Clearwater Analytics - Q2 2023

Transcript

Operator (participant)

Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Clearwater Analytics Second Quarter 2023 financial results conference call. At this time, all participants are in listen mode only. After the speaker's presentation, there will be a question and answer session. Now I would like to welcome Joon Park, Head of Investor Relations, to begin the conference.

Joon Park (Head of Investor Relations)

Thank you, and welcome everyone to Clearwater Analytics second quarter 2023 financial results conference call. Joining me on the call today are Sandeep Sahai, Chief Executive Officer, and Jim Cox, Chief Financial Officer. After their remarks, we will open the call to a question and answer session. I would like to remind all participants that during this conference call, any forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Expressions of future goals, intentions, and expectations, including in relation to business outlook, future financial and product performance, and similar items, including without limitation, expressions using the terminology may, will, can, expect, and believe, and expressions which reflect something other than historical facts, are intended to identify forward-looking statements.

Forward-looking statements involve a number of risks and uncertainties, including those discussed in the Risk Factors section of our filings with SEC. Actual results may differ materially from any forward-looking statements. The company undertakes no obligation to revise or update any forward-looking statements in order to reflect events that may arise after this conference call, except as required by law. For more information, please refer to the cautionary statement included in our earnings press release. Lastly, all metrics discussed on this call are presented on a non-GAAP or adjusted basis and include the results of JUMP Technology since the acquisition on November 30th, 2022, unless otherwise noted. A reconciliation to GAAP results can be found in the earnings press release that we have posted to our investor relations website. With that, I'll turn the call over to our Chief Executive Officer, Sandeep Sahai.

Sandeep Sahai (CEO)

Thank you, Joon, and welcome to our Q2 earnings call. Allow me to start by saying that I'm incredibly proud of the entire Clearwater team for our outstanding execution in Q2. There are 4 key areas where we executed very well. 1, we successfully brought both large and small clients live, and even more impressively, we saw our best ever customer satisfaction and NPS scores. Second, the sales team had a very good quarter, and they continued to win against competitors who largely offer legacy solutions. Third, we continue to see positive impact from the commercial model we rolled out last year. Fourth, we continue to innovate and deliver products that address our customers' pain points. Let's dive into each of these. First, let's start with operational excellence.

We have been investing in increasing the maturity and scalability of our onboarding team, and Q2 was a testament to how far they have come. Aviva is fully live on our platform. As you know, Aviva is a leading U.K. provider of insurance, wealth, and retirement products, serving over 18 million customers. They have their global assets on our platform, and we provide a daily comprehensive view of their portfolio, consisting of more than GBP 350 billion in AUM. Achieving this milestone is very significant because we had to build unique functionality specific to Europe, including asset class coverage, coverage for local accounting standards, and regulatory reporting for countries across Europe. With this accomplishment, we have proven to the market that we can handle the highest level of complexity in Europe.

Combined with the multi-country onboarding of FWD in Asia, our platform is now used by large, sophisticated customers across the world. Other major go-lives in Q2 included Amica Mutual Insurance, Greenwich Investment Management, and Highmark Health, to name just a few. In Q2, we saw our average go-live time decrease, with average time taken to bring customers live on our platform was approximately six months. The network effect of our single-instance multi-tenant platform allows us to continue improving this process and bring value to clients faster. As you all know, our NPS is one of the highest you will find in the industry, and it is a metric we are incredibly proud of. In Q2, we exceeded our already industry-leading numbers and recorded our highest NPS to date.

To me, it says that our customers are happy with the platform, the access we provide to best practices, and an acknowledgment of the care our client services and onboarding teams provide. It is a giant team effort, and we are thrilled that our customers acknowledge that and place their trust in us. That allows us to continue growing with significant support from references provided by our current clients. Second, let's discuss the demand environment. The pain our customers feel while working with legacy systems in the industry is significant. We continued to close deals and saw our pipeline build throughout the first half of 2023. Our growth has been fairly even across our key industries of insurance, asset management, corporates, and government.

In the second quarter, we expanded our footprint with existing clients and added marquee clients such as Apollo Syndicate, Covenant Capital, Delta Dental of Wyoming, Finance Incorporated Limited, Intellia Therapeutics, Medical Protection Society Limited, Omnicap Group, Viridian Therapeutics, Invesco Mortgage Capital Corporation. We announced a strategic partnership with JPMorgan Asset Management, integrating our platform with the Morgan Money global trading platform. This allows permission users to easily navigate between both systems. The joint solution will make it easier for financial professionals to have a global connected view of their investment portfolios and empower them to make real-time investment decisions on the Clearwater and Morgan Money platforms. We continue to see strong sales of our add-on products like Clearwater LPx and Prism.

As an example, one of our large existing insurers signed on to use Prism for reporting, which led this client to more than double their AUM with Clearwater. Europe had a very strong first half with several new wins in Northern Europe and the French and Benelux markets. This included both mid-sized clients and large institutions in the insurance and asset management industries. We've had several successes here in the U.S. with JUMP's full front-to-back platform. We were also successful with an offering that paired JUMP's front office suite with Clearwater for accounting and reconciliation. As you may recall, Clearwater acquired JUMP with a vision to revolutionize the entire investment life cycle, and we are executing on that plan. These deals underscore the value our clients receive from both our platforms working together. They also validate our premise of an expanded TAM with our combined product offerings.

Overall, our product continues to resonate across the globe, and we don't see any change in the competitive environment. Our sustained investment in our platform continues to set us apart in the market. Thirdly, on our commercial model, we continue to be pleased with the changes we drove last year and the impact it is having and can have on our growth trajectory. As you might recall, last year we made the leap from a pure AUM-based model to a base plus model. We couldn't be happier with the results, and this commercial model has now become the default way we contract with clients across industries and sizes. With Prism, LPx, and JUMP's modules, we are increasingly acknowledged by our customers as a multi-product company capable of providing solutions across the value chain. Our strong NPS clearly helps customers feel confident in purchasing more software from us.

Clearly, our approach here continues to create a win-win for both our clients and for Clearwater. Fourth, our aggressive and sustained investment in R&D allowed us to expand the platform to address the needs of clients in both Europe and Asia. We have invested in building products to solve the need of existing customers here in North America. Many of these efforts involve using clients as design partners, and that gives us confidence that our investments will continue to pay off. I already mentioned Clearwater LPx and Clearwater Prism, but also in Q2, we began a beta program with Clearwater MLx, which is a solution designed to improve the visibility and detailed accounting for commercial and retail mortgage loans. We expect to launch Clearwater MLx in Q3. Another frontier of investment would be to bring front office and front-to-back functionality to the U.S. using the Clearwater JUMP platform.

We are delighted that we already have North American customers who want to work with us. Next, we are working on additional capabilities, including self-service, allowing our customers to configure and manage the growth of their accounts. We are also enhancing intraday data and recon, which is sometimes referred to as T+0 processing. This will help us improve how we deliver same-day investment book of records for clients that need near real-time visibility. We have to talk about the work we are doing with generative AI and the potential to transform and disrupt the market. You may have seen our recent press release on this topic, where we announced that we stood up our own instance of a large language model, which we are calling Clearwater GPT. We are working on rolling out new Gen AI-driven solutions and dramatically improving the way we service clients.

Clearwater-GPT is the first solution of its kind that seeks to address the full investment lifecycle. We see this effort as both adding to the revenue growth of the company with new Gen AI-based product offerings and impacting the bottom line with efficiencies across our operations. I'm sure you're immediately wondering if we can predict what this might mean to our financials. Let me just say that the product is very promising and the early results are very good, but the technology is new, and it is hard to assess the full impact it can have. We expect to have more details for you in the coming months. Given that our robust multi-product offering caters to diverse geographies around the world, we are excited to welcome Sunil Dixit as our new Chief Product Officer, who brings proven expertise in innovating and building multi-product platforms at leading SaaS companies.

When I stop and think about these four areas: operational excellence, demand based on addressing client pain with a large TAM, an effective commercial model, and a disruptive platform, I'm not only proud of our team, but I also recognize that this is what allows us to deliver stable growth with the potential to increase margins consistently. That is what we set out to deliver, and our actions and results in the last two years since we went public, bear out the strength of our approach. We are setting aggressive goals and executing on a plan. It's frankly, a great time to be at Clearwater Analytics. Now, let me turn it over to Jim to discuss the financial results of the company and the outlook for the year.

Jim Cox (CFO)

Thanks, Sandeep, and thank you all for joining us. We're very proud of our Q2 2023 results. Let me start with the top line and the metrics that drive revenue. In Q2 2023, we delivered $89.9 million in revenue, which translates to 22.4% year-over-year revenue growth, driven by solid expansion at our existing clients and continued strong onboarding activity by our operations team. Over the last two quarters, we've completed 83 onboarding programs, and in Q2, those onboarding programs had an average duration of just over six months. With time to value like that, it's not surprising that so many prospects are choosing Clearwater. We reported annualized recurring revenue or ARR at the end of the second quarter of $349.5 million, an increase of 20.4% year-over-year.

This is particularly satisfying when we look back one year to Q2 2022 and recall the worry over asset price value and our announced transition from AUM pricing to the Base Plus model. I think not many investors would have predicted back then that our durable, reliable, 20+% growth would remain intact one year into the future. Today, we remain even more optimistic about our future for one reason: our clients. Clients stay with us, as evidenced by a return to 98% gross retention as of June 30, 2023. That's the 17th out of last 18 quarters for which gross retention has been 98%. More importantly, clients grow with us, as evidenced by our net revenue retention rate of 109% as of June 30, 2023.

We are seeing success within our client base by doing more for our clients, and this, in fact, is the true NPS dividend. We aspire to expand NRR to 115% or beyond because we believe we can help our clients do more. We've completed the foundational elements with the market acceptance of the Base Plus model and our recent rollout of bundled offerings for the North American insurance and corporate markets. With the new bundled offerings, we offer prospects a choice between base, professional, and enterprise bundles. These market-specific bundles allow prospects to select the Clearwater offering that matches their sophistication and solve today's burning problem.... while providing a path to our expanded capabilities when they expand.

Now that we have LPx, Prism, and all of the functionality the JUMP solutions provide, coupled with the expected launch of MLx, we have the opportunity to expand our reach within our clients. We will continue to evolve our go-to-market engine to focus on both new client acquisition and add teams focused on expanding our relationship with existing clients across all of our market segments. The beat in second quarter revenue flows through to our full year revenue guidance as we are raising our full year guidance by $2 million, Our guidance range for the full year is $364 million-$366 million for 20%-21% year-over-year growth. Now, let's turn to profitability results. We reported $24.8 million in adjusted EBITDA.

That's 27.6% EBITDA margin in the second quarter, which is a solid result and better than our guidance by $2 million. This translates to a 9% beat as our revenue outperformance flows straight through to EBITDA. Non-GAAP gross profit in the second quarter was $68.1 million, and gross margin came in at 75.8%, which was a slight improvement from the 75.7% in the second quarter of 2022. This is the fourth consecutive quarter where incremental gross margin exceeded our reported gross margin, illustrating that we are making progress on our path toward our long-term goal of 80% gross margin. Non-GAAP research and development expenses in the quarter were $23.6 million or 26.2% of revenue.

That is a sequential decrease of 0.6% of revenue from the R&D spend of 26.8% in Q1 of 2023. We expect R&D expense to trend down as a percentage of revenue going forward with the efficiencies we are achieving in R&D. For example, large programs in Europe are entering more of a steady-state phase. Sales and marketing expenses in the quarter were $10.9 million, an increase of $1.1 million or 11.5% year-over-year. That equates to 12.2% of revenue. General and administrative expenses in the quarter were $8.8 million, sequentially flat with the first quarter, and as a percentage of revenue, G&A decreased to 9.8%, showing better leverage.

On a GAAP basis, equity-based compensation increased to $28.7 million, including $5.5 million related to the JUMP acquisition, as the full quarter of expense from awards granted in Q1 were reflected in Q2. We expect that this is the high water level for equity-based compensation expense and that it will decrease as a % of revenue going forward. The significant expense in 2023 results from the granting of 3-year performance-based awards in Q1. Although the awards vest 1/3 in each 2024, 2025, and 2026, assuming achievement of the performance criteria, for GAAP purposes, 61% of the expense is recorded in the 1st year versus 33%, as you might intuitively assume.

Below the operating income line, we recorded $1.3 million of interest income net from the investment of our excess cash balances. We recorded $6.7 million of year-to-date tax receivable agreement expense. We record tax receivable agreement or TRA expense in lieu of income tax expense. We will be a cash payer of the TRA because of the capitalization of R&D costs for U.S. federal tax purposes. Absent amendment of the tax law, we expect to pay the tax receivable agreement expense in the fourth quarter of 2023. Let's turn to the balance sheet and cash flow. We ended the quarter with $277.8 million in cash, cash equivalents, and investments, and $49.3 million in total debt. That results in net cash holdings of approximately $229 million.

During the quarter, we continued to invest our excess cash in fixed income securities for excess yield. Free cash flow for the second quarter was $19.6 million, representing year-over-year growth of 18.5% from free cash flow in the second quarter of 2022. This includes $1.6 million of capital expenditures. In the second quarter, the conversion of EBITDA to free cash flow was at a rate of 79%. We reported a GAAP EPS loss of $0.06 per share, and fully diluted non-GAAP EPS was $0.08 per share. For non-GAAP EPS, we utilize our fully diluted share count, for which Q2 was 252.2 million shares.

That fully diluted share count is essentially flat with last quarter and with the end of last year, and even Q4 of 2021, reflecting that there has not been shareholder dilution since the company went public. Now, let's turn to guidance. Focusing on guidance for the third quarter of 2023, we expect revenue to be $92 million, and we expect adjusted EBITDA to be $25.5 million, or approximately 27.7% for EBITDA margin, consistent with Q2. For the full year 2023, as I said before, we've increased the revenue guidance to $364 million-$366 million, which is an increase of $2 million in the low and high end of the range and represents approximately 20%-21% year-over-year growth.

We have also increased our full year EBITDA guidance by $2.5 million at the midpoint to $100 million for the full year 2023. That guidance represents EBITDA margins of 27.3%-27.5% for the full year, an expansion of 60-70 basis points over 2022. As Sandeep noted, and our numbers demonstrate, the second quarter was another quarter of strong execution, with re-accelerated revenue growth to 22%, solid EBITDA, and free cash flow. We look forward to keeping the momentum going. With that, I'll turn it over to Sandeep to provide some closing thoughts.

Sandeep Sahai (CEO)

Thank you, Jim. As I reflect on the second quarter, I'm incredibly proud of the exceptional team we have at Clearwater. We remain laser-focused on our mission to revolutionize the investment management industry. By every measure, our growing portfolio of product offerings are undeniably best in class. I'm particularly excited about the potential for generative AI and its capabilities to ignite new opportunities that will disrupt and transform the fintech sector. Our team at Clearwater continues to innovate boldly, consistently meeting our clients' ever-changing needs. At the end of the day, seeing our clients satisfied with our platform and growing their assets under management matters the most to us. When they achieve their goals, we achieve ours. Thank you.

Operator (participant)

If you would like to ask a question, please press Star followed by one on your telephone keypad. If for any reason you'd like to remove that question, please press Star followed by two. Again, to ask a question, it is Star one. Our first question is from Peter Heckmann with D.A. Davidson. Your line is now open.

Peter Heckmann (Managing Director and Senior Research Analyst)

Hey, good afternoon. Thanks for taking the question. Can you comment a little bit in terms of the onboarding? You said 83 in the first half, and you're speeding the go lives. Like, I guess, how do you think about it in terms of average size or of the clients? Are they getting larger, staying about the same?

Jim Cox (CFO)

Sure. Thanks, Pete. This is Jim. Can you hear me okay?

Peter Heckmann (Managing Director and Senior Research Analyst)

Yep.

Jim Cox (CFO)

Okay, great. I just wanted to make sure. I was off mute. Sorry about that. Yeah, so those are 83 programs. Some of those could be onboarding of additional assets at some of our larger existing clients, onboarding additional products and solutions, as well as onboarding, you know... Sandeep spoke about Aviva, you know, one of kind of the top 20 insurance companies across the globe, right? There's, there's a broad variety across those. I think what it comes down to, it's less about the number, although that's very impressive. It's more about shrinking the size and shrinking the period of time it takes for clients to get to value, and that really comes down to a few elements. Number one, it's the network effect, right? As we're adding more clients in different geographies and, and building out that networking opportunity, you're seeing that.

Number two, the onboarding team has done a really, has put a lot of effort in over the last couple of years to really, formalize and structure the collaborative onboarding process with our clients and holding mutual accountability between, you know, all of the participants in that process: the data providers, the custodian, the clients, the, the upstream and downstream streams, as well as ourselves, principally and most importantly, ourselves. This, what we're seeing here, which we saw in the first quarter and continued to see in the second quarter, is, is really, the amalgamation of all of those elements, coming together, and I think we feel proud of the accomplishments of that team.

Sandeep Sahai (CEO)

Yeah, Pete, this is Sandeep. The only thing I would add is just talking about things like 6 months to go live, I'm sure you have covered ERP systems in the past. You talk about years. You're talking about several years for programs to go fully live, and the fact that we talk about 6 months and how to improve it, we're just trying to provide a contrast to what the network effect allows us to do. I, I do think it's super impressive just having been in the industry for that long.

Peter Heckmann (Managing Director and Senior Research Analyst)

Okay, that's helpful. Then just in terms of Morgan Money and their global trading platform, it sounds as if you have the strategic partnership in place. It's gonna allow users to use Clearwater. In terms of the contribution, I guess, how do you think about that ramping? You know, could you maybe size a little bit about how big that client could be if you're successful in cross-selling with existing JPMorgan customers?

Sandeep Sahai (CEO)

Yeah. One is that JPMorgan is already one of the largest clients we have. The point 2 is that it allows people to use functionality on both platforms very easily, and that usually allows clients to bring on more and more AUM on our platform. That's the play for us. The play is the ability to trade on that platform and look at the data on our platform. If you can do that easily, it attracts more and more clients to our platform. Now, we have done that with other partnerships, and we saw a sustained growth of AUM from those clients. We also had new clients join our platform because of the ease with which they could go between these two platforms. We think it's quite strategic. We think it continues to cement our relationship with JPMorgan continues to grow them in the years to come.

Peter Heckmann (Managing Director and Senior Research Analyst)

All right. Thank you. I'll get back in the queue.

Operator (participant)

Our next question is from Rishi Jaluria with RBC. Your line is now open.

Rishi Jaluria (Managing Director and Software Equity Research Analyst)

Oh, wonderful. Hey, Sandeep. Hey, Jim. Thanks so much for taking my questions. Nice to see, you know, continued strength in the business. I wanted to start by going a little bit deeper into Clearwater-GPT. No doubt the press release sounds, I think, pretty impressive. But can you talk a little bit about some of the use cases, you know, that you anticipate seeing, from Clearwater-GPT? And maybe more importantly, how does that tie into your broader generative AI strategy? Because it feels like there's a really big opportunity for you to be, you know, a verticalizer of some of these LLMs and really help customers and, you know, given the data and the relationships you have in ways that they can't do themselves?

so would love to drill a little bit into, into both of those, and I've got a quick follow-up.

Sandeep Sahai (CEO)

Yeah. Thank you, Rishi. Look, we believe GenAI is transformative and disruptive. You can also understand that for our kind of business, we think it can have very significant and mostly positive impact on our business. We obviously launched Clearwater-GPT. Let's just talk about some examples. I think you can basically put them into two different buckets. One is which enhances revenue, so, things which can help grow our revenue. The second one is the ones which can improve efficiency of our operations. Let's talk about operations just first. Obviously, efficiency is important because that drives gross margin. Whenever we have talked to yourselves, we have said, "Look, there's 75%, and there's a path to 80." The question is: Is there much more room there?

We think ChatGPT allows us to think about meaningfully better, better operating results. What exactly are we talking about? As you know, we get many, many data feeds every morning, some 2,800 data feeds, and they have to be reconciled, they have to be aggregated and normalized. Could a significant portion be done using something like GenAI? We think so. We think they could have a meaningful impact in what we have to do ourselves versus what the machine can do. We think that can be majorly disruptive. The second one is we spend a lot of our energy on client servicing and onboarding, and again, both those could change very meaningfully if ChatGPT can be successfully deployed.

Both those ideas, we have sort of teams of dedicated people with dedicated leadership working on those, and we expect to have some, be able to report some progress in the coming months. The other side of it, obviously, is revenue-oriented. What can help us drive revenue? There are two big areas. One is just customer interaction. Natural language inter-interaction completely changes the value you can derive from a platform. That's one area, but the second one, and the most exciting one, is the insights you can draw. ChatGPT allows us to look at a very large volume of data, and frankly, historically, going back to 10 years of work we have been doing, what insights can we draw which clients can use to either improve yields or improve the other functions, I think is super interesting and exciting.

Again, those are two areas where we have invested, you know, dedicated teams and dedicated leadership to get after it. I just want to caution one more thing, Rishi. We're obviously using machine learning already. This is just a very different order of magnitude of what, what impact this could, could have. You know, we're really excited about it. We have dedicated R&D teams and product teams working on it and have been working for a period of time.

So it's just that we are not yet ready, if you will, to qualify and say, "Look, this has a chance to make 80 something else." We want, want this to go on for another 3, 4 months, and then we'll be in a better position, I think, to come back to all of you and say, "Look, here's where we think we can go with GenAI.

Rishi Jaluria (Managing Director and Software Equity Research Analyst)

All right. Wonderful. Thanks, Sandeep. That's a very thorough answer and really helpful. Maybe just continuing on, on GenAI and, and thinking about other potential use cases, how do you think about the ability to use GenAI to make it easier for asset managers out there to migrate from, from their legacy solutions and onto Clearwater, right? Because that's a long process. Obviously, there's a lot of data complexity involved in that. Given what we've seen, a lot of, you know, companies in the space using generative AI to make migrations from legacy to next gen faster, it feels like that's a, a big opportunity for you as well. How are you thinking about that? Thanks.

Sandeep Sahai (CEO)

Yeah. Thank you, Rishi. Yeah, absolutely. I do think it can completely change how we think about onboarding. As you know, onboarding is, is the hard part, and once you have done the transformation, then of course, Clearwater sort of gives you the full functionality you could want and the agility and the analytics. So we feel like GenAI could, could transform how we onboard it. To take an example, let's say we move a client to onboard them from a competitive legacy platform. Well, we probably have done 30, 40 of those transformation onboarding exercises from that same legacy platform. You point GenAI to that, and the next onboarding you're doing, and it can do it meaningfully faster, right? Because it has learned from all those 30 onboarding exercises you have done. We do think that's transformative.

We do think it changes the risk profile of an onboarding exercise and really time to value meaningfully. Look, we, we think it is actually perhaps the biggest use case when it comes to on the efficiency side of it. Not on the revenue side, but just on the efficiency side.

Rishi Jaluria (Managing Director and Software Equity Research Analyst)

Wonderful. Thank you so much.

Sandeep Sahai (CEO)

Thanks, Rishi.

Operator (participant)

Our next question is from James Faucette with Morgan Stanley. Your line is now open.

Michael Infante (VP and FinTech Equity Research Analyst)

Hi, guys. It's Michael Infante on for James. Thanks for taking our question. I just wanted to circle back on, on NRR. Obviously, really impressive to see, the sequential and year-over-year improvement there. I think migrating to this level, we anticipated to, to take, a little bit longer. So great to see that. Jim, is it possible to decompose that improvement between, you know, last year's pricing initiatives versus incremental attach of new products? Does the recent improvement sort of accelerate your confidence in getting to that NRR level of 115 over time? You know, does that, does that pull that forward?

Jim Cox (CFO)

Yeah. Thanks, Michael. Thanks. You know, the revenue acceleration from 19-22, you know, can almost be correlated to, you know, NRR moving from 106-109. We do believe that is sustainable as we look into the near future. You know, you're, you're right, Michael. Why is it growing? You know, it's been obviously a primary strategic initiative of the company over the last 12 months to really build in the commercial model, you know, build in the Base Plus pricing, have the default price increases flowing through, adding these incremental modules of LPx, MLx, Prism. You know, that sophistication just kind of continues. We were happy to see that the improvements in NRR were across all of the market verticals that we focus into.

That improvement really comes into kind of those existing customers and really seeing the 12 months of effort across all of those pieces, bridging, bridging the gap, from the 106 to the 109.

Sandeep Sahai (CEO)

Yeah, Michael, I would just add that this is pretty deliberate. It's not something we say, "Hey, let's do something, we got something." No, we think there are these four things you can run, that Jim walked you through, and if you continue to improve on each of these, you can sort of get better, you know, sequentially. Do we think the 109 number is, is now a new normal for us? We think so. Does that improve the path to 115? Absolutely. Compared to when we had this first discussion, Michael, we had 103. It felt better at 106, which we said to you was sustainable, and we, we are up at 109, which we think is sustainable. We think it is...

It makes the 115 more in sight. It doesn't mean we're gonna get the next quarter or in the next 2 quarters, but how we get there and the elements we're gonna use to get there are defined now. We know. It's just that in many of those, you are still in the second or third innings of a game. In the multi-product strategy, for example, we talk about LPx, we talk about MLx, we talk about Prism. Those are still second, third innings, and you just have to let it mature. As they mature, it should continue to push that number up. We feel really good about the path we are on here.

Michael Infante (VP and FinTech Equity Research Analyst)

Makes a ton of sense. Appreciate that. Maybe just pivoting to JUMP specifically, I saw the commentary in the release surrounding, you know, the pairing of JUMP in the front office with Clearwater in the back office. How powerful is that cross-sell motion, and is there a particular client type or client size that that pairing would be most applicable for?

Sandeep Sahai (CEO)

Yeah. Thank you. You look at JUMP, we all get quite excited about, you know, just the partnership with them, and Paris is just exceptional. Let's just talk about specifics. One, is JUMP's ability to compete in the French market against larger players much, much better? Clearly. Clearly, they're winning more deals in the French market because they are a part of this larger organization. Second, ability to sell front to back in North America for small asset managers and mid-sized asset managers? Absolutely, and this is something, Michael, which Clearwater would not have been able to do. Now we have the OMS and the PMS and the portfolio management system and the accounting and all of that. Just end-to-end market, which we could not compete in earlier, works and therefore increases damn very meaningfully.

The third one, which is the one you pointed to, is perhaps the most exciting, which is, can I take the JUMP front office modules and pair it with the Clearwater platform, either for new prospects, which is the one we were talking about, or to go back to all of our asset owner clients who already have the Clearwater platform and then provide the front office modules to them? Again, we've had success there. That's exciting. Finally, JUMP brings capabilities in a unit linked fund out in Europe, and we've been successful with that also. All of this in the first half. Look, we think it is really good progress. We again think, unfortunately, that it's still in the, you know, it's in the early, early innings. This is still the second, third innings of what we could do with JUMP.

Yeah, I think it is.

Michael Infante (VP and FinTech Equity Research Analyst)

Thank you both.

Sandeep Sahai (CEO)

Thank you. Thanks, Michael.

Operator (participant)

Our next question is from Jackson Ader with MoffettNathanson. Your line is now open.

Jackson Ader (Managing Director and Equity Research Analyst)

Oh, great. Thanks for taking our questions, guys. The first one, actually, why don't we stick with the kind of the AI line of questioning? I think it's, you know, it's pretty clear that the architecture and infrastructure, you know, being cloud-based versus maybe some other competitors that are not, you know, lent itself already to the use of AI and machine learning within your own products. That kind of created an advantage. Is there any reason why... You know, Sandy, you said it yourself, that this generative AI is a different thing, and it's kind of, you know, customer-facing. Is there any reason why you think that you might have a similar advantage over, over your competitors when it becomes more about customer-facing and maybe layering a, you know, a GPT on top of something that you already have?

Sandeep Sahai (CEO)

Yeah. Jackson, thank you for the question. Look, I think it's super valid question because it certainly opens up opportunities, frankly, which I did not think ex- was there about a year back. Look, the core of all of these AI technologies is the quality of data you have and the accessibility to that data, right? If you don't have the data in one nice, structured way, it makes it much harder, right? Should that meaningfully improve our ability to do reconciliation, ability to do onboarding client services? Yes, I think those are, those are obviously there. What you're asking about is, can you think about new client-facing applications? I-I would just say that the answer is a very resounding yes, because it is specific to a client's data. Let me just try and define that a little bit more.

Look, if we generically talk about returns, that's interesting to a certain degree. What we can do is we can talk about returns specific to a client's portfolio. We can generate insights with, with specific reference to what a client's portfolio looks like, and what they did yesterday, and what they did last week, and what they did last month. Based on that client's specific portfolio, we can come up with ideas and recommendations about what they should do and shouldn't do. Now, this is a line of thinking we did not have about a year back, but this does allow that. That's why I think it is exciting on two different levels. That's why I tried to distinguish between, look, revenue, revenue growing, value adding to the front office is a different game versus efficiency-oriented, which is a different game.

I'm not saying one is more exciting than the other. Both are very significant for us. Our commitment and dedicated leadership behind all four of these initiatives is, is already there.

Jackson Ader (Managing Director and Equity Research Analyst)

Okay. Yeah, that's great. All right, switching gears to maybe, you know, we're getting past the first kind of major waves of the Base Plus, you know, anniversaries here. I'm just curious, just general feedback, like, how are customers feeling about pricing increases maybe versus what they would have realized with AUM drift? Similarly, similarly, how you guys view, just basically how this first year of renewals or anniversaries are, are going relative to last year.

Sandeep Sahai (CEO)

I think Jim can comment on the, on the numbers here, but I, I just gonna tell you, it's a non-event now. Almost all, all our new contracts, don't depend on what the size or the industry, they are on the new, new commercial model. frankly, I don't think I've heard resistance to that over the last 90, 120 days. I don't think I've heard of one, it's now just the way we do business. I haven't heard of pushback from clients. I haven't heard anything to the contrary. I don't know, Jim, would you add something?

Jim Cox (CFO)

No, I think... Remember, Jackson, when we went through this process, right? We wanted to simulate the experience that our clients were always getting, right? Through this, through this kind of normal growth, right? We weren't trying to make this a win-win. I think that as we anniversary these and continue through this process, this is, it's obviously a much more automated process this year than it was when we were kind of going through that last year and kind of making this evolutionary change. You know, I think we, Sandeep always says to me, "Jim, why didn't you do this sooner, you idiot?" You know?

Sandeep Sahai (CEO)

No.

Jim Cox (CFO)

No, he doesn't say that. I'm just I'm giving him a hard time. No, it's I think what we've learned is it has worked, the way we had hoped it would work, and I think the outcomes have been good.

Jackson Ader (Managing Director and Equity Research Analyst)

Okay. All right. That's great. Thank you.

Sandeep Sahai (CEO)

Thanks, Jackson.

Operator (participant)

Our next question is from Dylan Becker with William Blair. Your line is now open.

Dylan Becker (Senior Equity Research Analyst)

Hey, gentlemen. Appreciate the questions, and, and apologize if we're repeating anything. Jumped on late here. I guess starting with, with Jim, maybe, or, or Sandeep as well, I guess, but nice net dollar retention number there. Cross-sell seems like JUMP's kind of starting to gain traction, a number of these. I guess, how much of that, too, is a function of some of the recent kind of sales segmentation that shift to hunter-farmers and really some of that domain expertise that's prioritizing, again, kind of the, the particular customer needs in each of those particular industry verticals?

Sandeep Sahai (CEO)

Look, I would just say thank you for the question here about the impact of JUMP on our revenue is very muted, right? Because you obviously go sell these deals, they take a while to onboard, and then they come out and, and they start to get ARR, right? I think the results on the revenue beat is very muted. Would that improve over the next few quarters? Yes, absolutely. I, I don't think you should look at the Q2 results and ascribe much of that to the cross-sells showing, showing up in the revenue line or in the profitability line. I think all of the commentary about JUMP, about the deals we have won, and but it doesn't necessarily convert to revenue that quickly. Sorry, Jim, were you gonna add something then?

Jim Cox (CFO)

No, I think that we, so Sandeep has mentioned, you know, we're a bit in the early innings with respect to LPx, Prism, and these areas. I think we're also in the early innings as we think about evolving the go-to-market engine that we have. I think we're... Obviously, these results reflect something we should continue to do, and so we will continue to lean in to being more, thinking about these sales opportunities or sales channels discreetly and think- and further segmenting. The thing we've learned time and again is, as we focus and segment, the results become better.

Dylan Becker (Senior Equity Research Analyst)

Got it. Okay, that's super helpful. Then maybe to just quickly touching on kind of the competitive landscape. You did have a competitor internationally that was acquired. I wonder if you've seen any opportunity situations kind of arise off of that, any displacement kind of commentary as you are kind of looking to kind of build out your own kind of global footprint here. Thanks.

Sandeep Sahai (CEO)

Yeah, you know, these are tricky things to comment on, but I, I, I would just say that on the margin, we feel the competitive environment has, in Europe has improved very meaningfully for us. I would just say that, and that reflects a little bit in the pipeline build we have seen in H1. We, we are really happy with the transaction that was announced.

Dylan Becker (Senior Equity Research Analyst)

Fair enough. Okay, thank you, guys.

Jim Cox (CFO)

Yeah, overall, we continue to see, you know, we think we have a really strong competitive position. There's things that we have between the multi-tenancy, the single security master, you know, that allows everyone to be the most up-to-date. The network effect, no one else has that, and we think that leaning into those helps.

Sandeep Sahai (CEO)

Thank you.

Operator (participant)

Our next question is from Gabriela Borges, with Goldman Sachs. Your line is now open.

Callie Young (Analyst)

Hi, this is Callie Young for Gabriela. Congrats on the quarter and really strong numbers. First one from me, Sandeep. Really enjoyed the Forbes article you wrote on GenAI and kind of the impact you're expecting to see in fintech. You talked a bit in that about the data accuracy issues with generative AI. I'm just curious, like, what your team is doing to address those issues at Clearwater?

Sandeep Sahai (CEO)

Yeah. You know, thank you for the question about that. You know, we obviously deal with investment accounting, and we can't just be right 95% of the time. We have to be right almost all the time. As you know, our Chief Client Officer, you know, Subi Sethi, has a really large background in quality, and she approaches all of these things with trying to be right the first time. For a while, though, I believe that the GenAI applications we talk about will be with the human in the loop, right? We don't expect quite yet to let GenAI respond to customer clients or actually perform a transaction.

Recall that when you think about what an individual does, it takes a lot-- they take a lot of time to research something, come out with alternatives, and come up with then a potential solution, and we expect GenAI could just produce alternative 1 and alternative 2. At that time, the human in the loop could go and pick alternative 1, and that helps train the model, of course. We think it is still human in the loop because of the data accuracy concerns. I think there could come a time where for a certain class of problems and class of questions, you could have the model respond directly. We do think right now in our thinking, it isn't about 100% improvement in efficiency. If we can get 70, if we can get 50, that'd be great, right?

So we think more about that kind of approach rather than, you know, we're just gonna eliminate all function, all human interaction.

Callie Young (Analyst)

Yeah, that makes sense. Thank you. The second one for me is just how have bookings trended in the first half of the year just relative to 2022? You talked a lot about the visibility you get in the business, where bookings can be very forward-looking. We agree any insights from the past six months and then any differences you're seeing in North America versus international?

Jim Cox (CFO)

Sure. you know, we don't see any change in the overall competitive environment. you know, as I think Sandeep just mentioned on the margin, the competitive environment in Europe has improved. I think that helps. The pipeline has grown aggressively over the last 6 months, and we're really excited by the number of deals in the pipeline, especially those deals, what we would call our additional product deals offering there. you know, I think we're seeing dividends from announcing the Aviva go live, and we're seeing a benefit in Europe potentially there. you know, really, in the first half, when we look back on it, you know, I think we feel the same way we've always felt. It was nicely balanced between back to base and new logos.

You know, last year we closed two mega insurers. This year, we, you know, I think we expect to do similar or even better in, in, in that environment. So I think we feel, we feel really good about our opportunities there.

Sandeep Sahai (CEO)

Yeah, and our, and our raise reflects that. Obviously, there's, our raise reflects the fact that we think we are in a good position. I did want to just point out that our pipeline has surprised us, just the growth of the pipeline. I, I do think that people have a lot of work to do with legacy systems, and that movement, I'm hoping, continues to accelerate towards companies which can provide leading-edge technology, and, and we think ours does.

Callie Young (Analyst)

Great, thank you, and congrats again.

Sandeep Sahai (CEO)

Thank you so much.

Jim Cox (CFO)

I think that's... Oh. Are there more questions?

Operator (participant)

Our next question is from Michael Turrin with Wells Fargo. Your line is now open.

David Unger (VP and Software Equity Research Analyst)

Hey, it's David Unger filling in for Michael Turrin. Thanks for squeezing me in. Just one from me. Guys, I know the JUMP acquisition wasn't too long ago, but, you know, just curious your appetite to, you know, to add additional products or go deeper in a particular geo. You've made some comments tonight on, on Europe. The appetite to do, you know, an acquisition that's perhaps harder to build organically. Thanks.

Sandeep Sahai (CEO)

Yeah. Thank you for the question. Look, I, I think absolutely there's appetite to do more. If I can quickly just tell you how we think about it. We think of JUMP as having provided a good proof point. There's lots of work to be left left to be done, and there's a number of things we have to do, but it does provide a really good proof point that there is a value to our net promoter score. It's quite simple: the value is that clients want to do more with you. If there's something we have to develop, which will take too long, you know, pivoting and doing an acquisition to bring that capability sounds like a good way to go. I'll just make one more point here, that what has not changed?...

What has not changed is we have a pretty high bar for doing an acquisition. It must expand, help us expand geographically. It must help us expand functionality. Then what has changed? After JUMP, what has changed is three things. One is we have a much sharper focus on understanding the current customer pain points beyond investment accounting, but sort of adjacent to investment accounting. Second thing is our ability to cross-sell the products from a potential acquisition is a massive and clear imperative, because that also helps, as you can imagine, the NRR, right? The third one is, we really feel we are ready to lead globally. Acquisitions that can help us lead in a market by us being able to provide end-to-end functionality using a platform, I think are very interesting now.

Would have been less interesting three years back, when we might have been somewhat more tentative about trying to lead an entire industry in a certain function. So yeah, those are the-- It's very similar to before, but it does reflect a little change in attitude about what we can do.

David Unger (VP and Software Equity Research Analyst)

Always appreciate the details, Sandeep. Thank you.

Sandeep Sahai (CEO)

Thank you so much.

Operator (participant)

Our next question is from Brian Schwartz with Oppenheimer. Your line is now open.

Brian Schwartz (Managing Director and SaaS/Applications Software Space Analyst)

Hi, Sandeep and Jim. Thank you for taking my question. Just one question here, very high level. Sandeep, just how you're thinking about the macro environment heading in second half of the year. You know, it looks like the business, you know, did well in Q1. Looks like the business did even better here, Q2. You gave us insights into all the exciting initiatives and, and what's going on internally on sales efficiency in the pipeline. But how about just the, what you're seeing in terms of cycles and just buying patterns from the end market? Have, has your view about the macro environment in the second half, has that changed at all since, you know, last time we spoke three months ago? Thank you.

Sandeep Sahai (CEO)

Thank you so much for that question. Look, I think our thinking is that if you had talked to us in January or some time like that, we were worried about the environment becoming worse. At this point, our sense is, it's not gonna become much worse. We also don't expect much improvement right now, so in our planning, we are assuming it just sort of status quo. There may be a little bit of movement up and down, but it is different from how we felt three months back when we felt still. We were reasonably worried about how the economy may play out. We feel a lot more confident about that. It's also true that we have the new commercial model sort of helps us mitigate some of the risk, so that also increases the level of confidence we have in our planning.

That's how we think. We just don't see much improvement. The only other point I would make is that when you think about AUM, you know, just across the board, we feel like the markets have been quite stable. We feel, look, at this point, we feel pretty good about where the market is. Our forecast and our guidance and all that doesn't include any improvement in the economic conditions. We just don't see that yet.

Brian Schwartz (Managing Director and SaaS/Applications Software Space Analyst)

Thank you.

Sandeep Sahai (CEO)

Thank you so much, yeah. Thank you.

Operator (participant)

Our next question is from Yun Kim with Loop Capital. Your line is now open.

Yun Kim (Managing Director)

All right, great. Thank you. Congrats on another solid quarter. One question for me as well. Can you just talk about how the mix of asset types is changing between, I guess, fixed income, equities, alternative investments, and how has that mix changed, providing any pricing uplift? Thanks.

Jim Cox (CFO)

Yeah. Broadly, the mix is staying consistent. Like, let me give you one little nugget. We talked about MLx and how we're teasing on that, so that's kind of to help with mortgages. Just for context, as we were sizing that opportunity and looking at the assets on the platform, we have north of $500 billion in mortgage-related assets on our platform today. That's just kind of like one little sliver. As you see more and more of these, these types of alternative assets, mortgages, derivatives, and those sorts of things, and structured products, broadly, we continue to see kind of that trend with fixed income and structured products to flow through.

That's why we're doing LPx and MLx and moving down that path to provide additional alternative asset coverage for clients beyond the investment accounting for those assets.

Sandeep Sahai (CEO)

Yeah, I would just like to say that-

Jim Cox (CFO)

Thank you so much

Sandeep Sahai (CEO)

if you just look at the overall platform.

Jim Cox (CFO)

Thanks.

Sandeep Sahai (CEO)

Thank you.

Jim Cox (CFO)

I think we're at time, or a little over.

Sandeep Sahai (CEO)

Yes, are, are there any other questions?

Operator (participant)

There are no more questions? Nope, there are no more questions, so I'll pass the call back over to the manager.

Sandeep Sahai (CEO)

Okay, just look, I just want to thank you all for your interest in our company and the continued interest, frankly. I'd also like to do a plug for our Investor Day, which is coming up on September 6th, September 7th, pardon me, and I hope to see many of you there. Thank you again.

Yun Kim (Managing Director)

Goodbye.

Operator (participant)

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.