us is that the adoption of our business model and working with clients seems to be resonating nicely. And therefore, we are being able to widen the number of client relationships that we work with. We are also very happy about the quality of these new clients that we are signing up because some of these are very significant client relationships and we expect to be able to do a very significant and meaningful amount of revenue with them. But as you correctly noted, most of this is going to be revenue growth that takes place in 2025 and beyond. We get very little growth from new clients in the current period. Keep in mind that we've had a good track record of signing up new clients in all of '23 and '24 as well. And some of the clients that we signed up in '23, we are still in the process of ramping those up right now and into the second half of '24. So that should be adding onto our volume of business going forward. Dave Koning: Got you. Thanks for that. And maybe as my follow-up, you guys don't do -- you guys have very, very limited like restructuring type actions overtime, you've super clean financials for many years. And this was pretty small to the $6 million or so. But maybe describe a little more, was this part of why employee growth was a little slower sequentially than normal? And maybe what are the savings going to be around it, or just maybe a little more data around it? Maurizio Nicolelli: Sure, Dave. So, in the second quarter, we did have a restructuring and legal settlement charge of $6.2 million. The restructuring piece was $4.8 million. It involved about 450 employees that were affected by the restructuring, so less than 1% of the overall workforce. And it was really just to realign a small portion of our workforce during the quarter. And so, it did contribute to a slower headcount growth number during the second quarter. We grew just slightly north of 800 employees during the quarter. And so, they did contribute to that. But it was really just a onetime exercise in the second quarter, and we don't see that reoccurring at all for the rest of the year. Dave Koning: Got you. Thanks, guys. Nice job. Operator: One moment for your next question. The next question comes from the line of David Grossman of Stifel. David, please go ahead. David Grossman: Good morning. Thank you. I just wanted to follow-up on two of the questions that were already asked. The first one was just, Rohit, going back to the backlog and the pipeline, you talked about the pipeline at least for data analytics being fairly strong and AI. I'm just curious on the ops -- Digital Ops side, what does the backlog look like year-over-year and as well as the pipeline and where are we in terms of rolling out '23 wins in '24? Do you think that's going to extend into '25, or do you think most of those contracts will ramp in '24? Rohit Kapoor: Sure, David. So the backlog and the pipeline for us across the board continues to be pretty healthy. It continues to be strong. We're not really seeing any material change in that. I think for us in terms of the implementation of deals that we've already won, we've only partially implemented the backlog that we had at the beginning of the year. We've got a tremendous amount of backlog that we still need to implement on in the second half of this year. And there are a number of large client wins that we will be implementing in the second half of the year. The pipeline for us is basically strong across verticals. But what I would say is, while the large deal pipeline within our overall pipeline, that ratio is about the same as what it's been previously. The place where we've seen obviously a tremendous amount of growth in the pipeline is the pipeline attributable to GenAI, and that's increased in a pretty material way over the last 12 months. So, we are encouraged by the quality of that pipeline and the areas in which clients want to partner with us. David Grossman: And how should we think about the revenue conversion of a GenAI deal? Is that fairly small and quick turn, or are those going to be longer duration type relationships? Rohit Kapoor: Yeah. So, I would say that what we are seeing is a bipolar effect on the GenAI part. In some cases, we are seeing Gen AI being embedded into the operations and into the workflow and the client outsourcing the entire operation to us along with the GenAI implementation and those tend to be the large size deals. And on the other side of the spectrum, they want us to implement GenAI solutions into existing operations, which they might be running or some of our competitors might be running. And those tend to be typically much smaller implementations as such. So we are seeing deals at both ends of the spectrum that are there, some which are bundled in with the operations, which tend to be large and some which are pure Gen AI implementations, which tend to be much smaller in size. David Grossman: And just as a follow-up on your comments about your domain-specific model. I think you mentioned that how that you're going to monetize that is still a little bit up in the air. However, as you look beyond the near-term, Rohit, how do you think a domain-specific model impacts your business longer term? Over time, the market has a tendency -- at least the BPO market has a tendency to price in a lot of this and they want to recapture a lot of the benefit. The client wants to recapture a lot of the benefits. So, is there something different here that would suggest that EXL can retain a larger piece of the economics as it relates to these models? Or do you think it follows a more traditional pattern? Rohit Kapoor: Yeah. So, I think you're right. I think there'll always be a tussle between clients and service providers in terms of retaining economic value. But I think where we stand out is our focus and our expertise and our domain knowledge in select industry verticals. I think in those areas where we have deep knowledge and we have deep access to data, our ability to train these models and to be able to leverage these models will perhaps be a little bit better. And the networking effect of being able to see workflows across multiple clients, I think that is very powerful when the use of GenAI is involved. So I think that's what gives us a little bit of an advantage and a little bit of pricing power that can leverage the value that we can create out there. David Grossman: I see. Thanks for that. If I could just squeeze one more in. Maurizio, can you give us what post all the share repurchases to date, what the fully-diluted share count should look like? Maurizio Nicolelli: So, David, so far we have repurchased right around 4.5 million to 5 million shares overall. So if you deduct that from our overall share count going forward in 2025, you're going to find that right around, you can calculate what that reduction in the share count will be. But that's what we've done so far. David Grossman: So, you're talking about 4.5 million versus where you were at the beginning of the year then? Maurizio Nicolelli: No, you'd have to average that out for the year. You're going to get a much -- when you do the diluted average shares for the year and you do your calculation, you're going to have to weigh that over the year. But we've done that in the first seven months of the year. So, you have to break that -- you have to average that out over the first seven months and calculate -- and recalculate that. So you're not going to get that whole benefit this year. You'll get that next year. David Grossman: Right. Okay. Great guys. Thanks very much. Operator: One moment for your last question. The last question comes from the line of Vincent Colicchio of Barrington Research. Vincent, please go ahead. Vincent Colicchio: Yes, Rohit, the ITI deal looks quite like a value add. You haven't been very acquisitive for some time. Will we see more ITI type deals as a way to accelerate your positioning? Rohit Kapoor: Yes, Vincent. I think we've been very clear that for us, we'd love to be able to grow our business organically and inorganically. And frankly, the amount of cash flow that we generate and the strength of our balance sheet allows us to be in a fortunate position of being able to acquire assets. But we're going to be very selective in terms of the strategic fit, the financial discipline and the cultural fit of the assets that we acquire. And therefore, we do think that there's a lot of opportunity for us to be able to deploy capital and integrate in assets. And as things continue to evolve and progress, I think you should be expecting to see us continue to be active in this area. Vincent Colicchio: And how should we think about this NVIDIA partnership in terms of how long it will take to meaningfully benefit the company? Rohit Kapoor: I think it's a very strategic partnership, which where we are going to be making a tremendous amount of investment of talent and resources, time and commitment and building up capabilities on the NVIDIA AI stack. We think their software and their platform is actually highly differentiated and provides for much better business outcomes. So, as we deploy it and jointly go to market, I think you're going to see us being able to kind of benefit from that and our clients being able to benefit from that. Traditionally, NVIDIA has been seen as a hardware company and as a gaming company, and their use of their advanced computing capabilities into the workflow is something that we think we can be very, very additive on. And so for us and for them, I think it's going to be a pretty meaningful partnership. Operator: This concludes the question-and-answer session. I would now like to turn it back to John Kristoff. John Kristoff: Okay. Thank you everyone for joining our call today. And as always, feel free to reach out directly to me with follow-up questions. I hope everyone has a great day. Thanks, and bye-bye.