Ladies and gentlemen, thank you for standing by, and welcome to the Clearwater Analytics First Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. And now I would like to welcome Joon Park, Head of Investor Relations, to begin the conference.

Thank you, and welcome, everyone, to Clearwater Analytics first 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, including business outlook, expectations for future financial 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 the 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 30, 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.

Thanks, Joon, and welcome all to our Q1 earnings call. We delivered a solid Q1. Let me start by discussing our revenue. As a SaaS-based solution, onboarding clients successfully and making them live on our platform is key to driving revenue and ARR growth. As you know, over the last few years, we have invested in setting up a scalable onboarding capability across the world, and we are now consistently delivering multiple programs concurrently. We were successful in bringing 29 clients live this quarter, some with hundreds of billions of dollars and others with a few hundred million. Simply put, revenue is better in Q1 because we continue to successfully onboard new clients and delight them. Clients like Athora, Corvid Peak, DARAG, UBS and many others went live on our platform under the leadership of our Chief Client Officer, Subi Sethi. She has built an organization that delivers consistently and repeatedly for clients, small and large. Centers in Boise, Noida and Edinburgh work closely with program leaders in London, New York, Boston, San Francisco and other offices to bring new clients on board often in less than four months. And in a vast majority of the time in less than nine months. The expanding network effect and the single instance architecture allows us to continue to make gains on the onboarding effort required to bring new customers live. In general though, we are a critical business solutions provider. As I'm sure you're acutely aware, the volatility of the investment landscape continues and it's in times like these that our platform shines brighter and our customers need us even more. One perfect example of this is SVB Asset Management. When Silicon Valley Bank, the parent company, closed its doors, the more than 2,000 clients that received Clearwater reporting on their assets through SVB were left in a state of flux. After the news broke, our client servicing and technology teams worked over the weekend to provide these clients direct access to the Clearwater platform and to the portfolios, which, in turn, allowed them to understand their positions and investments. We supported the ability to not only get to their data but also help them understand their exposure and risk. When SVB landed with First Citizens Bank, we seamlessly turned access back to the new entity. The fact is we care very deeply about the success of our clients, whether they are direct or indirect. We believe that this focus and commitment allows new clients to come to the Clearwater platform with confidence. Speaking of new clients, we continue to sign new logos and are very excited to announce the Bank of America Private Bank and Merrill Lynch as our clients. Asset managers continue to migrate to the Clearwater platform to grow their business by offering their customers comprehensive and timely reporting across asset classes and countries. While doing that, they also dramatically improve the efficiency of their operations. We are excited to announce several other new logos, including Robinhood, Becker Capital Management, Arrowood Indemnity Company, Elastic, and Pacific Biosciences of California. We continue to see acceptance across market segments and geographies. On the product side, we are excited about the continuing maturity of our Prism platform. Building on the success of the seven-figure Prism deal in Europe announced during the last quarter, we closed another significant Prism deal where we will provide a comprehensive report on over $50 billion of our clients' assets. Here, again, they will use the platform for high-quality and inclusive client statements and reports. This is exciting because this is another proof point that Prism is allowing us to become the client reporting platform of choice. As we continue to invest in R&D and a multiproduct strategy, we are very excited about the progress our alternative assets initiative has made in 2023. Our focus on the alternative asset space has been instrumental in winning new logos and deals. Testament to that is the fact that in the last 12 months, approximately 40% of the net AUM added on our platform has been alternative assets. Based on feedback from our clients, we believe we are already delivering a best-in-class solution, but we are not satisfied. We will continue to invest in this program as we seek to bring disruptive solutions for LPs, mortgages, derivatives, bank loans and other asset classes. We have already integrated GAAP for the 11 largest global markets into our platform and we are developing six additional bases, which will support our global portion. Finally, we are also investing in capabilities like insights and self-service, which will likely bear fruit in 2024 and beyond. A vast majority of our investments have been focused on ensuring that the platform continues to scale across client segments, asset classes and geographies. This has been very successful, and we expect to reduce the investments needed on that front as we close out 2023. Next, I would like to talk about the global opportunity. In Q1, I personally spent time in Europe and Asia with our teams, customers and prospects. I was struck by the commonality of opportunities and issues our clients face in these markets. If anything, the diversity of the accounting standards and regulations make the demand for us usually even more compelling. The problems are exactly the same across markets, and our platform has proven to be as capable of providing a disruptive solution in Europe and Asia as it has been in North America. In support of this, we appointed Scott Erickson as our Chief Revenue Officer to lead sales globally. Scott already led this function for North America and Asia and now adds Europe to his portfolio. He has embarked on unifying our global sales organization, ensuring consistency in the approach, process and messaging. Our other operating functions are already valued globally. Subi Sethi leads operations and so does lead technology. This structure allows us to move faster and deliver informally as one Clearwater across the globe. The integration of JUMP Technology is proceeding very well. We have an excellent partner in Emmanuel, the JUMP Technology Founder and President, and are working actively to provide a comprehensive solution for asset managers of all sizes and complexity. Integrated technology, sales and product teams have been working together since the beginning of the year. Lastly, let me talk about the team. We continue to hire across every office in line with the growth of the business. In Q1, we expanded our return-to-office policy. In my visits to different offices, I'm inspired by the enthusiasm and collaboration that I see within our team that only comes from being together in the office every day. As I interact with the team, I'm continually pleased that our focus on building an outstanding engaged team shines through in each person. I'm very proud of this team and the passion and customer focus they bring to the office every single day. With that, let me turn it over to Jim to talk in more detail about our numbers.

Thanks, Sandeep, and thank all of you for joining us. I'm happy to report good Q1 2023 results. Let me start with the top line and the metrics that drive revenue. In Q1 2023, we delivered 20% year-over-year revenue growth despite a macro market environment that certainly felt the impact from the challenges with regional banks, which happened to comprise approximately 2% of our revenues in Q1. First quarter revenue was $84.6 million or $1.6 million higher than we expected when we provided our guidance. We were able to deliver this revenue and beat our guidance based on the successful and faster-than-anticipated onboarding of new client assets during the first quarter. We reported annualized recurring revenue, or ARR, at the end of the first quarter of $337.4 million, an increase of 17.5% year-over-year. While we were heartened by the reacceleration of growth in ARR and the Q1 sequential growth of $13.9 million, which was better than the first quarter of both 2022 and 2021, we won't be satisfied until returning ARR growth to 20% plus. As of March 31, 2023, the gross revenue retention rate rounded to 97%. Actually, to be specific, it was 97.4%. This was the first time that gross revenue retention dipped below 98% in 17 quarters. And this was due to a confluence of churn related to acquisitions among our corporate insurance and asset management clients in Q1 of 2023. In general, our clients are more likely the acquirer, but when our clients are not, we will have our sales teams stay close to the acquiring company to be ready when they need better reporting. In the first quarter, net revenue retention remained the same as the prior quarter at 106%. We were assured by this good number because it aligned with our expectations. But of course, we strive to do better. As we indicated last quarter, we expect net revenue retention to remain near these levels as we build out our multiproduct offerings. It's also worth noting that we've made our new commercial model our de facto standard of contract. In this quarter, essentially all of our new clients signed at base plus contract. As a reminder, the base plus contract framework includes a base fee for a prospective client's existing book of business, plus an incremental fee for increases in assets on the platform. The base plus model includes annual increases in the base fee and enables us to charge additional fees for supplemental services or additional products should the client subsequently select to utilize those services. This base plus structure has the effect of limiting the downside volatility in our asset-based fees. Over the next 90 days, we will roll out our new market-specific offering bundles. This is an important next step in our journey to becoming a multiproduct company, and we look forward to updating you on that initiative at our next earnings call. Now let's turn to our profitability results. We reported $22.5 million in adjusted EBITDA and a 26.6% EBITDA margin in the first quarter, a solid result and better than our guidance based on the revenue beat and prudent expense management. Gross profit in the first quarter was $64.2 million, and gross margin came in at 75.9%, which is a significant improvement from the 74.2% in the first quarter of 2022. Gross margin continues to be robust even as we continue to invest to build our global scale. Research and development expenses in the quarter were $22.7 million or 26.8% of revenue, an increase of $2.6 million from Q4. R&D expenses include three months of JUMP expense in Q1 compared to the single month in Q4. Sales and marketing expenses in the quarter were $10.2 million, an increase of 18.4% year-over-year, and that equates to 12.1% of revenue. Sales and marketing expenses typically ramp up throughout the year as annual quota achievement bonuses are earned, and there is more marketing spend in Q2 and Q3. General and administrative expenses in the quarter were $8.8 million or 10.4% of revenue, an increase of $1 million from Q4 based primarily on the timing of professional services fees. On a GAAP basis, there was a $6.4 million increase in G&A expenses from Q4 to Q1. The primary driver of the increase is the $3.3 million of equity-based compensation associated with the JUMP acquisition, as well as a $1.3 million increase in equity-based compensation to management and a $0.9 million increase in transaction fees associated with the secondary offering. The JUMP equity-based compensation was negotiated as part of the acquisition of JUMP Technology. Speaking of the JUMP acquisition, as Sandeep mentioned previously, we continue the integration process of JUMP in the first quarter, and we are happy with the progress. We've created joint teams to merge our development efforts and business functions, and we are excited by the pipeline. We see demand from our existing client base and with investment management prospects in North America to desire an end-to-end solution. In fact, we're also excited to announce that in early Q2, our first Clearwater client selected JUMP Technology to augment their Clearwater solution with intra-day portfolio management supported by JUMP. Let's turn to the balance sheet and cash flow. We ended the quarter with $256.8 million in cash, cash equivalents and investments and $49.9 million in total debt, resulting in net cash holdings of approximately $207 million. During the quarter, we began investing our excess cash in fixed-income securities for excess yield. Perhaps it goes without saying, but of course, our team is yet another happy user of the Clearwater system for our investment portfolio. Free cash flow for the first quarter was $6.2 million, representing year-over-year growth of 33%. Free cash flow also included $1.7 million of capital expenditures. EBITDA to free cash flow conversion is lower in the first quarter of each year as we typically pay year-end bonuses and commissions. Within the financing activities of the statement of cash flow, you will notice that we used $7.3 million to pay taxes related to the net settlement of shares. We elected to net settle certain RSUs and options to limit the dilution to shareholders from equity-based compensation. Now let's turn to guidance. Focusing on guidance for the second quarter of 2023, we expect revenue to be $87.5 million and adjusted EBITDA to be $22.8 million. In Q2, we expect an adjusted EBITDA margin of approximately 26%. For the full year 2023, we have increased the low end of the revenue guidance range from $361 million to $362 million and now expect revenue for the year to be in the range of $362 million to $364 million, which represents approximately 19% to 20% year-over-year growth. The guidance we provided previously for all other measures remains unchanged. After another quarter of strong execution in Q1, we look forward to continuing to reaccelerate revenue growth by building on our leading competitive positioning with further integration of JUMP and the execution of our full multiproduct solution. With that, I'll turn it over to Sandeep to provide some closing thoughts.

Thank you, Jim. We appreciate your interest in Clearwater Analytics. We continue to be focused on executing and remain cautiously optimistic despite the macroeconomic conditions. As always, we remain relentlessly focused on our clients' long-term success and supporting them as they benefit from our technology's powerful network effect. With that, let me turn it over to the operator for questions.

The first question comes from Kevin McVeigh of Credit Suisse.

Great, thanks so much, and congratulations on really terrific results in the environment we're in. The full-year guidance looks really good. Is there any impact in that guidance from those regional banks you highlighted? I think you said about 2% of revenue. So would it have been that much higher? Or are those clients kind of still there? Just trying to get a sense about that given some of the volatility we've seen.

Thank you, Kevin, for that question. So just talking about regional banks, we wanted to provide some perspective. Including SVB, which we said earlier was about 1, 1.5, it is about our exposure to regional banks is about 3% of ARR. We don't really have much of an exposure there, but we also wanted to talk about two specific cases. One is SVB and the reality is that they are a customer, and they ended up with First Citizens Bank, who is also a customer. So the impact on our business isn't really that high. The second one is First Republic Bank. Here again, they were acquired by JPMorgan, and again, both of those are customers, and we don't see them having much impact on our operations. So when you think about guidance and revenue in the year, we think that impact is quite muted actually, just given the size of our exposure to regional banks and the fact that the impact that has on our revenue base is really, really minimal.

Terrific. And then just really, the gross margins were exceptional. Maybe help us understand that a little bit? And did JUMP help or hurt those margins?

Sure. Really, JUMP is a pretty small piece of the whole puzzle, Kevin. So really what should help those gross margins faster than we expected were those clients. As you think about it, as we're onboarding clients, we're putting a disproportional amount of effort into getting them live and going. The mix shift helped respect to that—more than JUMP in particular. I think the last thing I'll say about it is if you think about it, I think it's too early to claim success here. We're not at the finish line on this. We're still making investments, but I think we're starting to see the fruits of all of those levers.

Great, thank you.

Thank you. The next question comes from Rishi Jaluria of RBC. Please proceed.

Wonderful. Thanks so much for taking my questions. It's nice to see continued resilience in the business. I wanted to start by asking about Prism a little bit. Sandeep, you called out some pretty big deals with Prism, really great to see that continued success there. What do you think is the end game with these customers who are on Prism? Is it that they continue to expand and stay there? Is there some sort of motion to get them to become full-blown Clearwater platform customers and potentially even bigger over time? Maybe help us understand what that glide path looks like and what's the potential with some of these customers? And then I've got a quick follow-up.

Yes. Thank you, Rishi, for that question. This move to the multiproduct world is an important way to get to high NRR numbers, so I'm happy to discuss it. You also remember, Rishi, that the first product we invested in outside the court was Prism. It's not a surprise that Prism has gained some maturity, and we're starting to see six-figure deals, seven-figure deals. We're excited about where this could go. Our vision for Prism is to be a client reporting portal for all functions that clients want to see. We think they want comprehensive reporting, analytics, ESG, and various teams' input that clients care about. Our thinking is that these ideas need to be of a size between $50 million to $100 million for us to get excited about delivering results over the next three to four years. That’s how we think about Prism. We're excited about this move to multi-products. As long as you remember that this is still early days in terms of generating real revenue for anything outside Prism. Prism is starting to become a meaningful source of revenue.

No. Absolutely, that's super helpful. I really appreciate all the detail. And then maybe I want to go back to thinking about the kind of banking crisis we've seen. From my seat, it feels like this illustrates more of the need for your solutions as companies need to have a better view into their investments into real-time pricing and a better understanding of risk. Is that something you've seen as you've been talking to customers and prospects that there's just increased awareness of the need for these kinds of solutions given everything that's going on? Or is there a way that from your vantage point you can leverage that as kind of an event to just drive more demand? Thanks.

In asset management, it's all people are buying right now. The asset management cost structure is a bit challenged, making it hard to sell new things. But their growth is driven by client reporting. We announced what we did with UBS and Bank of America Private Bank, and we feel we’re seeing not just conversations, but wins and go-lives with asset managers. It's being driven by their clients demanding more transparency, cash flow forecasting, and risk forecasting. We think this is a major win for us, and we have the right technology like Prism to really help our clients.

Wonderful. Really helpful. Thank you so much.

Thank you, Rishi.

Thank you. The next question comes from James Faucette of Morgan Stanley. You may proceed.

Hi, guys. It's Michael on for James. Thanks for taking our question. Maybe, Jim, I think I heard you say that almost all of the incremental wins were on the new pricing model. Is that right? Can you sort of help with the guardrails in place as to the characteristics of a client that may be a better fit under the previous pricing model?

Yes. The specific number was 96%. We're talking about one deal. It is more a function of when we started the conversation with that client and showed them the paper for the first time. Everyone, as we're engaging with clients and talking about this model for the first time, is accepting it and moving forward. We're past the importance of that within the existing client base; it's just how we go to market going forward.

Understood. That's helpful. Maybe just on the Bank of America Private Bank deal specifically. I understand you likely can't disclose what a particular customer's ACV is. Could you sort of speak to how ACVs for some of your larger client wins have generally been trending over time?

Let's not talk about that specifically. Last year, we talked about two mega insurers and wins, one in the third quarter and one in the fourth quarter of last year. Those would be seven-figure deals. We see six and seven-figure deals consistently. We’re excited about the pipeline for those mega insurers in 2023 and expect more to talk about as we move throughout the year.

When you think about asset managers, it's almost entirely driven by how they grow their business. That’s driven by superior client reporting analytics. The more comprehensive we can provide that, the more they can slice and dice data to quickly produce reports. Those deals tend to be bigger and may sometimes start smaller before adding more books. The size of the deals we see in the market are continuing to grow, and we would expect that.

Perfect, thank you both.

Thanks, Mike.

Thank you. The next question comes from Michael Turrin of Wells Fargo. You may proceed.

Hey, thanks. It's David Unger filling in for Michael Turrin. Just one for me. I thought I heard your comments in the prepared remarks just talking about reducing investments exiting the year. Any areas in OpEx that have the best potential to be optimized near-term, maybe anything related to AI? Thank you.

Yes. That's my favorite topic. Thank you, David. We have gone from largely being focused in North America to growing into Europe and Asia. We've spent a large share of R&D dollars on that business to make it scalable globally. Once you've built it, you don’t have to keep building it. We expect that by the end of 2023, you should be able to see much of that benefit start to flow through. The second area we're excited about is large language models (LLM). This can be super helpful on operations side, particularly in reconciliation and aggregation. It can also help on the client services side. What we do is somewhat sophisticated. The LLM can assist in making our teams more efficient, and we want to really push on it. We've been experimenting, and the results indicate great potential.

Thanks, Sandeep.

Thank you, David.

Thank you. The next question comes from Jackson Ader of SVB MoffettNathanson. Please proceed.

Great, thanks for taking our questions, guys. The first one is on the macro impacts. We keep talking about how it's a challenging macro environment, and you mentioned Sandeep asset management cost structure being challenged. Can you spell out what is the challenge? And how is it impacting not asset levels or asset values, but impacting bookings?

Sure. Jackson, good to talk to you. I think the simplest way to think about it is we are starting to reaccelerate our ARR at 17.5%, but still not at 20%. Going back to 2021, we were averaging NRR of about 110. In these last two quarters, we've been at 106. You can see that impact flowing through. We believe the path to achieving higher metrics is through the multiproduct strategy. Suppose you're looking at bookings and growth costs. There’s definitely a growth in cost there.

Yes. Jackson, that's a big question, so I'll try to answer a couple of parts. We keep mentioning the macroeconomic challenges because the sentiment exists. However, our revenue and earnings guidance remains largely unchanged, and we will continue to execute until we see changes on the demand side or booking side. Competitively nothing has really changed, and we see good momentum in mega cap insurers. We closed two large mega cap insurers last year, and we have confidence in continuing that this year. We've won significant deals in asset management like Bank of America Private Bank and Merrill Lynch. Our progress in Europe has been reasonable, as we've discussed the JUMP acquisition. We see demand is steady and meeting our expectations.

Sounds good. Thank you.

Thank you. The next question comes from Gabriela Borges of Goldman Sachs. You may proceed.

Good morning, thank you. Sandeep, I'll follow up on your comments on the momentum in mega cap insurers. Can you give us more color on how you're prioritizing the sales team go-to-market and the incentives there? When looking at your wins in mega cap insurance, how much does the timing of the renewal cycle matter? I'm sure your sales team knows when contracts are up for renewals with larger customers. Any color on how you see that progressing over the next 12 to 24 months?

Yes, absolutely, Gabriela. Last year, we announced two mega deals, which significantly helped our go-to-market strategy. We're aware of when contracts are up for renewal and know their pain points. We're getting inbounds asking about our wins, like what happened with Nationwide. We are actively engaging with our marketing campaigns for mega insurers, and while some prospects might not convert for two years, we expect to see numerous opportunities in this sector.

As noted, we invested in a dedicated sales team in 2021 to focus on mega cap insurers. We're continuing to make similar investments globally, which helps us support more significant opportunities.

These are elephant hunters. This is not somewhere you can go sell a $1 million deal and also hunt elephants. This organization focuses on mega cap insurers only, and they're looking at several million dollar deals to fill their pipeline.

That makes sense. Thank you.

Thanks, Gabriela.

Thank you. The next question comes from Dylan Becker of William Blair. You may proceed.

Hi, gentlemen, nice job here. Maybe sticking with kind of the similar commentary. Jim, you noted around kind of market-specific bundles and specialization rolling out in the back half of the year. How do you see that playing out from a sales efficiency and referenceability standpoint moving forward, along with cross-sell efforts?

Yes. The first thing to remember is our commercial model and bundles still leverage our single platform and global security model. We have a specialized team focused on these cross-sell opportunities. We see success delivering on solutions and believe these efforts will lead to more referenceable clients and market momentum.

Got it, that's super helpful. Going back to the opportunity with AI, Sandeep, you mentioned Insights and the potential on that side. With almost $6.5 trillion across the platform, how do you see that being emphasized on the R&D side and productized for expansion, possibly not just in 2023, but longer term?

Yes, we continue to make long-term investments for 2024 and beyond. We have dedicated teams focused on deriving insights for our clients to help them. The demand is already there from clients asking how they perform against the industry. We feel we are in a unique position as our platform allows for insightful reporting. We're working on organizing that development for monetization, but it may not yield revenue until 2024 or more. However, we believe it will be a significant part of Clearwater in a few years.

Got it. Very helpful. Definitely an exciting long-term opportunity. Thanks again, guys.

Thank you.

Thank you. The next question comes from the line of Brian Schwartz of Oppenheimer. You may proceed.

Hey, this is Ari Friedman sitting in for Brian Schwartz. I was wondering if you could talk about the demand you're seeing internationally today in comparison to prior quarters. Thank you.

Yes. Firstly, just the facts: international revenue this quarter was 17% versus Q1 of last year. International continues to grow well for us, especially in insurance spaces in Europe. These deals tend to be large. Management is another area that is performing well in Europe, while Asia is a bit slower to catch up.

As far as international, I would say we're still early on cross-selling JUMP within our North American client base, but we have some joint opportunities internationally that are encouraging.

That’s great, thank you.

Thank you so much.

Thank you. The next question comes from Yun Kim of Loop Capital Markets. You may proceed.

Thank you, congrats on a solid quarter. In your prepared remarks, you mentioned that some of the revenue upside in the quarter was driven by faster onboarding. Just curious whether that was from a more customer-specific situation or is that some process improvement that can be sustained moving forward?

I'd like to think it’s both. We executed flawlessly in Q1. The team was able to do a good job with multiple clients, thus showcasing our ability to deliver multiple programs concurrently. Additionally, we have a program that investigates how to shorten onboarding times, which should bear fruits in the long run. We're very excited about our onboarding capability, which builds our clients' confidence and helps us grow.

Okay, great. And then just curious, given the current uncertainty in the banking industry, has your go-to-market motion changed or are there steps to take advantage of the situation? Are you seeing more inbound interest or velocity of deals at the top of the funnel improving?

Two things. The intensity with which we're engaging with client services has intensified. We want to stay incredibly close to our clients. For those impacted, we've invested in taking care of their indirect clients too. In terms of demand, we see increased conversations with asset managers. We announced two significant new wins in Q1 with Bank of America Private Bank and Merrill Lynch, indicating strong growth in the asset management business.

Okay, great. Thank you so much.

Thanks very much.

Thank you. There are currently no additional questions registered at this time. So I would like to pass the conference back over to the management team for any closing remarks.

I just want to thank all of you for your interest in Clearwater. We're trying to build something special here, and your involvement with us is very much appreciated. Thank you all.

And with that, we will conclude today's call. Thank you for participating. You may now disconnect your lines.