Thank you for joining, ladies and gentlemen, and thank you all for standing by. And welcome to the Clearwater Analytics Third Quarter 2023 Financial Results Conference Call. My name is Brita, and I will be your event specialist running today’s call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Thank you. And I would now like to welcome Joon Park, Head of Investor Relations. To begin today’s conference call.

Thank you. And welcome everyone to Clearwater Analytics’ third 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 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 statements 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 will turn the call over to our Chief Executive Officer, Sandeep Sahai.

Thanks, Joon, and thank you all for joining us. The very strong numbers in Q3 were the result of disciplined execution from our operations and onboarding team, strong and sustained product innovation from our engineering and product teams, and finally, our ability to focus on client success, with a genuine desire to partner for the long-term. Normally, I will provide a business summary in this opening section of the call. But given the financial outperformance in Q3, I have asked our Chief Officer Jim Cox to discuss the financials first.

Thanks, Sandeep, and thank you all for joining us. Sandeep is right, we had another strong quarter. On the heels of Q2 solid results at our impactful first Investor Day in September. I am happy to report strong results for Q3, where we beat guidance on top and bottom line once again. Revenue continued to reaccelerate, but the real highlight is our greater than 30% EBITDA margin for Q3. At our Investor Day, we announced our intent to expand EBITDA margins by 200 basis points in 2024 to approximately 29%. After our strong Q3 results, our current 2023 guidance implies full year EBITDA margins increasing to approximately 28%. Today, we intend to expand EBITDA margin by 200 basis points in 2024. So we expect our 2024 EBITDA margin will be approximately 30%. In effect, we believe these higher profitability levels will persist in the business going forward. Turning to revenue in the quarter. In Q3 2023 we delivered $94.7 million in revenue, which translates to 23.7% year-over-year revenue growth, driven by marquee client wins displacing our legacy competitors, continued expansion at our existing clients and increased efficiency of onboarding new clients by our operations team. In addition, clients continue to remain with us with a strong and consistent 98% gross retention. We have achieved 98% gross retention for 18 out of the last 19 prior quarters. Our net revenue retention rate continued to remain healthy at 108% as of September 30, 2023, which is higher than the prior year’s 103%. We continue to aspire to expand NRR to 115% or beyond, through upsell of new products and modules, that we are now offering our clients like, Clearwater LPx, MLx, Prism and our JUMP solution, and we expect our improved CTM and a difficult product to help us meet our goals. As we saw during our recent Clearwater Connect our clients are excited about our new offerings that we continue to develop to meet their dynamic needs in an ever-changing investment world. Now let’s turn to profitability results. We are pleased to report that both our EBITDA margin and gross margin showed strong improvement in Q3, we reported $28.6 million in adjusted EBITDA and 30.2% EBITDA margin in the third quarter, which was 550 basis points higher than the third quarter of last year. Just like last quarter the outperformance in our revenue put straight through to EBITDA and we are starting to see real efficiency gains with the operations team, using our Gen AI technology. Yet another highlight of the quarter was our free cash flow at $30.9 million. Free cash flow exceeded EBITDA in the quarter as there were limited changes in working capital and increased interest income contributed to our cash flows. Put this altogether and we ended the quarter with $302.8 million in cash, cash equivalents and investments, our highest ever balance. This level of cash on the balance sheet and the free cash flow generation of this business provides us with significant strategic optionality in a number of areas. Overall, the third quarter was exceptionally strong, continuing our positive momentum. We could not deliver these results without the great work of over 1,700 employees, who are tirelessly focused on delivering for our clients. And certainly, we could not achieve these results without partnering with our terrific clients. With that, I will turn it over to Sandeep to share the exceptional client detail that generated the stellar results.

Thank you, Jim. I wanted to cover the three topics I laid out at the beginning of my remarks, namely, disciplined execution, client success and product innovation. Disciplined execution and a focus on client success are very important to our business. At the highest level, we are excited to be executing ahead of the models we presented on Investor Day and these results were delivered before the R&D cost normalizes. The entire Clearwater team continues to be relentless in the urgency and precision with which we execute. The commercial model adjustment of last year, the highest ever NPS in the company’s history this past quarter and the sharp improvement in the time taken to onboard clients are examples of our ability to execute. It’s easy for us to see that 90% of the onboarding now happens within five months. But that is truly an extraordinary achievement. The reality is that systems like these can take several years to implement and the fact that we get customers on our platform within five months is a direct consequence of our single instance multi-tenant platform, our single security master and the relentless focus of our onboarding team. This leads to the product innovation. The needs of the industry we serve continue to change and we continue to adapt. But it’s our ability to adjust, execute and innovate that allows us to deliver these results. The needs of the asset management industry continue to evolve and now place relentless cost and growth pressures. Recognizing this change, we started to invest in Prism and our current solution makes us a partner for growth instead of a partner that could just replace their accounting platform. In many deals in recent quarters, we are now helping our asset management clients deliver a better solution to their clients, thereby helping them increase AUM flows. We have become a partner for growth. Likewise, the asset owner industry is also evolving in investment strategy and increasing the allocation to alternative assets. And while we already process alternative assets very well, two years ago we started to invest with the goal of becoming best-in-class in reporting on constituent elements within MLP, expanding data linkage, compliance and reporting requirements. We now have Clearwater LPx, LPx Clarity and MLx. These products play a significant role in our ability to continue to win and differentiate our solutions. We are very proud of our ability to win 80% of the time we write a proposal. But we maintain that win rate by continuously listening to our clients and prospects. We believe that we have a truly disruptive platform, but we will continue to innovate to broaden our competitive moat. How do we do this? We evaluate product ideas and categorize them into one of three areas. Firstly, back to base, products that can help our current clients get better value or help us solve additional pain points. Secondly, adjacencies, products that can help us provide full investment lifecycle solutions for investment management instead of just investment accounting. Thirdly, disruptors, leveraging the power of the single instance platform. These are products that help us leverage the power of the single security master and have the potential to disrupt the industry. We then weigh the investments against booking potential both over the next 12 months and in the long-term. We take a portfolio approach that includes single and double while also reserving some investments for potential growth. One key tenet of our innovation process is partnering with actual clients at least at every step of the way. We solicited client input directly through our Customer Advisory Board and through our Annual User Conference, Clearwater Connect. Speaking of Connect, in September, we hosted over 500 clients and prospects from across the globe to discuss our innovation roadmap, take their feedback and conduct joint design sessions. We held over 160 client meetings. We actively sought input to our roadmap and received feedback from them on our upcoming initiatives. Most importantly, we collaborated with design partners to ensure that our products are immediately beneficial to them. Let me try and bring these trends to life with actual seven-figure client wins this quarter. I will start with the leading insurance company that we won in Q3. This was a significant win because they had outsourced their entire investment accounting function to a competitor. But when they saw an on-site demo of the Clearwater platform, they realized that it was possible to get a comprehensive daily view of the global portfolio, including public and private assets, which in turn would enable their decision-makers to make better and more informed decisions. That demo led to an accelerated review of the accounting book of record solution and this insurer selected Clearwater in record time. Another large win was with a leading life insurance and annuity company that administered nearly $100 billion in assets under management. They selected a competitor over two years ago and have yet to go live. Meanwhile, they bought another pool of assets, but given the challenges the parent company was facing, this subsidiary chose Clearwater. Clearwater was able to swiftly implement the subsidiary assets as they went live on our platform in relatively short order. Looking at that experience, we are pleased to report that the parent company came to the conclusion that the previous system they selected was unable to scale and operate under pressure and opted to consolidate all their assets onto Clearwater’s platform. Today, Clearwater is their sole investment accounting solution and we once again proved the power of our platform in Q3. We also signed an asset manager who had previously decided to migrate to the cloud version of a competitor’s offering. As we attempted to move from an on-prem to the cloud version with this vendor, the complaints covered the gamut, from inaccurate data to reporting limitations and the overall inexperience of the provider. They found themselves consistently late on monthly closure, unable to provide users with a view into the daily holdings across all assets or while their fees crept up. Clearwater took a different approach. We started by collaborating. We conducted a number of in-person sessions outlining every asset class, illustrating the efficiencies Clearwater would deliver and met users across the spectrum, leading to complete functional alignment and trust. Finally, they talked to several of our clients and then even though they had several years remaining on their contract with the previous vendor, they signed with us this past quarter. Another client is a North American full-service life insurance company. They recently went through an acquisition, essentially doubling their AUM. At a recent meeting with the Chief Investment Officer, we learned of their plans to diversify into adjacent geographies and markets and the challenges that would pose from an infrastructure perspective. We demonstrated the Clearwater platform and its ability to report comprehensively and seamlessly on assets around the world. Not only that, but we could also generate financial reports in local GAAPs and address local regulatory needs. That convinced them to sign a seven-figure deal. Of course, we also signed a number of six-figure deals with medium-sized businesses. Let me start with an asset management firm with a variety of institutional customers. Before signing with Clearwater, this business had grown tired of continuous Band-Aid solutions. They turned to Clearwater for a comprehensive portfolio of front, middle and back-office reporting, relying on the depth and breadth of Clearwater, Clearwater JUMP, LPx, and Prism. Using Clearwater JUMP, this client is implementing a new OMS and PMS, while Clearwater LPx Clarity provides the front office with the transparency needed to understand risk and exposure to limited partnership investments when making portfolio decisions. Finally, they use Clearwater Prism, which allows users to build and edit reports and client statements and define custom approval workflows to meet their clients' audit, attribution and ESG reporting needs. The next client is a prominent insurance company in Asia. Their aggressive growth rate puts significant strain on their operational team, systems and processes, particularly their investment operations team. They were introduced to Clearwater by one of our existing clients in the region, once again demonstrating that our happy customers are our best sales channel. This reference led to an accelerated review using a series of workshops. This hands-on experience with our solution led to mutual success and reinforces the belief that Clearwater is the disruptive, best-in-class solution. You have heard us talk about how we support REITs and during the third quarter we added a significant REIT to our client base. This client chose Clearwater to replace their previous solution. We also signed a publicly held wellness brand to resolve the inconsistencies with investment data and more. And finally, we signed several new clients leveraging our partnership with Morgan Money, a strategic partnership we announced with JPMorgan in May of this year. The joint solution makes it easier for financial professionals to have a globally connected view of their investment portfolios and empowers them to make real-time investment decisions by working on the Clearwater and Morgan Money platforms in tandem. And while all of these client wins are very exciting, we are equally excited about the recent progress we have made on two fronts. Number one, Gen AI, the response to the demonstrations and vision we provided our clients and prospects at Clearwater Connect was very encouraging. The pilots we have done with our internal operations team continue to build confidence about the impact of this technology on the efficiency of our operational teams and therefore to the gross margin and to the productivity of our engineering team, and therefore to the cost of innovation. Second, we are building products that leverage the power of a single security master through a single instance multi-tenant platform. Again, the visionary demo that we showed a small group of clients under NDA was very encouraging and has led us to doubling down on that area of investment. As a summary, we continue to delight our customers. We have an exciting roadmap with client design partners guiding our approach and we are capitalizing on the latest technologies to improve our internal operations and deliver unparalleled scale and growth opportunities for our clients. All of this is evident in our strong Q3 results. With that, I’d like to turn it back to Jim to cover our guidance.

Thanks Sandeep. Now let’s turn to guidance. Focusing on guidance for the fourth quarter of 2023, we expect revenue to be $98.5 million and we expect adjusted EBITDA to be $28 million or approximately 28% EBITDA margin. For the full year 2023, we have increased our revenue guidance to $367.6 million, which is an increase of $2.6 million from the midpoint of our prior guidance range and represents approximately 21% year-over-year growth. We have also increased our full-year EBITDA guidance by $4 million from the prior quarter to $104 million for the full year 2023. That guidance represents EBITDA margins of 28% for the full year, an expansion of over 150 basis points over the full-year 2022. With that, I will turn it over to Sandeep to provide some closing thoughts.

Thanks, Jim. We have long said that we want to build a truly exceptional company. I am so happy to report that we are executing ahead of the plan we laid out at our Investor Day. We are united in purpose with our clients to become better together and are incredibly excited about what lies ahead. With that, I will turn it over to the Operator for a live question-and-answer session.

Thank you. The first question we have comes from Rishi Jaluria of RBC. You may proceed, Rishi.

Oh! Wonderful. Thanks guys so much for taking my questions. I wanted to start by asking a little bit about Gen AI. Sandeep, when I was at Clearwater Connect, I definitely got a chance to see Clearwater GPT demoed, seems really impressive. Maybe can you talk about early feedback coming out of the conference and how we should be thinking about the roadmap of future use cases over, let’s call it, the next year based on that customer feedback and maybe monetization alongside that. Then I have got a quick follow-up for Jim.

Hey, Rishi. Thank you for the question here. Look, also thank you for coming over to Clearwater Connect. It was really good that you can talk to clients directly instead of always just listening to us. So, look, about Chat GPT and Gen AI in general here. Firstly, we believe it is transformative and disruptive. I do think it can have significant and mostly positive impact on our business. As you know, we launched Clearwater GPT and then at Connect we showed a number of demos. And if you get to the next level, what we have done is, we have launched and funded five programs. Two of these programs are revenue generating. They are more about how do we increase revenue. One of them is insights, which we demonstrated, and the other one was how can customers talk to the data and really interact with the data themselves without sort of coming to us to understand what’s going on. We think both of these are potentially revenue generating. Two of those programs are efficiency related. So the first one is about improving reconciliation and data. And the second one is how do you improve onboarding and client servicing. And frankly, the fifth one is something we aren't ready to discuss quite yet. The point, Rishi, is that this is nothing which is going to take us six months and a year. We have already started to see some impact of that, frankly, on our financials and on our operating capability. So I would say that, do we expect it to continue to improve meaningfully in 2024? Yes, we do. We think it will have an impact. How much impact? I think that’s something we will have a better position to tell you when we provide guidance for next year. Jim, would you add anything?

All right. Thanks, Sandeep. Sorry. Go ahead. Thank you. I have a quick follow-up for Jim regarding the preliminary outlook on EBITDA margins for next year. I'm pleased to see the ongoing expansion of margins while you're making investments. However, I would imagine that there’s some effect on your P&L from the investments in generative AI, along with the associated costs. Additionally, I assume there will be an increased focus on driving near-term adoption before you concentrate on significant monetization. Could you discuss your thoughts on how generative AI might impact margins for next year and how much flexibility you have for investments in this promising market opportunity without compromising margins? Thank you.

Rishi, that’s a great question and the way you articulated it is exactly how Sandeep and all of us are thinking about it. So we have already started to see the benefits to a small degree of the Gen AI tools that our teams are using internally. And I think you can just see the expression of it partially in the gross margin expansion that you saw in Q3. That is not the entire reason for the gross margin expansion in Q3. It is only a very small subset of the client servicing team that is using those tools. But the results we are seeing from those are meaningful. And so I think that just gives us more confidence that the 80% gross margin target that we think about in the longer term is extremely attainable. However, we want to balance that gross margin targeting with kind of that incredible client service and focus on clients that we have. And so, we don’t want to lean too quickly into that. We want to make sure that we are delivering for them. And so what I would say is, as we think about the 200-basis-point expansion next year, which we talked about at Investor Day and we are reiterating here, even at our higher EBITDA numbers for 2023, there is very limited impact of Gen AI within those margin numbers. And I think that what we want to do is exactly what you said. We want to maintain the optionality. We see a very clear path to delivering 200 basis points of margin expansion next year while allowing us the flexibility to attack the opportunities that we see ahead of us.

Yeah. If I can just add to that…

Yeah.

…just to be very, very clear. We are not optimizing for profitability. I think when we presented at Investor Day, the gross margin should grow simply because of Europe and Asia normalizing. And also, if you remember, R&D should come down not because we want it to come down, but because that one-time conversion to the cloud and the investment for Europe have been completed. So really we don’t think that we are optimizing for profitability. It’s just a consequence of the business we have. And if I can just, since you asked this great question for that, just to be a little bit more declarative, I do think we are investing in Gen AI. We have a significant dedicated team that does just that, but we are already getting returns on it. Are we going to invest more? Yes. Are we going to be able to get results quicker? Yes. And that is the power of Gen AI. It can deliver results in months and not in two years and three years. So, yes, we will invest more in Gen AI and we are investing more in Gen AI, but the efficiency we are getting is frankly there to see. So, yeah, that’s how we think about it.

Wonderful. Thank you so much, guys. I appreciate it.

We now have Ella Smith of JPMorgan. Your line is open.

Hi. This is Alex Smith on for Alexe Gogolev from JPMorgan. Thank you for taking my question. So, for my first question, I noticed that NRR dipped ever so slightly sequentially from 109% to 108%. Was hoping you could speak to what happened there?

Sure. Ella, this is Jim. I'm happy to answer that. If you recall, back in Q1, when we were at 106%, I mentioned that this is about where we would stay in the high single digits. When we reached Q2 and were at 109%, I noted that it was just a rounding up to 109%, given everything else was equal. We are currently working within that margin. We expect to live in that range while we continue to develop the go-to-market function and our additional products and solutions to aim for a 115% target. We're diligently striving towards that aspirational 115% level, but it is a challenging task. It requires a significant effort, and I believe we'll be working on this throughout 2024. However, I don't expect that we'll achieve it by then. If I'm still discussing reaching NRR of 115% in 2026, I would consider that a failure on my part. So we're committed to pushing hard, recognizing that it's a multiyear effort. I'm comfortable with the variations in margins from quarter to quarter, and all our initiatives are still aligned with this goal.

That’s very helpful. Thank you so much, Jim. And for a follow-up, so listening to the Investor Day, which happened not too long ago in this call, a huge emphasis is obviously on your product developments and new product launches. It makes me think that you would expect a strong majority of your future growth to come from NRR expansion per client, as opposed to the number of clients expanding. Would you agree with that or not necessarily?

Yeah, this looks great. Oh, sorry, go ahead Sandeep?

Go ahead, Jim.

I will start and then you go, sorry. I would say that we have. So that is one path, right? So what is so great about adding NRR 115% to this level and all of the product development is that it provides another avenue to return to the foundation to achieve that. The reality is we have numerous different ways to drive growth of over 20%. We have geographic expansion, and we also have these new products, which are creating additional opportunities in adjacent markets for new clients, as well as for our existing clients. And yes, we often discuss returning to our base since it’s a relatively new focus for us, but it’s just another option among many. With five or six different options to drive that growth, it enhances the durability, resilience, and strength of our business. Sandeep, what would you add?

No, I think that's exactly right, Ella. I don’t believe we can take these components and assume that if one aspect improves, another will decline. Our focus is on having multiple opportunities available. Some will succeed and some won’t, with different strengths in various quarters. We aim to ensure our growth is resilient. As Jim mentioned, there are five key areas: geography, market adjacencies, new products we are developing, adjustments to our commercial model that will contribute positively, and eventually, there will be a tailwind from assets under management. We haven't seen that tailwind this year, and last year posed challenges for us. However, at some point, the value of these assets will begin to increase. We might see growth in the range of 2% to 3%, which is what we anticipate, but we cannot predict it precisely or factor it into our business model at this time. We recognize it as a potential growth lever in the future. So, it's not about choosing one option over another; we want to pursue all these avenues concurrently.

Great. Thank you so much, Jim and Sandeep.

Thank you.

The next question comes from the line of James Faucette of Morgan Stanley. You may proceed with your question.

Hi. It’s Michael Infante on for James. Nice results here. I just wanted to ask on NRR growth versus revenue growth. It looks like NRR is growing 19.4% in the quarter, probably, a touch lower on an organic basis, but you are seeing revenue growth that’s close to 24%. I know you have spoken about the delta between ARR growth and revenue growth ultimately compressing in 2024, but can you sort of unpack what’s driving that delta right now?

Yes, I believe that as we onboard clients, there can be a catch-up in revenue that subsequently affects our financials. To clarify, we maintain a rigorous and conservative approach when defining recurring revenue. We have a range of new products and offerings within our client base that we anticipate will be recurring, but we don't categorize them as annual recurring revenue. This contributes to the current disparity. I agree that over the long term, both figures should align. However, if we decide to commercialize a product in a non-recurring manner, there could be a disparity moving forward. In general, these two metrics are closely related, and when analyzing the last 12 months, they show consistent trends.

Makes sense. And I wanted to follow up just on some of the strategic commentary you made. Obviously, record cash balance and pretty impressive free cash flow generation in the quarter. Seems like M&A is very much on the table. I guess, how are you thinking about the types of assets or geographies you would be targeting? I guess the reason I ask is, it seems like driving towards that 115% NRR is sort of the guidepost and M&A may not necessarily sort of aid in that goal. But I am curious how you are thinking about both of those vectors?

I think…

There is obviously. Jim, you go first, sorry, let’s coordinate on the question.

Okay, it looks like both of us are going to talk. So look, I think that there are two things here. One is we obviously have $302 million of cash and that’s significant because you never had that much cash on our balance sheet. But what’s also useful is that we continue to generate cash on a quarterly basis. Now, the first step we took, it was buying JUMP last year. And frankly we wanted it to play out a little bit. When you acquire something, as you know, it takes a little while for the company, the first acquisition in its history to sort of play out and I think we are very happy with the result and therefore we will be aggressive on M&A. But it’s not being done for a purpose. There’s no real purpose. It’s not like we have to hit a certain gross margin target or a certain EBITDA target or a certain revenue target. What we do care about, as we have said before, is can it help us expand functionality? Can it help us bring in products we can take to our current clients and go sell to them or can we expand geographically? So I think it has to be in service of one of those three things. And obviously, Michael, we want our bar to be high. These are really nice financials, the balance sheet is quite pristine and so therefore we want to be cautious, but we don’t want to be defensive. And so if you haven’t seen anything till now, it was because we did JUMP last year we wanted to make sure we had the right muscle and the right systems to have them integrated in the right way and then we will continue to act on this. So we are excited about it. We are excited about what that potential opportunities that open for us.

That’s great. Thank you both.

We now have Michael Turrin of Wells Fargo.

Great. Thanks very much. Hey. It’s David Unger for Michael Turrin tonight. Just one from me, so this is a refreshing call and software land today for sure. I know we have kind of touched upon this, but can you guys talk more broadly on the demand environment for the industry? Just talking about proving out the ROI in a more constrained budget environment. And guys, just maybe going back to that beautiful slide you had in the Investor Day, the 4 bps of tech investment management spent and referenced versus just paying the 1 bp today? Thanks.

So, yes, I could just talk about that specifically. If you think about how we go from the 1 bp to the 3 bps to the 4 bps, pardon me, and you think about what is incorporated in that. And so we think of that as risk, as performance and middle office, and really components that complete the investment cycle instead of just investment accounting. And so when Jim was talking about investing in new products and ideas, it is about that. It’s in service of expanding that 1 bp into the 4 bp. Now, I just want to make sure you understand, we already do risk, we already do performance, we already do these things, but what we are building is displacement quality software. A standalone client may be able to buy risk from us directly just for that capability. So that’s the difference. We have focused always on what’s needed for investment accounting, and our aspiration, as we said at Investor Day, is to move towards the investment management process, the whole lifecycle. So that’s how we think about it. I don’t know, Jim, you would add anything to that or not? We obviously have the whole section around back to base, which is about products you can take to a current client base, and that is obviously more important, if you will, because that helps us grow faster and finally disruptors. So nothing has changed in the last seven weeks. We still believe that, hey, it’s back to base, it’s adjacencies, which is the 1 bp to 4 bp, and finally, it is the disruptor products we can come up with.

Yeah. Sandeep, that’s right on.

Yeah.

That the only thing I’d add. I think you were also asking, hey, what’s the overall demand environment like vis-à-vis what you are hearing from perhaps other software companies? And I would say, we are in a replacement market. And what you heard from Sandeep in his prepared remarks was example after example, after example of where we are meaningfully better and different, and there is pain out there and it is a known market. And so I think that’s why we see such resiliency in the demand that we see is that pain is not getting any less. And the more examples we have of solving that pain, the more likely it is that more clients will recommend us to their friends who will become our prospects and we move forward from that.

Thank you.

We now have Peter Heckmann of D.A. Davidson. Your line is now open, Peter.

Hey. Good afternoon. Thanks for taking the question. I wanted to see if you could talk about some of the competitive response you might be seeing in the marketplace. I really appreciated some of the examples you gave of long implementation cycles, some failed migrations. But in terms of, do you see some of those legacy competitors mounting a competitive response? If so, what is it? And do you think that can be successful at all in helping them retain some of that business?

Thank you, Peter, for the question. Q3 was quite exciting. If we look back to a year or a year and a half ago, there was much discussion about competitors releasing cloud versions of their products. We mentioned then that while that might be the case, it doesn't change the underlying technology or the integration challenges that their various components face, unlike our software. In Q3, we secured several million-dollar deals that validated our position. One deal involved a cloud product that has been in implementation for two years without success, highlighting the challenge of needing to communicate with multiple groups because it consists of several distinct products. In contrast, Clearwater offers one integrated solution. We also won another deal where the promise of a product was made two years ago. Overall, we feel validated in our approach, and while technology integration isn't simple, our platform is designed for seamless end-to-end operation. We believe our competitive stance is stronger, especially as we gather more proof points to share with potential clients. We feel confident about our current position, but we are not becoming complacent. We will continue to innovate and invest in R&D to strengthen our competitive advantage. Jim, do you have anything to add?

No.

That’s great to hear and very helpful. Regarding JUMP, I wanted to follow up on how the response has been compared to your expectations when you announced the deal. I know you've announced several deals in various countries, but how would you generally characterize the feedback from both current customers and non-JUMP, non-Clearwater customers in other markets about the software's feature functionality? Are you thinking that you might need a bit more investment or perhaps that the feature functionality is more extensive than you initially anticipated?

Sure, I can update you on the JUMP integration. First, JUMP's ability to compete in the French market against larger players has shown positive results. We've noticed increased momentum there. Second, we've had some early successes in selling front-to-back in North America, but we need to invest more in our go-to-market strategy next year to expand on these wins. While we haven't fully proven everything yet, the early successes align with our goals. We do need to allocate more resources to reach a wider audience in North America. The third point is our capacity to sell JUMP's front office alongside the Clearwater platform, which appears promising. We announced a deal last quarter, and several customers are interested in this combined offering. There’s work to be done on the integration in the U.S. Lastly, our ability to sell Unit Linked Funds has been impressive, with positive market reception in Europe. Overall, I'm satisfied with our progress, although we haven't fully realized the desired benefits yet. We do need to invest more in North America, but not as much in Europe. That's a summary of our current position—progress is being made, but there’s still work ahead.

Okay. Okay. That’s helpful. I appreciate. I will get back in the queue.

Thank you so much.

Thank you. We now have Gabriela Borges of Goldman Sachs.

Good afternoon. Thank you. Jim, I wanted to follow up on the earlier question on the demand environment, recognizing that it’s too early for 2024 guidance. In the past, you have given some helpful color on how bookings momentum today can help you predict revenue. T plus one, T plus two quarters out. So with that context, are you seeing anything interesting in the bookings environment that would lead you to think that you can accelerate revenue organically into 2024? How does the environment compare to, let’s say, this time last year, as you think about the puts and takes to budget, planning and revenue guidance for 2024? Thank you.

Thanks, Gabriela. So I think we feel very strong, and if you look at the last couple of quarters and the momentum that we have seen there, I think that would align. And just you heard the commentary that Sandeep provided. We feel really optimistic about the opportunities in 2024. Now, Q4 is a very big quarter and we want to deliver on that, and we are really excited about the pipe and the opportunities that are there. But as Sandeep always likes to say, we have a lot of work to do and I think we feel very confident about kind of the durability and the reliability of the growth across all of these markets and see a lot of momentum.

Good stuff. And my follow-up…

The other thing just compared to 2022…

Yeah. Please.

Yeah. If you look at 2022, clearly, it’s much better than that. The demand environment right now, if we just compare it to 2022, clearly it is much better than that. Does it mean that we all super satisfied about it? No. Was the booking in Q3 sort of what we expected? Absolutely. Was it a little bit better? A little bit. But was it meaningfully better? No, it is not. So I think it is what we expected and Q4 is another quarter. We continue to monitor it. We obviously listen to other analysts' calls and we also listen to what our competitors are saying. So we look pretty aggressively at how people are doing. But I do think if we just talk about our pipeline and you look at our pipeline growth, it is at the highest it’s ever been. So I don’t feel worried about our pipeline. Obviously, our job is to sort of convert them with the right frequency and urgency.

Thank you for the call. My follow-up is on the replacement cycle dynamic in your market. As you think about the factors that drive replacement cycles, some of them are within your control and some of them are not. So maybe just remind us what are the one or two or three biggest factors within your control that allow you to catalyze a replacement when you have a sales executive engaging with the customer? Thank you.

Yeah. I think that, if you think about it a little bit narrowly, like replacement of an accounting engine, I think you will get the wrong answer. So I think if you think about the asset management industry, for example. If you think about Clearwater as someone who goes in and replaces an accounting engine and therefore the replacement cycle, then I think it’s a very different answer. But we don’t do that. Most of our win and our growth over the last year and a half has been on helping our asset managers grow faster. So there’s a big difference. Is that in replacement? No, it is not. What we are doing is we are helping clients get better client reporting, get better analytics, and therefore, driving more AUM to them. We are helping them win mandates that drives more AUM to them. How are we helping them win mandates? Much better reporting. A comprehensive view versus the old Excel view. So I feel like replacement cycle, of course, we concern ourselves with replacing when the opportunity arises. But I don’t think we wait for that. I do think if you went to the asset management industry and said, what’s your problem? Two things I need to find ways to grow my AUM, number one. And number two, I need to manage costs and become more efficient. We solve both of those, not necessarily only by replacing their accounting engine, right? So that’s one. I think the same thing on the asset owner side. If you look at the asset owner side, there is a cycle of replacement which we are. If they get to that stage, we win a very large portion of the time. We would win 80% of the time we write this proposal here. But we don’t wait for it. So what is their pain point? Well, the pain point is alternative assets. And therefore, you have seen us talk nonstop about our investments in LPx and then we backed it up with LPx Clarity. Then went into MLx. So I don’t think we look at the market and say, okay, what is the replacement cycle, what’s the JUMP balls, and therefore, what can I get? Because that’s something which we can catalyze a little bit, but we can’t control. But can we control identifying the right pain points our clients have and going out and addressing that aggressively? Yes. And that’s what leads to growth. It’s not like the replacement cycle has become better and therefore we are growing. We just don’t think like that.

That makes sense. Thank you.

Thank you.

You now have Dylan Becker of William Blair. Your line is open.

Hey guys. Nice job here. And maybe, Sandeep, kind of just digging into the customer conference here, right? I know we have kind of highlighted the intend integration now having kind of the front and back office solutions. But maybe a big takeaway we kind of came away from the conference was around that insights opportunity, and obviously, AI and automation have been at the forefront here. But what are you hearing and seeing from customers? What were your big takeaways around the ability to drive kind of that level of intelligence through that connected platform, seems like obviously a big driver of kind of what the NRR opportunity ends up looking like, but we would love to hear kind of what you heard from the event?

It's really exciting, but we haven't seen it reflected in our revenue yet. I've noticed that every customer we speak to is genuinely interested, as if they have been waiting for a product like this. This technology provides them with insights into competitive benchmarking and helps them decide where to invest. We believe it will start generating revenue in 2024 and become a significant growth driver thereafter. Currently, there is a high level of excitement among our client base. We conducted demonstrations for our existing clients and prospects, and the response was very positive. We also shared some features under NDA with select clients, and the feedback has been impressive. The challenge now is to translate that excitement into revenue, and I hope it happens sooner than what people are predicting.

Totally fair. And I know another kind of sub-segment too. Obviously, you guys have had historical strength and is in that insurance vertical. I wonder to what extent are you guys seeing and hearing from customers too, how that hardening environment, the ability for these guys to start taking rates at the levels that we are seeing there is unlocking not only capacity but also kind of incremental willingness to spend. I know international is a component of that as well, but how that’s maybe freed up some of the budgetary allocation on that side as well? Thanks.

I think Jim should go first. Go ahead, Jim.

I apologize, Sandeep. You are correct that could be another factor. What we do know is that our pipelines are large and getting larger, so I assume that contributes to it. We don’t know the specific details behind that, but it’s clear that a healthier client base leads to greater interest in investing, expanding, and growing their business. I think that’s a reasonable perspective, but ultimately we see it reflected in our pipelines.

Sure. Okay. Totally fair. Thanks guys.

Thank you.

We have our final question on the line from Brian Schwartz of Oppenheimer.

Hi. Thanks for taking my questions today. Sandeep, just wanted to ask if you could shed a little light on the business activity that you are seeing geographically between North America and EMEA. It sounds like you had a really good quarter in the APAC, but just hoping you can shed light on how those two geographies are doing. Then I have a follow-up for Jim.

What I would say is just on a factual basis. We have been in North America much more predictably and I would still say that Europe is still a little bit lumpy. Our coverage around Europe is not as good as North America, especially when you think about Continental Europe. So are the deals more lumpy? Yes. North America is just much more predictable on what’s going to happen. You can look at the whole dam and you can say, okay, so many will come to market and this is what we think will win. So I think we are much more predictable here. Asia is the same way and that’s why we announced Asia, because we don’t expect it. And when you got this, we are like, wow, this is really impressive that it got done in such a short time in Asia. So, yeah, I would just say, much more predictable in North America, somewhat lumpy in Asia, but in Europe and pretty sporadic in Asia. Now we are investing in sales teams in each of these locations. As you know, we stood up sales and pre-sales teams in each of these markets at the beginning of this year. But it takes time and that’s how I think about the booking right now.

Thank you. And then, Jim, the question I have for you was just on the sales and marketing expense in 3Q. It went down sequentially and that’s a change from the seasonal trend that we have seen from the business. And so I was wondering if you could provide some color on that and did you spend all that you wanted to spend on sales and marketing in the quarter? Thanks.

If our Chief Marketing Officer, Susan, heard that, she would definitely suggest increasing our efforts. In Q2, we had our European client conference, which is smaller than the U.S. conference, taking place in Q3. Last year, we hosted more European events in Q3 as part of our marketing strategy. Typically, we would expect to see an increase in activity around the client conference in Q3, and I believe that trend will persist. You can expect to see sales and marketing expenses rise in Q4 compared to Q3.

Thank you for taking my questions.

Thanks so much.

Thank you.

Yes. I just wanted to thank all of you. I wanted to thank you for coming out on Investor Day and listening to us talk about our company. I want to thank you for all of you being on this call here today. Look, we are very committed to trying to build a really special company and earn your trust, so that when we say something, we execute on it and deliver to what you expect. So thank you all and we really appreciate your time.

Thank you for joining today’s call. Our conference call has now concluded. Please have a lovely rest of your day and you may now disconnect your lines.