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Advent Software, Inc. (NASDAQ:ADVS)

Q1 2014 Results Earnings Conference Call

April 28, 2014 5:00 PM ET

Executives

Justin Ritchie - Senior Director, Investor Relations

Pete Hess - Chief Executive Officer

Jim Cox - Chief Financial Officer

Analysts

Gil Luria - Wedbush Securities

Sterling Auty - JPMorgan

Chris Donat - Sandler O'Neill

Ross Macmillan - Jefferies

Peter Heckmann - Avondale Partners

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2014 Advent Software Earnings Conference Call. My name is Denise, and I'll be the operator for today. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now turn the conference over to Mr. Justin Ritchie, Senior Director, Investor Relations. Please proceed.

Justin Ritchie

Thanks, Denise. Good afternoon everyone. Hosting our call today are Pete Hess, Advent's Chief Executive Officer and Jim Cox, Advent’s Chief Financial Officer.

Before I turn the call over to the Pete and Jim, I want to remind you of the regulations regarding forward-looking statements. Accordingly, we would like to note that during the course of this conference call, we will make forward-looking statements regarding our market and future events, products, strategies, financial guidance and performance of the company.

We wish to caution you that such statements are just predictions that involve assumptions, risks and uncertainties, and that actual events or results could differ materially. We’ve discussed a number of these risks in the company's SEC reports, included in our quarterly reports on Form 10-K, annual report on Form -- excuse me, our quarterly reports on Form 10-Q and our annual report on Form 10-K. And any forward-looking statements must be considered in the context of such risks, assumptions and uncertainties. The company disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of events or circumstances after the date hereof to reflect the occurrence of unanticipated events.

As a reminder, we include non-GAAP financial measures in our disclosures. These non-GAAP financial results are not meant to be considered in isolation or as a substitute for results prepared on a GAAP basis. For a reconciliation of GAAP to non-GAAP financial measures, please refer to the tables entitled Reconciliation of Select Continuing Operations' GAAP Measures to Non-GAAP Measures and Reconciliation of Projected Continuing Operations' GAAP Operating Income Percentage to Non-GAAP Operating Income Percentage in our earnings release, which is filed with the SEC on Form 8-K and available on our website.

I will now turn the call over to Pete.

Pete Hess

Thanks Justin and welcome everybody. Thanks for joining us this afternoon. We are pleased with our first quarter results with the team delivering a strong start to a year of transition for Advent Software. In the quarter, we began -- sorry, in the quarter we again saw solid revenues, very strong profitability and excellent renewal rates. We’re particularly pleased with cash flow, one of the hallmarks of our business model which increased 21% over the same period last year.

In keeping with our commitment to enhance shareholder value, today we announced that we declared a quarterly dividend. We are thrilled that we can take advantage of our strong cash flow to enhance shareholder value by opportunistically buying back shares of our stock, continually paying down debt and now also paying a quarterly dividend, all while we increase investment in the future growth of our core offerings as well as Advent Direct, our new cloud platform.

The excitement and enthusiasm around Advent Direct from both current and prospective clients has been exceptionally strong. We’re pleased to take the next step today and begin sharing details around our commercialization strategy. But first, let me review some of the highlights of our progress in Q1.

Renewals were again a key part of the story which speaks to the critical role that Advent plays for our clients. Renewals for Q3 2013 increased to 99% from the initially disclosed rate of 97% and our initially reported renewals number for our largest renewals this quarter, Q4 was a very strong 95.5%.

Similar to last quarter, however, strong renewals were the upside to light bookings where again we saw Axys clients delaying migration as they wait for Advent Direct. Our ACV for the quarter was $5.1 million, down from last year which was an abnormally high quarter due to the unusual timing of two very large deals in the first quarter of 2013.

Despite the lower ACV number, however, annualized recurring run rate on March 31, 2014 was $376 million, up 6% over run rate on March 31 of 2013. We’re happy to be disclosing the new run rate metric as it includes all sources of recurring revenue growth and therefore offers a broader view into the overall strength of our business.

We had profitable momentum in the business and the pipeline is growing across our products suite both with prospective and current clients. We’re thrilled to establish new Geneva client relationships with two of the world’s leading alternatives managers as well as APX and Moxy relationships with one of the largest Canadian wealth managers and Ashburton Investments, the investment arm of the First Rand Group.

There is also continued good news on the Black Diamond front as we added 34 new Black Diamond clients in the first quarter and saw revenue growth 32% over the same quarter last year. Quarter, our strategy is to empower our clients to take advantage of cloud, mobile and social technologies.

With Advent Custodial Data, Black Diamond and Advent OnDemand, Advent has a history of leadership in the cloud and we’re expanding that leadership with Advent Direct. Last quarter, we explained that the market’s initial reception to Advent Direct had been exceptionally strong.

Three months later, I'm happy to report that market enthusiasm continues to build and the prerelease Advent Direct sales pipeline is growing quickly even before we rolled it out to our sales organization for general availability in Q3. I mentioned in my opening that 2014 was a year of transition for Advent Software. What I meant by that is product transition.

With Advent Direct, we’re asking all of our clients to embrace the cloud. This is a daunting task but we are confident of our success because we paid a uniquely simple path for our clients to get there.

Let’s start with the commercial model. Enterprise to cloud normally implies the switch from perpetual to recurring commercial agreements. This transition can -- fortunately, most of our clients have already made that transition with Advent starting back in 2004 when we began licensing on a recurring term basis.

Next for many firms, the notion of moving their entire Advent systems infrastructure to the cloud and/or upgrading to a new accounting platform is daunting. They’ve also told us though that to compete effectively, they need the benefits of easily deployed and enhance workflow integration across Advent and non-Advent supported functions.

To this end, we’ve introduced Advent Direct which is an overlay cloud platform that integrates with our client’s existing Advent applications whether deployed onsite or in the cloud, the results our clients can thrive with better cloud delivered tools without having to either switch accounting systems or move entirely to the cloud.

This is the path that APX client Schafer Cullen is taking, keeping their accounting system on site and taking advantage of improved information access and workflow easily implemented and delivered through Advent Direct. And this path stands in contrast to that offered by many other enterprise software firms whose clients may not have made the commercial transition to term a subscription fees, nor have they been offered a phased approach from moving to the cloud.

We are confident that our strategy will enable our clients to thrive and in turn help fuel Advent success. I’d like Jim share the details on how we’ll be commercializing Advent Direct in his comments to follow. Well we’re very excited about our progress in preparing Advent Direct for commercial launch in Q3, I don't want to understate the challenges of transitioning our business to a new technology platform.

As we’ve observed with the Axys migrations, the announcement of new product platform can temporarily slow the uptake of the current product set. Also we’re very aware of the need to continue meeting the demands of our current clients on our core products and our investments in future growth of our core products will continue.

The good news is this challenging period is playing out in line with our plan while short-term bookings are down, our annualized recurring run rate is improving on the strength of new sales, renewals, revenue share agreements and other recurring revenue sources. And the enthusiasm toward the Advent Direct makes it -- makes our job that much easier. With every client and prospect meeting, we’re receiving confirmation that we've chosen the right strategy and are very excited about the opportunities that lie ahead.

So with that, let me turn the call over to Jim so he can provide greater financial detail around Q1 and our pricing strategy for Advent Direct.

Jim Cox

Thanks Pete. Good afternoon, everybody. Thanks for joining us. I’ll talk about four areas today. I will review first quarter results, discuss the quarterly dividend. I will share our initial details as commercialization on Advent Direct and lastly, I will provide Q2 guidance.

With solid operating profits, healthy cash flows and very strong renewals, Q1 was a strong start to the year. We had revenues of $96.8 million, up 5% over the same period in the prior year and non-GAAP operating profit was $29.2 million, an increase of 11% over 2013. Once again, we are achieving our objective of growing profitability faster than revenues.

Operating cash flow was strong at $20.9 million, a 21% increase year-over-year. We are pleased with the strong, reliable cash flow and the confidence we have in our business model allows us to further our commitment to returning value to shareholders. As Pete noted earlier, Advent’s Board of Directors has approved a $0.13 per share quarterly dividend.

The first quarterly dividend will be paid on July 15th to stockholders of record, as of close of business on June 30th. Going forward and obviously subject to the declaration by our Board, we expect to announce dividend sometime during each quarter after our Board meeting but not necessarily along with our earnings announcement, which record dates at the end of each of those quarters.

At the same time, we will continue to opportunistically repurchase our stock, with approximately 400,000 shares on our current buyback authorization still available for us. As we discussed last quarter, a key driver of our business is the growth of our recurring revenue and to track those recurring revenues, we introduced annualized recurring run rate metric, which better aligns with the measurement of those recurring revenues.

As of March 31st, it was $375.8 million, a 6% increase over March 31, 2013. The increase was driven by higher renewal rate, the benefits of new revenues layered on from our term licenses sold in the last 12 months as well as increased booked revenue that is not yet recognized due to ongoing implementations.

We're extremely pleased with the updated renewal rate for the third quarter which has increased to 99%, as we continued to collect cash related to those renewals. Renewals performance for the fourth quarter 2013 was also very strong.

The initial renewal rate of 95.5% represents a 400 basis point improvement over the fourth quarter of 2012. That improvement contributed an incremental $2.5 million of run rate over the fourth quarter 2012. And we expect that the Q4 renewal rate will also increase into the high 90 once all the cash is collected.

As promised, we continued to reporting ACV throughout this year. ACV for the first quarter was $5.1 million compared to $8.7 million in the first quarter of 2013. To put this number in perspective, ACV in the first quarter 2013 was the highest in company history for the first quarter due to very unique timing of a couple extraordinarily large deals.

During the first quarter this year, we didn’t have those extraordinarily large deals and we continued to see the slowdown in access migration we discussed last quarter. We expect customers are waiting for the introduction of Advent Direct.

Moving to professional services, we said that our goal in 2014 is to be profitable at the practice level. Demand for professional services in the first quarter came down along with bookings, as we made our product transition and so the practice operated at a modest loss in the first quarter. We remain extremely confident in our sales and professional services pipelines for the rest of the year and we still expect the practice to be profitable for the full year.

Now let’s switch to margins and expenses. Gross margin was 70.6% in the first quarter, a 140 basis point increase over the first quarter of last year. That increase was driven largely by improved margin in professional services in the first quarter this year relative to the first quarter of last year.

In the first quarter as we expected, sales and marketing expense increased due to hiring to expand sales capacity to support the launch of Advent Direct this year. GAAP operating income for the first quarter was $19.3 million or 20% of revenue, a 240 basis point increase.

GAAP diluted earnings per share were $0.20 in the first quarter, representing a 12% decrease over the first quarter of 2013. It's important to note that the GAAP provisional tax rate in the first quarter of last year was only 24% compared to 36% this quarter, as last year's first quarter rate included both the reinstatement of the federal research tax credit at 2013, as well as the catch up of the entire 2012 federal research credit. For 2014, Congress has not yet enacted a research credit and so therefore there was no benefit in this quarter.

Now let me turn to non-GAAP results. Non-GAAP operating income for the quarter was $29.2 million or 30.2% of revenue, a 160 basis point increase over the same period last year. Non-GAAP EPS was $0.33 per share, an increase over the first quarter 2013, as we more than offset our increased interest expense with expanded operating margin in this quarter.

Turning to the balance sheet and cash flow, in the first quarter, we collected a $102 million from customers, a record for first quarter collection. These collections enabled us to pay down $10 million of debt in the first quarter. As a result, outstanding debt was $295 million at quarter end. And at March 31st, our leverage ratio was 2.6 times EBITDA. Deferred revenue at the end of the first quarter totaled $188 million compared to $177 million at the end of the first quarter of 2013.

Now let’s talk about Advent Direct and our commercialization strategy. Over the last year, we’ve developed a go-to market and pricing strategy that we believe captures the best elements of our current model, including the recurring nature of our revenues and the visibility those revenues provide.

With our Advent Direct customers, we will move away from the concept of per-seat licensing because we want to drive adoption across the entire firm so that everyone can realize the benefits of Advent Direct. Therefore, we plan to commercialize Advent Direct with an annual solution fee that will be based broadly on the size of the firm.

Additionally, we will also have a monthly fee that reflects our customers’ usage of the product. The usage fee is a flexible paradigm that enables the linkage of usage to the most relevant usage metric for each solution, whether that metric be accounts, assets under management, transaction or some other metric.

Most importantly, we expect the usage metrics to grow with our customers’ use of the solution. When we introduced annual recurring run rate as an operating metric last quarter, we wanted to make sure we could capture all the way that revenue grows. These usage-based fees are yet another example of how our annual recurring run rate metric better captures all of the drivers of our revenue growth.

Finally, let me remind you that we will launch Advent Direct in the second half of the year and we don't expect meaningful revenues until 2015. Now let me turn to guidance. In the second quarter, we expect revenues to be between $96 million and $98 million, while full year 2014 guidance remains unchanged.

With that, we can open the call up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Gil Luria with Wedbush Securities. Please proceed.

Gil Luria - Wedbush Securities

Gil Luria at Wedbush. In terms of the bookings rate, sound like you're comfortable with it. How much of the decline -- let's say not versus last year but versus a couple of years ago, do you attribute to customers waiting for the new solutions set as opposed to any other factors?

Pete Hess

I think it’s basically -- if you look at just access migration, that more than accounts for it.

Gil Luria - Wedbush Securities

Okay. Good. And then the new metric, the run rate metric seems to be how the seasonal aspect -- did I understand correctly that the reason for the big jump in Q1 over Q4 is the fact that your fourth quarter has the most renewals, or what’s the other -- are there any other seasonal factors that make the bump, Q1 over Q4 bump?

Pete Hess

It was definitely -- it had to do with the strong renewals in Q3 and Q4, as well as the bookings in the fourth quarter layering on, as booking is typically the largest in the fourth quarter. That also helps with that.

Gil Luria - Wedbush Securities

Got it. And finally on the dividend, do you have a target payout ratio in mind, a goal of growing the dividend, or are you going to handle in more quarter to quarter with the board?

Pete Hess

So we’re committed to this dividend, this dividend -- obviously when you instituted dividend you expected commit to it and stay with it and only grow. We are not focusing necessarily on a yield or anything like that, but we anticipate that we will pay this quarterly and we will grow it over time.

Gil Luria - Wedbush Securities

Excellent. Thank you very much.

Pete Hess

Thank you.

Operator

Our next question comes from Sterling Auty with JPMorgan. Please proceed.

Sterling Auty - JPMorgan

Thanks. Hi, guys.

Pete Hess

How are you doing?

Sterling Auty - JPMorgan

Good. So back to ACV for a second, so you mentioned that the Axys transition is more than explained forth. But I guess what I am wondering is, what about any of the other product areas that you would expect to sign new deals to contribute saying that the run rates in the rest of the business are continuing to grow and it’s only Axys. I just want to make sure I understand that clearly?

Pete Hess

No, I guess, if you do a quarter over -- Q1 last year versus this year, we had a really big Syncova deal last year, that was close to a $1 million per year, and we didn’t have a Syncova deal in the first quarter of this year as an example. But mostly other products are tracking on a comparable level. It’s really the migrations, that is the part of the portfolio, that’s shrinking. We’ve got good momentum in Geneva. We’ve got very good momentum in Black Diamond. So it’s really the Axys migrations that account for the lower number.

Sterling Auty - JPMorgan

Got you. And you talked about the hiring in sales and marketing to build the capacity for the Advent Direct launch. Can you quantify that for us? Can you give us a sense of what you have added in sales and marketing and kind of where they have been allocated?

Pete Hess

Yes. So we have added -- I would say in the first quarter we added close to about almost 10% to our bag carrying sales force to prepare them for when Advent Direct is available. They are not just selling Advent Direct, they are all products, but we just are sensing that we are going to need more sales people to take advantage of the pipeline it’s building.

Sterling Auty - JPMorgan

And where would that leave you in terms of quarter carrying at the end of the quarter?

Pete Hess

I don’t have any exact number on that. We could get back to you on that.

Sterling Auty - JPMorgan

Okay. That’s fair. And last question is, when you talk about the metrics in terms of -- actually I made two more questions. The pricing on Advent Direct, especially the usage base, it sounds like it could be a complex. How are you going to keep it in a fashion that’s going to be simplified and easy for the customer to understand not only what they are on the hook for now, but how it might grow for them?

Pete Hess

Sure. So for each, I think it will actually be reasonably simple for customer to understand and I think the best element of it Sterling is that it really is tied to the value that they are receiving. So if you think about it, each solution will have some usage base metric, but that specific solution will only have one usage base metric and that will be something that’s most relevant to the client.

So let me give you an example with our Black Diamond business model. So Black Diamond has a basis point model and the idea is clients use Black Diamond so that they can grow their assets, grow their business and thrive. So your basis point model is a 100% aligned with an advisor growing their business and so having a basis point model for Black Diamond aligns to them. This is a tool they are using to grow their business and there is alignment there. It’s that type of a usage based feed. We want to be more flexible because there might be other uses that someone has for our various Advent Direct solutions that maybe aligned to other things that are most relevant.

Sterling Auty - JPMorgan

Okay. And then -- that makes sense. And then Pete I want to make sure I am understanding from a technology perspective, this idea that you can have an on-premise accounting system and then just use aspects of Advent Direct, or am I right in hearing this right that I can come in and use Advent Direct as the core accounting system in the cloud, or if I got it on-premise, I can just use other feature sets to kind of complement it, so leave it on-premise that expand usage in the cloud. And I guess in that scenario, what are the other things that I am getting in the cloud that I wouldn’t be able to do with the current system on-premise?

Pete Hess

So good question. So to clarify Advent Direct is not an accounting system. So it is a platform that we use to present data that comes out of accounting systems and other systems. So it’s a way of manifesting the output that is valuable out of our systems and organizing that output and work flows that make sense based on whoever the end user it. So that’s why we call it an overlay solution. It depends on the math and the processes that take place in the core accounting solutions. The main point that I was making is that a lot of our clients don’t want to put their accounting system in the cloud or at least not yet. And we are not putting that reality in front of them potentially becoming an Advent Direct client, because Advent Direct will plug right in on top of the accounting systems or other systems that are locally deployed.

And as you study the enterprise companies that are implementing cloud strategies, it’s a little bit unique the approach we are taking of this cloud overlay as a bridge essentially to help them get to the cloud. And then eventually if they decide they want to put the accounting system in the cloud, then we are ready with Advent OnDemand and an offering where they can have their full Advent stack in the cloud, but a lot of our clients are not ready for that. But because Advent Direct, it’s right on top of what they already have, we think that it expands the viable universe of people to sell Advent Direct to out of the gate.

Sterling Auty - JPMorgan

Then what is the item that an Axys user today might say, oh, I want to hold off and wait. Why wouldn’t they migrate to and you tell me what the most popular migration configuration looks like today, because it still feels like Advent Direct would still be complementary to whatever they would head to?

Pete Hess

It is, it is still complementary so they are kind of independent decisions in some regards. One is, do I have the tools that I need to communicate with my clients and access this valuation information from my mobile etcetera. Okay, that’s what Advent Direct is for, at least the investor management solution which we are launching is the initial solution. And then the other question is, okay, what’s my own firm’s cloud strategy? I’ve got Axys running, it’s fine. The hardware is operating fine. I don’t really feel like disrupting my business or paying extra to have somebody else host it for me. So that would be a scenario where somebody might take this interim step of just implementing Advent Direct.

And then when they decide, okay, I’ve got to upgrade my hardware at some point that’s going to be a good time for them to evaluate, should I put access in the cloud at that point, rather than go out and buy new hardware.

So that’s -- yeah, I guess the point is that cloud doesn’t have to be in all or nothing. Cloud can be an incremental and we think that we will be able to touch more clients with our cloud strategy by offering them this incremental strategy as opposed to say, you’ve got to go cold turkey one way or another.

Sterling Auty - JPMorgan

Got it. Thank you.

Pete Hess

Yeah.

Operator

Our next question comes from Chris Donat with Sandler O'Neill. Please proceed.

Chris Donat - Sandler O'Neill

Hi, Pete and Jim. It’s Chris Donat. First question from me about the dividend and really sort of why now question because I certainly have a reaction that you are in the midst of a product cycle upgrade and it seems like you might have more R&D to go forward. Is this something of a statement that you really don’t need to spend much more to get Advent Direct out there and add the functionality to it, or is that the wrong conclusion to draw?

Jim Cox

So, Chris, this is Jim. I would say that we’re committed to certain revenue growth trajectories and certain operating margin expansion trajectories. And when we view what we want to do with Advent Direct and what our opportunity is we can capture that opportunity with those trajectories that we’ve talked about. Having a profile that says our revenues growing like this and our profitability is growing faster than that. You very quickly come to the conclusion that we’re throwing off more cash than we can deploy.

And so we went through a process of deciding, what are the ways that we can deploy our capital? Obviously, you can do M&A, you can pay down debt, you can do a dividend, you can do a share buyback. And I think what we’re indicating now is that we have the confidence in our profitability and we have the commitment to kind of continuing to deliver returns back to our shareholders. That’s why we decided to do the dividend now.

In the past, we have bought back shares opportunistically and we’ll continue to do that. And also we periodically evaluate M&A opportunities. But I think we’ve got in very comfortable with our ability to pay down our debt. In the fourth quarter, we focused very much on paying down debt as quickly as possible. And once we got below three times EBITDA leverage and we begin to reevaluate what’s the best use of this access cash flow, we came to the conclusion that we could do of all of those things. We could grow, we could expand margins and we could return capital to shareholders.

Chris Donat - Sandler O'Neill

Okay. Got it. Understood on that one. And then looking at the pricing for Advent Direct, can you give a sort of a ballpark on what the mix of revenue is you expect from the annual solution fee versus the monthly fee on the usage metric? Are they sort of 50-50, or majority one or the other? I’m just trying to get a sense on how much variability we’ll see that’s tied to usage that might vary a lot and I guess with AUM, it probably won't vary that much quarter in, quarter out?

Pete Hess

Yeah. It may depend on the specific client circumstance because in some cases, they may have such high volumes, for example that their usage might be more than half. But in most circumstances, the solution fee is actually the larger of the two and the usage fee is variable and smaller.

Chris Donat - Sandler O'Neill

Okay.

Jim Cox

And I think that mix, Chris that mix can vary solution-to-solution as we roll those out.

Pete Hess

That’s -- the way I just answered that question was further what we’re launching in the third quarter, which is what we call Advent Direct Investor Management. And those are the work flows mainly associated with communicating and servicing clients. There are other solutions that we have in the pipeline that we’re building that may have a different metric and a different balance. But Advent Direct Investor Management is going to be the headline news in terms of Advent Direct in 2014.

Jim Cox

Yeah. That’s good. Good.

Chris Donat - Sandler O'Neill

Okay. And then thinking about the usage-based on assets or on accounts, on transactions, I guess the transactions one would be the one that is likely to have the most variability as the metric goes? I mean, obviously assets will be market based, function where prices are arbitral. I’m just trying to figure out, if we’re going to see maybe more variability in your revenues going forward or --

Pete Hess

I think in the case of Advent Direct Investor Management, the usage metric is portfolios. And they don't change that much, right. People add portfolios but its not -- no, I don’t think the swings that we’ll see there going to be that big.

Jim Cox

Right. Right.

Chris Donat - Sandler O'Neill

Okay. And then just as we start getting comfortable with the ARR metric, as I look at your guidance of roughly $400 million of revenue in 2014 and then subtract out the $375.8 million of ARR that exists as of March 31, so there’s roughly $20 million, $30 million of difference there. Should I think of that as being sort of more on the services side, the non-recurring revenues that appear in your income statement or am I mixing apples and oranges here?

Pete Hess

That’s the way. So just the annualized recurring run rate, it’s not forward-looking, it’s about a point in time.

Chris Donat - Sandler O'Neill

Okay.

Pete Hess

But you’re right, that is only related to our recurring revenues and our non-recurring revenues, which include principally professional services but also the one-off perpetual license fee. That would be the delta between those two numbers.

Chris Donat - Sandler O'Neill

Okay. Okay. That’s it for me. Thank you.

Pete Hess

Thank you.

Operator

Our next question comes from Ross Macmillan with Jefferies. Please proceed.

Ross Macmillan - Jefferies

Thanks very much. Hi Pete. Hi Jim.

Pete Hess

Hi, Ross.

Ross Macmillan - Jefferies

Just one on the -- on what you’re seeing with regard to the ARRR just now with the better renewal rates obviously helping a lot. Just I guess, conceptually, is it possible that renewals could actually go above a 100%. In other words if you had up-sell, sufficiently across the base, is that actually possible or is it the way you measure it on a sort of net basis, so that would not occurred. The rest would be in sort of new ACV.

Pete Hess

It would be possible. In fact, their segments of our business that have renewals, that are greater than 100% now, across kind of the portfolio of product.

Ross Macmillan - Jefferies

Okay. That’s helpful. And just so I understand the way that we’ll be able to see the early traction with Advent Direct when it starts. Will that actually show up in ACD, the way that you proposed to price Advent Direct? So is it possible you would actually start to see that show up either in Q3, or maybe more meaningful in Q4 in that ACD metric?

Pete Hess

Yes.

Jim Cox

Yes.

Pete Hess

Yeah. The solution fee component would be in ACV, the usage fee component wouldn’t but it would show up in revenue run rate.

Jim Cox

Right.

Ross Macmillan - Jefferies

Okay. And then just so I understand again when you think about the first product, the Advent Direct Investor Management. I have seen you have quite different, you said it was portfolio price but I would have thought that certain customers would've potentially quite different numbers of portfolios. I’m just thinking high level institutional versus retail or something of that type. So how does that work? I mean are there deflators depending on the size of portfolios, or it’s just not clear to be the one size will necessary fit all?

Pete Hess

It doesn’t, and that's why you have the solution fee, which actually the solution fee is linked to how big the firm is from an assets perspective.

Jim Cox

Asset, employees and that sort of things.

Pete Hess

And that's why we -- the solution fee is a heavy component of the cost, because as you say portfolios in the nature of our client’s business may vary. There is a usage fee, which does on the Advent Direct investor management linked to number of portfolios, but that is a scale that slides based on the number of portfolios that they have. They may have 10,000 Wrap accounts or they might have 100 big massive institutional accounts. And so there is an element of that that we capture in the assets and the management linkage on the solution fee, and then there is an element that we capture in the way that the portfolio usage fee scale slides.

So little complicated, but we contemplated that dynamic, it’s always been a challenge for us, but I think we’ve got a model that resonates well with the clients and enables us to protect ourselves. There is a cost for us to deploy that's in the cloud and we’re Amazon services and there is -- that varies based on the size of the data sets and things like that. So our usage fee is intended to capture those scenarios.

Ross Macmillan - Jefferies

That's helpful. And then, as you think forward -- I guess just two questions. One is, why investor management first, is that an area clearly need from segments of your client base? And then second, how fast will we see other solutions roll out and then or maybe? And then the very last one, I guess, which is the key, how are you thinking about Advent Direct relative to what your say revenue per average firm like be today. Is there any sort of way to frame that in terms of percentage uplift depending on sort of penetration of the number of new Advent Direct solutions that our customer may or may not buy?

Pete Hess

So I will kind of go down these questions that you just asked. So why first, I would say we did Advent Direct investor management first, because it was the most pressing need that our clients had. It’s the most commonly valued enhancement that we could deliver and that about explains it. So we think investor management is relevant to all of our clients. So when we think about the solutions that we have contemplated in and/or have sort of developed, investor management has probably got the biggest revenue opportunity for us, which translates to the fact that we potentially can deliver the most value to our clients by building it and doing it well. So, that's why it’s first.

The next question you asked was, what’s next, and we are working on -- we have few others that are in the works. One is workflows around reconciliation and trade settlement. We call it asset verification. It’s more than operational back-office problem that we’re solving there, and that's one that we would expect to be launching at some point next year. And then the other one that is a high priority for us right now is a trade creation with balancing functionality and modelling, and that’s an enhancement on top of what we have been able to deliver in the past in Moxy, but in this case delivered through Advent Direct in the cloud. So those are the next two other in the queue and we would expect to be launching those next year, but on an ongoing basis, the idea is that we would be launching one to two new solutions each year as we go.

Jim Cox

I am just trying to frame, it maybe too early, but I am trying to frame I guess relative to some analysis that we have done already the way you’re thinking about the incremental opportunities from Advent Direct maybe as it plays out over time.

Pete Hess

So I guess I would summarize it by saying you are right, it is early and so I don’t think we want to commit to it, but Ross it’s big. And I think that when we go back to, we touched about what our long term revenue growth rates would be kind of high-single digits, low-double digits, the path to getting back to that definitely contemplated the execution of Advent Direct. So it’s not a complete answer, but that's kind of how we are thinking about it now.

Ross Macmillan - Jefferies

And then just one last for me on the buyback, I don’t think you bought back any shares this quarter, obviously you have introduced the dividend. What’s the sort of trigger point? Could you have done a buyback just with the debt pay down and the plan to pay the dividend? Was there any particular reason why there weren’t any share repurchases in the quarter?

Pete Hess

Yes, in the first quarter, we were still evaluating exactly what we wanted to do, Ross. And then, obviously, we’re locked out until we released earnings. We didn’t have a 10b5-1 plan in place for the company or anything like that. So in the relevant windows where it was open Advent to buy back shares, we’re still determining exactly what are our capital allocation strategy was.

Ross Macmillan - Jefferies

Great. Thank you.

Pete Hess

Thanks, Ross.

Operator

(Operator Instructions) Our next question comes from Peter Heckmann with Avondale Partners. Please proceed.

Peter Heckmann - Avondale Partners

Good afternoon, gentlemen. Hey, Jim, I had a question on the international revenue. We remind you something in the prior year period to boost international revenue that I guess it may just be rounding on the percentages that you’re providing in your data sheet, but it looks like your revenues accelerated in the back half and then it was kind of flat year-over-year.

Pete Hess

Yes. You can have some ebbs and flows in kind of the timing of international revenue as it relates to the release or deferral of the term service and so. When it moves the percent like that, those have been highlight, Peter, there is an highlight in my mind. So I am going to assume that it has to do with that.

Peter Heckmann - Avondale Partners

Okay. And then, I guess, based on my calculations, I would not have talked that FX would have been material headwind or tailwind, is that about right?

Pete Hess

That's true. That's true.

Peter Heckmann - Avondale Partners

Okay. And then, on fund administration business, is any of that included in the international revenue number, or is all of that considered to be the domestic?

Pete Hess

It’s good kind of domicile, but there is not a clean answer for you for that. I would say, generally, it’s domestic, it would be what I would say, and I will go back and confirm that.

Pete Heckmann - Avondale Partners

Okay. And then how about any update on Tamale, it seems like there is a lot of value that can be derived from the solution, don’t hear about it as much, but it seems like the interest level should be pretty high given the overall big amount of information that the buy-side receives?

Pete Hess

Yes, I mean, the space itself I think is gaining traction. So more and more firms are actually wanting to systematize the storage and sharing of the research. So, that’s a good trend. And Tamale’s holding, it’s doing well competitively. So, we could on the next call probably highlight a couple of Tamale stories, because there is good momentum there. But there are also more competitors. So as the space is evolving, there are more competitors. And the vision for us is, and we’re working towards this with Advent Direct is to actually integrate those workflows deliver today through Tamale through Advent Direct integrated with the position and performance on P&L information that comes through the Advent Direct reporting capabilities.

So that’s a good ask for maybe next time we get together, we can give you guys a little bit more color on how things are going to Tamale. But the momentum is good for the space and the momentum is good for the product. That’s good.

Pete Heckmann - Avondale Partners

Okay. That’s fair. And then just last question on Black Diamond, it seems like that everyone that face are seeing some good solid growth but it will be fair to say that our year-over-year comparison basis has roughly 34% revenue growth, roughly half of that stems to market action?

Pete Hess

Not all of that.

Pete Heckmann - Avondale Partners

Not all of that?

Jim Cox

Market action meaning like….

Pete Hess

Like instances in asset levels.

Pete Heckmann - Avondale Partners

Yes, correct. Based under the basis point revenue stream?

Pete Hess

That’s certainly a tailwind. I wouldn’t say that it has. In fact, the construct around which we look at that market action for Black Diamond is when you look at their renewals activity. It’s hard for me to know is there -- like the second derivative, there would be the market is good until there are more advisors buying broadly.

I’m going to stay that let’s get our buyback as we don’t understand that. The improvement in Black Diamond renewal rate, it has been its tailwind of the market. But the operational improvements that have gone on at Black Diamond are at least equally as impactful in the improvements in their renewal rate.

Jim Cox

Yeah, I mean it’s a combination of new client acquisition and really strong renewals in that market. And I would say that we’d still be posting very, very strong growth metrics for the overall business even if you didn't have a great market appreciation, sort of, feeling some of those renewal numbers.

Pete Hess

Yeah.

Pete Heckmann - Avondale Partners

Thanks so much.

Jim Cox

Yeah.

Pete Hess

Thank you.

Operator

We have no further questions. I would now turn the call back over to management for closing remarks. Please proceed.

Pete Hess

Well, thank you guys for spending the time with us. I mean, I think we were pretty excited to report Q1 results. I mean the profitability you now for a while heard us talk about our commitment to expanding profitability. And we’re still finding new ways to become more efficient. So we reorganize last year, we consolidated a lot of the development efforts which gave us a lot of extra capacity to do things like Advent Direct. And we continue to find more ways to become more efficient in this new structure.

So that's all good. Cash flow is obviously a highlight for us which we will continue to be proud of. And then the dividend I think is in response to a lot of conversations that we’ve had over the past year. So I am very happy that we made the decision to do this because I think we can afford to do it and it's a good responsible way for us to be allocating capital.

We talked about Advent Direct a lot on this call. We didn't talk that much about the core products and what’s happening in that pipeline. And so what I'm happy to tell you is that pipeline is growing as well. And we’re looking forward to a really strong second half of the year. It’s a difficult transition when you’re making a product transition like this. But it’s kind of unfolding the way we predicted it. And we predict that it ends well in 2014 and fuels us for those long -- longer term growth numbers that we share with you back in September at Analyst Day.

So thing are moving along pretty well we feel. But thank you again for your questions and for your time and we’ll see you guys soon enough.

Operator

That concludes today’s conference. You may now disconnect. Have a great day.

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