Clearwater Analytics Holdings, Inc. Q2 FY2024 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to the Clearwater Analytics Second Quarter 2024 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 second quarter 2024 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 statement included in our earnings press release. Lastly, all metrics discussed on this call are presented on a non-GAAP or adjusted basis, 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.

Thank you, Joon. I'm pleased to report that Q2 2024 was a very strong quarter for the company. Our ability to win in the market, develop new products for our clients, and execute consistently on all fronts has never been more evident. Revenue for the quarter was $106.8 million, a 19% year-on-year increase. The momentum of our business was evident in ARR growth, which grew 22% earlier. Growth was balanced between new logos and current clients, between the North American and international markets; and finally, between new products and the core platform. New products were an incrementally higher contributor to bookings in the quarter, and that gives us confidence to continue down the path of developing adjacent products in partnership with our clients. All of that combined with an industry-leading 99% gross revenue retention for the second consecutive quarter and continued success in bringing clients live on our platform gives us confidence to meaningfully revise revenue guidance upward for the year. It's not just about revenue growth; our disruptive platform and outstanding customer focus allow us to grow earnings significantly while we continue to grow. Adjusted EBITDA margin for the quarter was 31.3%, which is 34.7% higher than last year and 370 basis points better than last year. Meaningfully higher than the margin expansion goal of 200 basis points a year we had laid out at last year's Investor Day. Finally, free cash flows from operations during the quarter were $42.4 million, which is 116.9% higher than last year, a truly exceptional number. An interesting observation is that we substantially paid for the Wilshire acquisition in Q2 using the cash generated from operations in Q2 alone. Let's discuss a few elements of our business and our plan for continued revenue and earnings growth. Starting with revenue growth. Number one, new logos. There is little to no change in the competitive landscape. Competitors have tried to create offerings by taking legacy platforms and making them accessible on the cloud or by sticking various products together, but that does not change the core legacy offering. Clients come to Clearwater because we have a single-instance, multi-tenant platform, allowing us to ingest data from over 3,000 sources, reconcile it, and provide clients with a comprehensive view of the global portfolio. This continues to drive new logo booking. Number two, back to base growth. As we have said before, we are spending 60% of R&D capacity on building new products in partnership with our clients. It is with great enthusiasm that we note that booking was incrementally higher in Q2 from these products. We had expected these new products to be adopted by current clients first, but we're pleasantly surprised to see that more than 50% of bookings for these new products came from new logos. Number three, alternatives remained one of the biggest drivers of growth because the efficient processing of these asset classes continues to be challenging for clients everywhere. The innovation and functionality we're bringing to the market have led to significant client adoption, as evidenced by the roughly 30 deals we closed with new or existing clients in Q2 alone. I'm delighted to share details about a major addition to our platform. A U.S. investment adviser recently selected our LPx solution because they have a broad footprint that encompasses private equity, real estate, credit, and secondary markets. They were previously mired in manual processes compiling data from GPs and relying on Excel spreadsheets. The combination of Clearwater's LPx, user-friendly interface, seamless data ingestion and validation capabilities, and its robust reporting features dramatically increased the scale of their operations. With Clearwater, clients receive a single platform that ties accounting and performance book of record, all from a single source of data, thereby gaining a level of transparency that they did not have before with other legacy systems. Number four, Clearwater PRISM continues to make inroads with a range of use cases emerging across a diverse client base. In Q2, we announced M&G Investments selected Clearwater to automate its investment management and regulatory reporting while supporting the complex needs of global insurance clients. Number five, let me give you a status of both JUMP and the analytics platform of Wilshire. The Clearwater JUMP platform had an exceptional quarter. In North America, we secured five deals with managers who have diverse multi-asset portfolios that not only replace the accounting but order management as well. In Europe, the Clearwater JUMP platform was chosen by numerous new clients, demonstrating the growing demand for our high-value solutions that span the front, middle, and back-office operations. In Q2, we announced that France-based Galilee Asset Management will implement Clearwater JUMP to consolidate fund and wealth management activities across its entire investment lifecycle. A leading life insurer based in France selected Clearwater JUMP to modernize their IT stack. While another French-based fund and wealth manager chose Clearwater JUMP to increase efficiencies across their entire end-to-end investment management operation. All these wins underscore the value we bring to leading firms; cost efficiency, modernization, scalability, and unparalleled user experience are just a few reasons clients continue to choose Clearwater JUMP. Number six, following our acquisition of the risk performance and analytics platforms of Wilshire Advisors, the integrated Clearwater Wilshire platform can offer an integrated solution for transactions and positions. Our clients can now leverage a unified reporting platform for portfolio construction, quantitative performance attribution, risk analysis, stress testing, and portfolio analytics, all using the same underlying data from the core Clearwater platform. This has already started to pay dividends as seen with our expanded relationship with a leading Portfolio Manager who is now leveraging Clearwater Wilshire analytics for deal performance attribution and factor-based ex-ante-risk analysis. The expansion highlights the success of Clearwater's strategy to offer an integrated platform encompassing accounting performance attribution and risk, and strategically positions us to strengthen existing client relationships that help drive future growth. Number seven, and finally, let's discuss our continued expansion across Europe and APAC this quarter. As our platform continues to make a significant impact across the world, we're delivering best-in-class localized accounting and investment analytics that provide our clients with a comprehensive view of the assets and give them confidence that they're making the most informed decisions about their investments. Let me highlight a few of the impressive deals we closed. In the U.K., we announced an exciting new win with Pool Re, Britain's government-backed reinsurer. Pool Re will leverage Clearwater's single-instance multi-tenant platform to streamline and modernize their finance and investment processes and support highly efficient monthly close processes. The scalability and flexibility of the Clearwater platform will also enable Pool Re to rapidly adapt to evolving market dynamics and their treasury reporting obligation. In APAC, we signed on a new asset manager in Singapore that is now able to redesign a cross-company asset strategy and build the technology infrastructure for significant asset growth. Now I would like to switch to unit economics and overall profitability. The foundation of our continued growth and profitability is industry-leading retention and NPS and our ability to onboard clients in a relatively short time. How do we do that? Our platform allows us to reuse public data we are already ingesting, reuse custody connections we have already built, and reuse the thousands of other connections we have already built. Accounting is very nuanced. Over the years, we have created an incredible array of configuration options, which is needed as we onboard increasingly sophisticated clients and portfolios. The benefits of this approach are twofold. Number one, it is incrementally easier to onboard the next client because we already have many of the data sources and securities modeled on our platform. Number two, on a day-to-day basis, we reconcile data once and use it for every client on the platform who invests in that security. Both of these practices incrementally improve gross margin. Add to that the progress we are making with generative AI, and you will understand why we have outperformed our margin goals and have strong confidence in continuing to improve unit economics. Our clients' onboarding experience continues to be incredibly positive, including notable go-lives with leading global firms such as France Active in Europe. On a regulatory front, Clearwater experts continue to provide valuable guidance, ensuring our clients remain ahead of the curve with the most significant NAIC update since 1991. Global regulatory reporting is built into the Clearwater platform, so reports always stay current to meet the latest regulatory guidance. A team of regulatory product experts monitors guidance closely and works with our engineering team to incorporate those changes into Clearwater's platform. Because Clearwater is a web-based SaaS solution, those updates deploy seamlessly to users. Switching gears, I want to talk about our continuing investment in our core platform. We live in an ever-changing world where new securities are created every day, entire asset classes emerge, regulations change, and accounting standards evolve. It is critical for our technology to be a beacon of reliability, scalability, and operational rigor, attributes critical to a world where change is constant. Last year, we completed our movement to the cloud, completely changing our ability to scale. That change has helped us continue to process data daily, meet deadlines, and lower costs even as data volume grew substantially over the year. At month-end, our data intake increases by a factor of roughly 2.5x, but we successfully handle the surge using the cloud where it is easier to add and then reduce compute power on demand. Earlier, we would have had to provision for the peak load, which would have sat idle during much of the quarter. In another significant change, our investment in non-differentiated heavy lifting has gone down meaningfully, allowing us to deploy our engineering resources to growth. Having a single-instance platform obviates the need to maintain and manage multiple versions of the software. Our follow-the-sun model is not just a nice-to-have operating mode. It is essential when you want to effectively address the needs of clients around the world in a reliable fashion, even in the face of a global IT outage like the one on July 19th that caused technological havoc. Clearwater responded with urgency and agility because we have a single-instance platform that all our clients use. We had one version of the software to focus on and rectify, not multiple versions, some on-prem and some on the cloud. As events unfolded, our team in India swiftly diagnosed and worked on rectifying the problem, ensuring that by the time Europe and the U.S. started the day, the disruption was already well understood and largely mitigated. Such instances reaffirm the stability and scalability of operational capabilities and highlight the technological superiority of the single-instance multi-tenant model which is now the de facto standard across industries. The success of Generative AI is largely dependent upon access to data on an ongoing basis. This is where Clearwater's single security master shines because all our data resides in one logical database. Using generative AI, we harness this technology's potential to a natural advantage and eventually to benefit all our clientele. Last month, I had the pleasure of connecting with our European user base and prospective clients at Clearwater Connect in London. The interactions I had were enjoyable and insightful, and I'm really excited about the momentum we are seeing across the board. We have a strong team in London, Paris, and Germany, a local operating center in Edinburgh, and deep domain expertise across the market. We continue to grow our presence in the U.K. market, and we are energized by the growing momentum in the French and German markets. We are even more excited about our next user conference, Clearwater Connect in Boise, set for September 17th and 18th, where we expect Institutional Investors will come together to learn about new technologies and solutions that can help them grow their business.

Thanks, Sandeep, and thank you all for joining us. I'm happy to report our second quarter results that continue to build upon the strong momentum from the first quarter. The second quarter was strong across all metrics, but I would like to highlight two metrics that I believe should be particularly compelling to investors. First, ARR increased by 22.2% year-over-year to $427.2 million, up from the prior year's $349.5 million. This is a very strong result and represents faster growth than our Q2 revenue. We have included the ARR of acquired Wilshire Technology clients in our ARR, and that helped our growth. But even after excluding that impact, the year-over-year growth in organic ARR was still in excess of 20%. Second, the team delivered remarkable cash flows in Q2 with operating cash flows of $43.9 million, representing a 108% increase year-over-year. Record high free cash flow of $42.4 million, again representing an impressive year-over-year improvement of 117%. Put this all together, and it results in record high free cash flow to EBITDA conversion of 127% in Q2. This success in cash flows in Q2 resulted from stronger GAAP income and positive working capital changes, including improved collections. Strong cash flow generation is the bedrock upon which strategic optionality is built. For example, we can combine our development efforts with purchase solutions as we did in the second quarter with the Wilshire Solutions acquisition. The company, our clients, and our investors all benefit from the optionality provided by such a healthy financial profile. In Q2, we also beat both our revenue and EBITDA guidance for the quarter. While the outperformance in both revenue and EBITDA may sound routine for Clearwater, it is not an easy accomplishment for most companies, and we are very proud of the team for delivering again as they continue to since we became public. Our growth dynamic continues to be boosted by two underlying vectors. Growth from both existing clients and new logo clients in Q2. We continued the stellar momentum in upselling to existing clients in Q2, reflected in our net revenue retention rate of 110%. In addition, we continue to win new logo clients at a healthy pace. We understand the importance of adding new customers, and we are proud to note that we now have 93 clients with over $1 million in ARR, a 21% increase year-over-year. Now let's turn to profitability results. We have a clear guide path towards our long-term goals of both 80% gross margins and adjusted EBITDA margin of 40%. In Q2, we achieved a gross profit of $82.7 million, which translates to 77.5% gross margin, an increase of 170 basis points over Q2 of 2023. In addition, we reported $33.4 million in adjusted EBITDA and 31.3% adjusted EBITDA margin in the second quarter, which beat our EBITDA margin guidance of 29% to 30% and improved over the prior year's EBITDA margin by 370 basis points. What is most impressive is that we are achieving these EBITDA margin improvements while investing significantly in new product innovation and international go-to-market headcount. Non-GAAP R&D expense is up more than $2 million over Q2 of last year. And non-GAAP sales and marketing investment is up over $1 million. In Q2, equity-based compensation was $25.2 million, a decrease of $3.5 million from Q2 of 2023. This shows good progress on our path to reduce equity-based compensation as a percentage of revenues. With respect to the tax receivable agreement expense, this amount was $6.2 million in the first half of 2024. Absent significant changes, we expect this amount to be a total of approximately $17 million for the full-year 2024, an increase from the $14.4 million reported for the full-year 2023. Let's turn to the balance sheet. We ended Q2 with $297.6 million in cash, cash equivalents, and investments, even after we paid for the Wilshire Analytics acquisition in April 2024. Total debt was $47.9 million, resulting in net cash holdings of approximately $250 million. Thus, we continue to have dry powder and the ability to generate cash from operations to enable another acquisition in the future, should we choose to do that. Now let's turn to guidance. For the full-year 2024, we have again raised our revenue guidance to a range of $442 million to $444 million. This represents an improved year-over-year growth rate of approximately 20% to 21%. The low end of our current guidance for the year now equals the high end of our guidance provided last quarter. This full-year guidance has incorporated both the outperformance in revenue in the second quarter and our continuing incrementally positive view on the second half of 2024. For the third quarter of 2024, we expect revenue to be in the range of $113 million to $114 million, representing a year-over-year growth rate of approximately 19% to 20%. For the full-year, we have increased our guidance for depreciation and amortization expense to $12 million, reflecting the incremental amortization from the acquisition of the analytics software business from Wilshire. For the full-year 2024, we have also raised the adjusted EBITDA guidance to an even $140 million, an increase of $3 million on the low end and $1 million on the high end of our prior guidance. This provides an adjusted EBITDA margin of approximately 31.6% for the full-year 2024 and is higher than the previously stated full-year 2024 target of 31%, outperforming our stated plan to improve EBITDA by 200 basis points over the full-year 2023. This EBITDA guidance implies only slightly better EBITDA margins in the second half of 2024 when compared to Q2 2024. Although we have the capability to expand EBITDA margins more quickly, we are thoughtfully investing where we are seeing returns and we will embrace that flexibility to strategically invest now to fortify continued growth for say 2027 and beyond. For the third quarter of 2024, we expect adjusted EBITDA to be $36 million, which represents an adjusted EBITDA margin of 31.7%. In summary, we're excited about the strong second quarter and look forward to continuing to deliver revenue growth and margin expansion for the second half of 2024 and well into the future. With that, I'll turn it over to Sandeep to provide some closing thoughts.

Thank you, Jim. We are very pleased with the Q2 results, but are even more delighted with the increasing momentum of the business. To be able to grow revenue meaningfully, improve unit economics, and grow EBITDA and cash flow all at the same time is incredibly exciting. We are increasingly confident about our capability to execute, and we'll make a sustained push to stake out our leadership position in the investment management industry, not just in investment accounting and analytics.

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

Yes, hi. Thanks for taking my question this afternoon and congratulations on a good result. Sandeep, I wanted to ask you about thinking about the new product cadence. We've seen a faster new product cadence from the company over the past year. And I'm just wondering how sustainable is this trend, whether it's either through organic or inorganic R&D. And could the new product cadence possibly accelerate over the next 12 to 18 months?

Thank you, Brian. The addition of new products is a key part of our strategy to become a multi-product company. When we invested in several of these last year, we anticipated it would take some time for our current clients to adopt them, but the adoption has been quicker than expected. In the first quarter, we reported that 25% of all bookings came from these new products, and in Q2, the pace of adoption increased further. However, I believe many of these products are still in the early stages. Therefore, while I don't want to overstate our expectations, I do believe we can continue to grow at an even faster rate. To answer your question, we expect greater activity and contribution to bookings from new products. A core reason for this success has been our high Net Promoter Score; our clients are eager for us to address related challenges with products we can offer. The encouraging adoption by clients reflects this. Interestingly, we initially thought our existing clients would be the first to adopt these new products, but we've found that 50% of the bookings for these new offerings came from new customers who are not yet on the Clearwater platform, which is incredibly exciting. We see potential for further acceleration in this area.

That's great.

The follow-up question I had for Jim was just wanted to see if you could provide a little more color on what you're seeing in terms of sales cycles and buying patterns for the new logos in Q2? And if the business has experienced any shifts in Q2 compared to earlier in the year, trying to get a read to see if the macro challenges that are out there are having any impact, at least in the buying back doesn't look like it based on your ARR results. But what are you seeing in terms of sales cycles and buying patterns on the new logo side. Thanks for taking my questions this afternoon.

Thanks, Brian. We are optimistic about the second half of the year and even more so compared to the start of the year. Our pipelines look strong, and we see many opportunities, which is evident not only in our ARR expansion but also in our guidance. We have always been confident about the second half of the year, and our confidence is growing.

Yes. I would just add, Brian, that look, if you look at our second full-year guidance, you can see that we feel pretty confident that we will continue to grow at this pace or higher. So we feel very good; but we are super watchful. We are very aware that a number of enterprise software companies saw weakness in pipeline and eventually in booking and eventually in revenue. And so over the last several months, we continue to be watchful. We haven't seen anything change in new logo momentum towards our platform and very little change in new products also. Like I said, our new product adoption has been faster than we thought. So all very positive right now.

This is Chris Fountain on for Rishi Jaluria. Thanks for taking the question. You've mentioned a couple of times using GenAI internally to speed up implementations and onboardings for customers. And it's really exciting to hear about what that can do for margins over time. But do you also think this initiative could also accelerate new business if simply the onboarding process is just easier as well?

Yes, Chris, thank you for the question. Look, we are very excited about GenAI. We continue to make a significant amount of investment in that. Obviously, the gross margin has continued to improve at least partially because of that. The second thing is onboarding, like you mentioned. But onboarding also accelerates revenue growth, right? Now, has this whole initiative been as effective in growing bookings and revenue? Not yet. Have we got 10 clients who have signed up on new products you're developing for GenAI? Yes. So I think the right answer would be a lot of promise by clients actually signing up, but the impact on revenue and booking is not as significant as what we have seen on the efficiency side. The efficiency side return came right away, shockingly faster, but, if you will. But on the revenue side, it's been more incremental, if you will, as we have taken products out to market. But like I said, 10 clients signed on real purchase orders with deals and ARR. Yes, they have. In the longer term, we do believe that will play a massive role in the expansion also.

Great, thanks, Sandeep.

Thank you. Hi, Sandeep, hi Jim, great to hear from you. My first question is probably more to Jim. Would you be able to provide us with organic growth of your revenue in both Q2 and also for your guidance in Q3 and Q4 of this year without Wilshire?

Sure, Alexei. At the time of the acquisition, we mentioned a run rate of about $7 million, which is now reflected in our annual recurring revenue in Q2. We indicated on the call that although our annual recurring revenue grew by 22.2%, even excluding that amount, we are still seeing organic growth in annual recurring revenue above 20% in Q2. Additionally, we noted that about two-thirds of that $7 million was included in our guidance when we updated it in Q1. This was part of what we acquired, and we are actively selling it along with our other products, which are now part of our offerings. We are optimistic about seeing growth in this area moving forward. Hope that helps.

Thank you, Jim. And then the second question on NRR. Obviously, it's still at a very solid level unchanged sequentially. What is your new outlook for NRR for the rest of the year? And can you update us on the path to 115% by the first quarter of 2026?

Yes, when we analyze NRR in Q2 compared to Q1, we see it is quite similar. The top-line figures are alike, and the components remained consistent with AUM not being a drag in either quarter but also not significantly boosting performance in the first half of the year. We are focusing on doing more with our clients, such as cross-selling and upselling, which have shown strong numbers. We aim to increase NRR from 110% to 115% or even higher as we provide more solutions to our sales team for delivery to clients. Sandeep mentioned earlier that we initially thought multiple product sales were just back-to-base sales; however, about half are larger bundles sold upfront to new clients along with core products. Lastly, while we are excited about these new products, we are currently in the process of booking them, which will eventually contribute to revenue and then reflect in NRR. We anticipate a more significant impact as these products mature.

No, I think that was very comprehensive. Thank you.

Thank you very much, Jim. Thank you, Sandeep.

Hey guys, it's David Unger on for Michael Turrin today. Thanks for taking the question. So I just wanted to go back to the 60% of R&D capacity in the prepared remarks. So would you mind just kind of giving us the way to think about the margin impacts in the near term? And if you continue to see momentum in bookings from this, how should we think about the LTV to CAC dynamics in the long run? Thank you.

Jim, do you want to answer that?

Sure. Thanks, David. So obviously, we already have a very highly efficient sales and marketing function when you look at that. And that is attributed to the fact that we have high NPS. We have good references from clients that help us sell. I think a natural course across the SaaS industry is that as you're selling back-to-base, that the time period to close that deal would be shorter than a new logo. And so you would get yet incremental efficiency in that selling process. So I think long-term, we expect more efficiency from that back-to-base sales motion than we do from the new logo. However, I caution you that I think we collectively feel like that efficiency, we then want to pour into our global expansion of our sales and marketing. We are encouraged by the European signals we've seen in the French-speaking market and the German-speaking market. Asia is still very, very early for us. I think we could see incremental investments there, which perhaps offset that incremental efficiency in the back-to-base motion.

Yes, David, I would just add that our attitude to this is we have a disruptive platform where we win 80% of the time. And once we get a client, our gross revenue retention for the last two quarters was 99%. Our sense is that you have a disruptive product, which is superior. We have set up a discipline about how to think about this, but we are also pretty aggressive about pushing our advantage, which we know we have technologically.

I appreciate the content there. And then if I could just squeeze one more in. You're balancing growth with investment, but just on the gross margin side. I know we've talked about 80%. Can we just hit on that and kind of where we see gross margin trending perhaps over the next three years? Maybe just going back to the Investor Day, and then you could elaborate on there? Thank you.

Yes. I think what we've committed to at the Investor Day was 50 bps of gross margin improvement year-over-year until we get to that 80%. Now we've been able to do better in 2023 than that and kind of in the beginning of 2024. But I think we're very comfortable with 50 bps improvement year-over-year consistently.

Jim, I would just add that when we did the Investor Day last year, the impact of GenAI wasn't fully understood. We think that we have a glide path to the 80% which we can see, but are there other numbers which are higher than that, which we could get behind. I think the answer is yes. But we also said that we will take a couple more quarters to come up with a number we feel like we have a real plan for and that would be in the use of GenAI and machine learning to improve data ingestion to improve onboarding, to improve client servicing.

Thank you.

Hey guys. Thanks for taking our question. Apologies if I missed it, but I just wanted to clarify whether or not interest rate cuts are directly contemplated in the '24 outlook. It doesn't seem to be, when I look at the full-year raise versus the prior guide. So I was curious if you have a view surrounding the impact of perhaps a 25 basis point rate cut just in terms of NRR and revenue growth in '24 and beyond. Thanks.

You're exactly right, Michael. It is no rate cut or AUM impact from that is included in our 2024 guidance. Remember, at the beginning of this year, we thought we were going to have seven cuts. I'll definitely have a point of view should they adjust rates in September.

Got it. That's helpful. And then just in terms of the commentary surrounding 50% of the new product bookings being driven by new clients. I think we're all well accustomed to your 80% plus win rate. I was just curious if those new products in and of themselves are either driving win rates higher or perhaps allowing you to close deals that maybe would have taken a little bit longer to get some prospective customers over the hump. I'm just curious if you have any commentary there. Thanks.

Yes. We could actually just go through many instances. But the answer to both of those is yes. I do think the new products help us close deals faster. There is no question about that. The value proposition is superior to what it would be without that new product. So I think that has helped many a deal in Q1 and Q2, which we are feeling really good about the second half of the year. So we feel like that does happen.

Thank you both.

Good afternoon. Thanks for taking the question. Sandeep, you made an interesting comment earlier about how some other companies have talked about a slowdown in enterprise, and it's not something that you're seeing. I'll ask you about the insurance industry, in particular, we had PCC last night talking about how their new product introduction is slowing because their customers are evaluating more of a wholesale transformation and digitization type of AI. Are you seeing any of that in the insurance industry? How do you think about the risk that perhaps your business also sees a pause, not because any products aren't valuable, but because customers are trying to think through more holistically how they want to adopt over a longer period of time?

Thank you, Gabriela. I strongly believe that our platform currently leads the industry in the application of GenAI within both the insurance and asset management sectors. The financial growth we are witnessing, particularly in our gross margin, is a clear indication of the impact GenAI is having. We have many clients already utilizing our products, and I anticipate that if these developments continue to accelerate, we will significantly benefit. Additionally, I encourage you to consider what fundamental skills are necessary for improving GenAI performance. Access to training data is essential; it's all about the quantity of data available for training these models. Clearwater's model sets us apart, as we consolidate the data of over 1,000 clients into a single logical database, a feat unmatched by our competitors. Our early investment in GenAI and ongoing efforts in this area place us in a strong position. Many clients approach us asking what we are doing and how we can assist them in expanding their use of GenAI.

That's helpful. Thank you, Jim, a follow-up to you is on sales and marketing productivity. I know that Clearwater has been thoughtful over the last six to nine months on how you think about which leaders do in which geographies? Help us understand how you're thinking about hiring over the next 12 months.

Sure thing, Gabriela. So I do think that we're obviously happy with the pace of people onboarding. In fact, we're implementing the concept of ever boarding as we're onboarding these new reps. We're also refreshing all of our existing reps because we have so many more solutions for them to sell today. And so I think that's helping with the onboarding.

No Jim, that's good. Thanks.

Hey Jim, hey Sandeep. Appreciate the questions and really nice job here. Maybe, Sandeep, starting with you going back to the 50% of new bookings from new logos, maybe some additional color on how that's creating greater surface area. I think you called out some jump wins in the quarter as well, but unlocking some of those newer capabilities given this inherently is that untapped funnel that you can leverage more of that back-to-base effort in the future?

Yes. Thank you for the question, Dylan. So we are building products, as you know, not in isolation. We go to clients in separate industries and geographies and try and understand what else we could do in an adjacent space. Our ability to go deep into these industries is essentially 90% of it is still already in the Clearwater core platform. We had to build a layer on top of it to make it work for pooled funds. We expect to continue to make these investments, but we also will be prudent about cutting back on areas that don't get client traction or look very difficult to build.

That's exactly right. We track that metric because it serves as a starting point for many of our clients. It's a great vertical to be in since our clients are generally quite successful and they have numerous challenges that need addressing. They seek valued partners to assist them with those issues.

Again, we have a really high NPS, but we also know that they're spending a total of 4 bps on investment and management technology. While we are getting 1 bp or whatever that number close to that, for investment accounting. So there is usually room in investment accounting, but there's also a big runway in this 4 bps market, which is why you see us launch these products and make this significant R&D investment to try and capture that and thereby extend the runway with those clients.

All right. I'll make this pretty quick. Jim, gross margin again showed a pretty big improvement in the quarter. Can you remind us how much is still left? And then also, I am assuming a new customer continues to shorten. Is that also providing a better visibility into your revenue flow? Thanks.

Sure. It's a virtuous cycle, which is when we onboard clients faster, generally that's in the onboarding process. Clients have a lower gross margin than they do in steady-state process. As that shortens, that helps on gross margin and helps for all those reasons that you alluded to. And I would just say that but don't forget, the fundamental reason why our gross margin goes up over time is because of the single-instance multi-tenant platform, a single security master. Every client is more efficient. Every new security that's held by more than one client helps us with that.

Thank you.

We have no additional questions, so I'll pass the call to Sandeep for any closing remarks.

Thank you all for joining the call. Look, we really appreciate your questions, your advice throughout the quarter, and your following our company. So thank you again. We appreciate all your support, and we look forward to continue to talk to you and more formally talk to you at the end of next quarter. Thank you.

That concludes today's call. Thank you all for your participation. You may now disconnect your lines.