Hello, and welcome to the Clearwater Analytics third quarter earnings conference call. My name is Emma, and I'll be your operator today. If you'd like to ask a question at the end of today's presentation, simply press star followed by one on your telephone keypad. If you wish to retract your question, please press star followed by two. It's now my pleasure to hand the call over to J.R. Ritchie, Head of Investor Relations. To begin, please go ahead.
Thank you, and welcome everyone to Clearwater Analytics' first-ever earnings conference call, highlighting our results for the third quarter of 2021. We're excited to have so many new shareholders joining us today after our successful initial public offering in late September. Joining me in the call today are Sandeep Sahai, Chief Executive Officer, and Jim Cox, Chief Financial Officer. After their remarks, we will open the call up to a question-and-answer session. I'd like to remind all participants that during this conference call, any forward-looking statements are made pursuant to the safe harbor provision 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 to the SEC. Actual results may differ 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 in our earnings press release. Lastly, all metrics discussed on this call are non-GAAP, unless otherwise noted. A reconciliation can be found in our earnings press release that is now posted on our investor relations website. With that, I'll turn the call over to our Chief Executive Officer, Sandeep Sahai.
Thank you, J.R., and welcome everyone to Clearwater Analytics' third quarter financial results conference call, our first as a publicly traded company. I wanted to start by thanking all of you for your continued interest in Clearwater. We truly appreciate it. We are also excited and incredibly proud of the team and the company that we are building. From a modest beginning, the company has grown organically to more than 1,300 employees across 10 offices in 7 countries. We have over 1,000 clients, and on a daily basis, we process over $5.6 trillion in assets on our platform. I feel like we are just getting started. I wanted to start by laying out the five core pillars that represent Clearwater's business model and strategy. The first pillar is Clearwater's consistent, durable growth that we have successfully achieved over several years.
We have a 100% recurring revenue model and have, over multiple years, achieved a consistent annualized recurring revenue growth of more than 20%. The company has world-class gross revenue retention rate of 98% for 11 consecutive quarters because we provide a very sticky solution that our clients use every day. We have a solid net revenue retention rate of approximately 110%, with absolute room to expand. What drives this net retention is our ability to capitalize on land and expand opportunities with existing clients, client AUM growth, and modest pricing increase. The second pillar is a high-quality business and financial model that also has room to expand. Our recurring revenue model and high gross retention provides stability and predictability to our business.
Our non-GAAP gross margins are approximately 75%, which gives us room to continue making investments while generating reasonable EBITDA margins and free cash flow. We are committed to maintaining our technological leadership and expect to continue to make significant investments in R&D, which currently comprises approximately 25% of revenue. Third, Clearwater has a disruptive technology platform with deep competitive moats. Our SaaS-based platform in the cloud is free of the constraints faced by legacy technology solutions. On our platform, securities are modeled and processed one time and used by everyone who owns that security. Data connections are added one time and used by all with the rights to that data. The myriad industry-specific nuances and regulatory reports are set up one time and used by all, resulting in powerful network effects.
Each client adds to the power of the platform, and the same single instance multi-tenant platform is used across industries and with client organizations of all sizes. Every day, our platform delivers a comprehensive view of a client's investment portfolio that is multi-asset, multi-basis, and multi-currency. The fourth pillar of our strategy is our multiple drivers for continued future growth, which we have laid out in what we refer to as our three horizons. Simply put, Clearwater is a market disruptor in a competitive environment filled with legacy incumbents. We have relatively low market penetration in our core markets that can, over the next few years, sustain more than 20% top-line growth because we win approximately 80% of the time we write a proposal.
We believe that we can build a $1 billion business given the $4.7 billion of total addressable market that we have identified in these core markets. Thus, in the short term or Horizon One, we are focused on deepening our relationship with existing clients, gaining market share within core markets and clients, and continuing to grow our business in Europe. In the medium term, what we refer to as Horizon 2, we expect to make investments that will secure wins in adjacent client end markets and deliver adjacent solutions that will allow for growth acceleration in Europe and Asia. We see these opportunities to add to the total addressable market with additional solutions to extend our technology lead, as well as gain additional traction with governments, pension funds, and sovereign wealth funds.
The longer-term opportunities for Horizon 3 include delivering insight for current and future clients of our platform from a growing data set of more than $5.6 trillion of assets which are processed on our platform. Additionally, while we have focused on a purely organic approach, we have flexibility financially from our recent IPO that will provide opportunities to explore M&A in an effort to accelerate growth. The fifth and final pillar is client focus, which is embedded in the DNA of our culture. Our Boise roots have infused the company with a compassionate customer-first mindset, and we are working to simply delight our clients. Our offering, which combines the platform and our people, improves the lives of our clients' operations and accounting teams, and radically simplifies the process of producing the information they need to run their business every day.
Clearwater's world-class 60+ Net Promoter Score reflects our clients' recognition of our differentiated client service. Turning to our clients, in the early days of Clearwater, we focused solely on corporate clients, helping finance and treasury departments run their investment accounting and reporting processes, and reconciling the investment data to a web-based platform instead of through manual labor-intensive spreadsheets. In 2012, we expanded our client base to also include insurance companies, and two years later, we added asset managers. We have continued to evolve the platform to serve the needs of various industries and deliver investment accounting, analytics, and regulatory compliance. Why are clients moving to our platform? Clients in our core markets are facing growing challenges driven by low yields and an increasingly complex and evolving regulatory environment. This has led to them investing in increasingly complex assets and investing globally.
Organizations are currently solving these challenges by buying asset-specific and region-specific solutions, and then building massive data warehouses and hiring armies of people to run slow and error-prone processes. There is an easier way. We want to radically simplify investment accounting and analytics using a purpose-built, single instance, multi-tenant platform that addresses these challenges in a fundamentally different way. First, we start by going directly to the source of all of our client data, creating and enhancing a universal security master that allows us to reconcile the data once every day scalably and without duplication. We then run our reconciled data through a proprietary multi-asset accounting and analytics engine before presenting the output to our clients through a modern, customizable web portal.
Our platform frees up our clients from the onerous burden of managing multiple legacy software products and supporting data feeds, while also delighting the accounting and client servicing teams. The Clearwater platform also creates a network effect where every new client we add increases the security and asset co-coverage of our universal security master, further strengthening our ability to add client value. All of that said, Clearwater's mission is to be the world's most trusted and comprehensive technology platform for investment accounting and analytics. We believe that we can leverage our technology to eventually revolutionize the broader world of investing. Now that I have set the stage for how Clearwater operates as a company and how we are positioning ourselves for future growth, let's turn to our third quarter 2021 financial results. Clearwater achieved solid year-over-year and annualized recurring revenue growth.
We achieved consistent margin even with our investments in growth, and those investments are starting to show promising results. We signed multiple notable client wins, a few of which I'll highlight. Our recent client wins in North America demonstrate our ability to achieve consistent, reliable, and durable growth. New clients include several large asset management firms, a large number of large insurers and reinsurers, corporations spanning multiple industries, including pharmaceuticals, energy, high tech, and consumer goods, and a large West Coast-based city and county government. We also recently expanded into the real estate investment trust, the REIT market, and signed our first REIT client, Permira Investment Corporation. Permira chose the Clearwater platform to replace the legacy system, manage the accounting of their complex assets, provide data reconciliation and validation, and simplify regulatory reporting.
As I mentioned before, we are a disruptive SaaS-based technology platform that addresses industry-specific nuances and is used across industries regardless of organization size or number of assets under management. In the third quarter, we added 82-year-old global investment management firm, Neuberger Berman, as a new client because the firm was seeking a platform to replace its legacy systems with one that could provide a single source of accurate and transparent data, flexible and integrated reporting and automation. Clearwater is currently onboarding Neuberger Berman's OCIO, outsourced chief investment office and trust, and wealth business lines. Clearwater is a technology company, so we invest 25% of our revenues into R&D. This means that we continue to innovate our platform and product offerings with the latest machine learning and AI tools. A key focus area is talent engagement.
In the last 18 months, we have completed the build-out of a world-class management team who collectively bring not just tremendous experience to their roles, but also incredible passion. In the third quarter, we added two incredible technology leaders to round out our teams. Jody Kochansky, our President of Product and Technology, spent most of his 25 years building and running the product group at one of our largest competitors. Souvik Das joined us as the Chief Technology Officer, bringing his experience in prior CTO and senior engineering roles at PayPal, Zenefits, and Capital One Auto Finance. With international expansion being one of the key drivers for our growth acceleration in the third quarter, we built this momentum through key wins with one of the fastest-growing insurance firms across Asia.
Our first seven-figure Asia Pacific client, in addition to a European insurer and reinsurer, a U.K.-based property and casualty insurer, and others. As an example of our deeply embedded client focus, we held Clearwater's annual North American user conference, Clearwater Connect, last week. The second year in a row it's a virtual conference due to COVID. Our clients and prospects attended sessions that covered trending topics important to our clients, including ESG investing, our insurance client survey findings, LIBOR, and platform-specific updates. We plan to hold our European user conference in the first quarter of 2022. Another example of how we want to leverage our technology to revolutionize the broader world of investing, we cemented our partnership with OneUnited Bank, the largest Black-owned bank in the U.S., in Q3.
Under this partnership, Clearwater has enhanced the interface on our SaaS platform, which now allows treasury departments within our large corporate client base to easily track and manage their deposits in minority-owned banks, who in turn provide needed capital to minority communities. This partnership has the potential to help as many as 500 corporations invest in minority communities. We continue to execute on our 5 pillars of growth and are very pleased with the progress we have made in this last quarter. Now to provide more color and details on this quarter's performance, I'll hand it over to our Chief Financial Officer, Jim Cox.
Thanks, Sandeep, and thank all of you for joining us on our first earnings conference call. We were very excited to complete our initial public offering last quarter, and I wanna thank my team and truly the dozens of others who helped us reach this milestone. As for my remarks today, I'll start with an overview of the business and financial model, review our financial results for the third quarter, and finally wrap up with guidance for the fourth quarter and full year 2021. Our business model is simple, consisting of a 100% recurring revenue model with visibility enabled by our consistently high gross revenue retention. This combination creates an incredibly durable business operating at scale, which allows us to reinvest back into our platform and our team to truly drive long-term growth.
Our mission-critical SaaS solution and focus on delighting our clients has allowed us to consistently win new business by displacing legacy software as well as manual processes. While our superior client service team keeps clients happy, leading to a consistent gross revenue retention rate of 98% in each and every one of the last 11 quarters. Our unique platform, built over many years, leverages proprietary technology to manage and reconcile our clients' investment data with limited human intervention, allowing us to generate approximately 75% non-GAAP gross margin. These strong gross margins provide us with the opportunity to consistently invest in our solution, with approximately 25% of revenue invested back into research and development. We believe we have the best solution and our significant investment in R&D only deepens our competitive mode.
Our strong margin profile and confidence in our offerings from our 80% win rate when we write a proposal, has led us to increase our investment in our operations and go-to-market capabilities in recent quarters to enable growth both domestically and globally, while still maintaining compelling adjusted EBITDA margins. We operate in a $10.1 billion total addressable market with our core markets of corporations, insurance companies, and asset managers in North America and Europe comprising $4.7 billion in TAM. Its large and diverse TAM provides a long runway to continued consistent growth. Our sales cycles vary across the various market verticals we serve and range from 1-2 months for smaller clients to 1 year for the largest and more complex.
We typically sign monthly evergreen contracts with our clients using a basis point pricing model, which allows us to grow our revenue as our clients grow their assets. In Q3, we report net revenue retention rates of 111% as our clients continued to add assets to the platform. In summary, we believe our model aligns Clearwater's interests with that of our clients, while also enabling our land and expand strategy once we have established an initial relationship. The predictable nature of our revenue, driven by our high revenue retention rates and strong gross margins, allows us to confidently invest back into the business, helping to lead to long-term durable growth and ultimately compelling returns for our investors. Before detailing our core financial results, I'll first address two items impacting the year-over-year comparability of our GAAP results.
First, you'll notice that we recorded a $10.3 million loss on the extinguishment of debt in the third quarter as we used some of the proceeds from our initial public offering to retire our existing debt, while at the same time securing $55 million in new debt financing at more attractive interest rates. Next, you'll note we recorded $7.7 million of equity-based compensation expense in the third quarter of 2021, representing a $6 million increase over the third quarter of 2020. The increase in equity-based compensation is primarily due to increased equity grant activity and the increase in grant date fair value, as well as the modification of equity awards in connection with our IPO. Next, I want to take one minute on earnings per share.
Given our structure and the restructuring that occurred in connection with our IPO, our Q3 GAAP loss per share of $0.05 reflects only the last seven days of the quarter for the period between our IPO and September 30. That period is impacted by the $10 million loss on extinguishment of debt in connection with the IPO. Given the shortened period, we did not provide a non-GAAP EPS. In Q4 and going forward, we expect to provide both GAAP and non-GAAP EPS. Moving to our third quarter financial results, please note that our results will be discussed on a non-GAAP or adjusted basis unless otherwise noted. Revenue in the third quarter was $64.5 million, up 21% year-over-year as the strong sales momentum we experienced in the first half of the year continued into the third quarter.
Year to date, revenue has grown 23%. As of September 30, 2021, annualized recurring revenue or ARR reached $257 million, a $12 million increase over June 30, 2021, and a 20% increase year-over-year. As I mentioned before, gross revenue retention was strong at 98%, marking the 11th consecutive quarter we've reported gross revenue retention of 98%. The net revenue retention rate was a healthy 111%, up 220 basis points from the third quarter of 2020. We see our clients continue to grow their business using the Clearwater platform.
Gross profit in the quarter was $48.1 million and gross margin came in at 74.5% as we are investing to accelerate the onboarding of new clients closed to date and support the strong pipeline of new client opportunities we see in Q4. Although the whole team remains committed to increasing gross margins over the long term, we expect to continue to invest in this area through the first quarter of 2022 in anticipation of the continued strong new client demand across the globe. Specifically, we've added 20 resources in Eastern Europe with French and German language skills to support our clients in these new markets. Notwithstanding the increased investment, we continue to target steady-state gross margins for new clients at over 80% over the long term.
Research and development expenses in the quarter were $16 million or 24.8% of revenue, in line with our expectations. We're targeting our investment in R&D at 25% of revenue over the coming quarters, which we believe will allow us to continue to drive growth in our core markets while also delivering on the adjacent growth opportunities that Sandeep mentioned earlier in his remarks. We're hiring, so if you know smart developers, send them our way. Sales and marketing expense in the quarter was $8.4 million or 13% of revenue, up 480 basis points year-over-year.
We continue to invest heavily in our go-to-market capabilities, both domestically and internationally, and we are incredibly excited by the progress these new teams are making and expect to continue to increase our investment in this area heading into early 2022, with a heavy emphasis in further building out our presence internationally. General and administrative expenses in the quarter were $6.6 million or 10.2% of revenue, up 280 basis points year-over-year, as we have now started to absorb the incremental cost of being a public company. We expect the general and administrative expenses will remain elevated as a percentage of revenue in the short term as we annualize the impact of these public company costs.
However, we do expect to be able to scale our back-office functions over time, providing operating leverage to the business in the longer term. Adjusted EBITDA, or earnings before interest, taxes, depreciation, and amortization, in the quarter was $17.1 million or 26.5% of revenue, down $1.9 million from the third quarter of 2020, primarily due to the increased investments in operations and sales and marketing, in addition to incremental public company costs. Turning now to the balance sheet. We ended the quarter with over $245 million in cash and cash equivalents and just under $54 million in debt as we received IPO proceeds net of the underwriter discount and commission of $582 million in the quarter. Focusing now on guidance for the fourth quarter of 2021.
We expect revenues to be in the range of $66 million-$67 million, representing 21%-22% year-over-year growth from the fourth quarter of 2020. This raises total revenue guidance for the year to $248.3 million-$249.3 million, or approximately 22% year-over-year growth. We expect the fourth quarter adjusted EBITDA margins to be approximately 26% as we continue to make investments while also absorbing incremental public company costs. To summarize, we're pleased with the performance of the business in the third quarter. We're delivering unique value to our clients while continuing to profitably grow our business. As I mentioned earlier, we operate in a large addressable market in which our penetration is still very low.
We really believe we are in the early stages of a long growth path and that the new business momentum we are seeing today, combined with the investments we are making, will lead to long-term, durable, and profitable growth. With that, I'll turn it over to Sandeep to provide some closing thoughts.
Thank you, Jim. As I said at the beginning of the call, I'm incredibly proud of what Clearwater has become, and I'm even more excited about our future. The company's commencement of trading on the New York Stock Exchange on September 24, commemorated by our executive team ringing the opening bell, was an amazing milestone for everyone in the company. Our mission to be the world's most trusted and comprehensive technology platform for investment accounting and analytics is our guiding principle. Our third quarter financial performance, along with the explanation of our business model and growth strategy, should demonstrate to you how committed we are to achieving this mission. Speaking for both Jim and I, it's our honor to share the Clearwater story with you, and we look forward to discussing our performance and strategy for the company. Now, let me turn it over to the operator for questions.
Thank you. If you would like to ask a question, you can do so by pressing star followed by one on your telephone keypad. Our first question today comes from Jackson Ader from JP Morgan. Please go ahead, Jackson. Your line is now open.
All right. That's seven of my questions, guys, and welcome to the public markets. The first question I had was on maybe bookings. Is there any kind of seasonality we should be expecting in terms of maybe net new ARR in a December quarter versus the September quarter versus the March quarter that we should be thinking about as we head toward the end of the year?
Yeah. Thank you, Jackson.
Sure.
Uh-
Go ahead, Sandeep. Go ahead. Sorry.
Oh, go ahead, please.
Sure. Jackson, thanks for the question. There's a couple mechanisms. One, like typical enterprise software companies, there is more kind of contract signing in the fourth quarter. However, when you think about how our ARR rolls out, not only are we signing those contracts, but we're also onboarding those customers throughout that period of time. That trend is abated somewhat because of that. We feel really great about the pipeline we have going into the fourth quarter, and we're excited to execute against it.
Okay, great. Sandeep, you mentioned, or maybe it was you, Jim, I can't remember. On the seven-figure APAC customer, I think it was the first one in the region. That seems to be ahead of schedule. I don't remember really thinking about the APAC region just yet becoming material. I'm just curious, you know, what kind of resources and staffing you actually have there in order to serve customers in that region.
Yeah. Thank you for the question, Jackson. A little ahead of schedule would actually be right. Yes. We have a small presence in Singapore, and we expected them to be able to get some initial traction, but we are delighted that they got this seven-figure client from a really fast-growing insurance company. Yes, this seemed to be a little bit ahead of schedule, and we will continue to build up that office a little bit faster than we thought.
Okay, great. That makes sense. Thank you.
Thank you. Our next question today comes from Michael Turrin from Wells Fargo. Please go ahead, Michael. Your line is now open.
Hey there. Thanks. Appreciate you taking the question, and congrats on the first quarter as a public company. The retention rate keeps creeping up here. You're at 111% in Q3. Can you speak to what's driving that steady improvement? We get questions on market exposure, given you mentioned more than $5.5 trillion in AUM on the platform. Can you just help those newer to the story frame out with some of the reasons your model has proven more resilient even in a volatile environment? Thank you.
Sure. Thanks so much, Michael. Yeah. We do have that AUM based pricing model. It's a gentle tailwind to our to kind of our pricing. Just to hit the kind of market volatility question straight on the head, 86% of the assets on our platform are fixed income and structured products, so they just don't have that equity market volatility. We just don't see that in our business. Now, look, we're really pleased to see some momentum. You know, kind of over the last few quarters, we've been 109%, 110%. We're up to 111% in this quarter. One quarter does not a trend make.
When you look at some of the underlying drivers of what's driving that kind of modest expansion, 220 basis points, that's what's really interesting and exciting, and that's where we really have to focus as a business to think about strategically over the long run, how we continue to grow that and expand it even further. Let me give you two examples that are really the majority of those drivers. One is with our, what we call our strategic asset management clients. These are our global asset managers that are using us, and we're continuing to see the ability to land and expand with those clients. As they grow their business, they're looking to us to grow their business. That's consistently been the case in the strategic asset management market for us.
Another example, which is more nascent, and we're encouraged by it, but again, we need to continue to execute to be able to continue to drive this expansion. I'll use an example of a large insurance company that has as a fundamental driver of their growth to go out and acquire other businesses. We have multiple large insurers on our platform who are able to really execute upon that expansion strategy. One, as we started onboarding, the client had $70 billion in assets. By the time we finished, had over $120 billion. When I think about kind of, boy, if I wanna double my business, you know, as a CFO, I worry about, well, how am I gonna do that? What Clearwater allows that CFO to do is worry about it's on.
It you know it's on Clearwater's shoulders to burden that. That enables one to be really free to think about their you know strategic options there. The last thing I think I'll say is you know underpinning that 111. It's easy to get to 111 when you're always at 98% with that gross retention. That's a really you know world-class number. Driving to that helps there.
If I could just add to that, you know, just a testimony to the power of the platform a little bit. You know, this client Jim was talking about, who went from $70 billion to $120 billion, the onboarding time didn't change at all. The platform just simply absorbed it and moved on. That is the value I think we bring our clients, that when they grow, it's fairly effortless, right? That is, you know, the single instance multi-tenancy I'm sure we have talked to you about.
That's very helpful detail. Thank you both.
Emma, do you wanna ask another-
Our next question today. Yep, of course. Our next question today comes from Kevin McVeigh from Credit Suisse. Please go ahead, Kevin. Your line is now open.
Great. Thank you so much, and let me add my congratulations as well. I wanted to talk a little bit about the data insights and as that scales, is there a certain level of asset, I mean, at $5.6 trillion, what does that need to be to really drive the incremental data insights across the business? Or is it a function of client duration just as we think about incremental growth drivers, you know, beyond the business, more around data insights?
Yeah. Thank you, Kevin, for your question. Firstly, that's the business we are in, right? We are driving insights for clients today. Every day, we would come out and talk to them about how the portfolios are doing, what the risk is, the compliance issues are. Yes, data insights on a broader scale, frankly, we do for our clients today, and we hope to do it across clients over time. This is nothing we derive any revenue from, but we're investing R&D dollars in trying to build that capability, sort of over the next several years. We do think, Kevin, of that as a horizon three thing. It's nothing we're expecting to do or sort of get meaningful revenue from in 2022 or 2023. Over time, we see that as a really, really powerful value we could bring.
That's helpful. Just, you talked about kind of complexity versus geography. How do we think about that in terms of the incremental client needs? Is it the complexity versus the geographical reach? Is that evenly split or, you know, just from a client perspective and the scale as you scale up across your existing client base?
I think that when you think about complexity in the North American market, I don't think there is, you know, we continue to see a gradual increase in complexity, and frankly, have seen it equivalent to the last several years. I expect that to continue to grow only because the client complex assets continues to grow quicker than the private assets. As we grow out in Europe and now in Asia, that is different because there are more asset classes there which are unique to those markets. There's also some data sources which are unique to that market, and we really want to do that because what that does is makes us a comprehensive provider. You could have assets, frankly, around the world, and we would be able to report on that. We would be able to get the regulatory reporting on it.
We want to do that, but that does add more work, at least in the short term. If I can just also add that if you go back several years here, we had the same issue here in North America. Now as we think about North America, we have most of the data connections, we have most of the reporting needs taken care of, and we are continuing to build that out in Europe. Asia is just newer.
Thank you very much. Nice job.
Thank you.
Thank you.
Our next question today comes from James Fawcett from Morgan Stanley. Please go ahead, James. Your line is now open.
Hey, good afternoon, Sandeep. Good afternoon, Jim. I wanted to ask a couple of follow-up questions. First, back on the retention rate, like obviously great performance there, you know, and you gave a lot of reasons for why your retention rate should be so good. I'm wondering, just as a quick follow-up, should we expect that level of retention to continue to improve or even at least remain at these levels? What are the things that maybe from a seasonal basis or other factors could move it around a little bit?
Yeah. Thanks, James. This is Jim. So, you know, as you've noticed, there's no seasonality to our gross retention, right? The last 11 quarters, 98%. When you think about. Let me also say long term, right? And I do mean this like strategically and in the long term. You know, recall we're effectively, you know, a single product company at this point. So as you think about offering more to your clients and expanding and thinking about modularizing the offering, those are all rational, reasonable reasons to see that retention rate grow over time. If we look at it kind of over the next kind of few quarters or so, I think that there are, you know, there are tailwinds around driving asset aggregation as well.
I can't think of specific seasonality around, you know, why do insurance companies choose to do an M&A? Are the doing it in Q1, Q2, Q3, Q4? I don't see that much difference. I see that trend kind of is pretty normal throughout the calendar year. I think it comes down to, you know, how could that accelerate in the short term? It could be driven by the timing of some price increases, which are typically annualized based on when a client has kind of signed their initial contract. If you assume contracts grow a little bit in the fourth quarter, there's relatively more new contracts signed in the fourth quarter than there are in the other three.
There could be a slight tailwind there.
Got it.
Yeah. James, if I can.
You know, yeah, sorry, Sandeep. Go. Sorry to interrupt. Go ahead.
No, no, please. Please.
Oh, now I'm getting asked a follow-up.
Okay.
The delay is catching us. Go ahead.
Yeah. Sorry. I think I sound like I'm in a trash can. Sandeep's in another room. Sorry. Go ahead, Sandeep, please.
All I was gonna add was, James, that when you think about how the company has traditionally done this, it's had a single price for the entire platform. If we got a client four years back, the price was set what the price was. We've obviously continued to add a whole new set of functionality. You know, we spend that much money on R&D, so we obviously develop it, but we just have never, you know, structured with thought about modularization of a platform and what you sell differently. Those are avenues about, of how you could structurally improve the net retention rate, if that makes sense.
It does. I wanna go back. You know, Sandeep, you were talking about kind of the benefits, and as you expand internationally and incorporating other types of assets and as well as data sources, and really how that benefits everybody. I think that explanation is quite compelling. I'm wondering if you're also seeing any notable wins in other verticals or adjacent markets yet, like state and local governments or those kinds of things, or how we should think about kind of the expansion beyond just international into some nearby opportunities, even if it's in different types of organizations.
Yeah, you know, James, that we continue to see. I mean, one thing which is true about the platform is it's the same platform, right? So you obviously know that. It's similar to multi-tenancy. But is that applicable to local and state government? Absolutely. Now, do you have to build a little bit to think about reporting needs which are specific to a state government or a local government? Yes. But that's reasonably easy. We did sell our first REIT this quarter, so that was interesting, that we sold to a REIT. You know, we found that our solution is fully capable of meeting that need. So those are two markets where we have continued to see, we should continue to see growth. Obviously, we think about pensions and sovereign funds as a horizon two opportunity.
It's not like the platform can't address it today, it's just that we just don't have the same ability to go to the market, win 80% of the time. That's why we sort of think about these markets as a sort of horizon two, you know, compared to a horizon one sort of core markets, which is insurance, asset management, and corporations, right? Where frankly, we win 80% of the time. That's how we see it, but those new markets are definitely interesting in the North American sense.
That's very clear. Thank you very much.
Thank you.
Thank you.
Our next question today comes from Brian Schwartz from Oppenheimer & Co. Please go ahead, Brian. Your line is now open.
Oh, good. Thank you very much. Hey, congratulations, Sandeep and Jim. Really a great quarter here. I have two questions. The first question I wanted to follow up on, it was the first question about the Q4 pipeline seasonality. You signed up a lot of big deals here this quarter. You know, you talked about the one in Asia, the one in Neuberger. Can you shed any light in terms of how the big opportunities are looking in the pipeline here for Q4? I just wanna make sure you didn't drain it here in Q3. I have a follow-up.
Brian, thank you for that question here. We do continue to see a really good build-out of the pipeline. When you think about the pipeline, obviously we have invested over the last two quarters pretty significantly in sales and marketing, right? When you think about the pipeline, firstly, insurance and asset management in North America continues to power that. We see lots of traction in Europe. Frankly, a bunch of traction in Continental Europe too. We do see a really robust pipeline, and as Jim mentioned, we're trying to get the operations ready to make sure we are effective in onboarding them as they come in, right? I think also Jim said, I think the seasonality isn't quite there. Is Q4 a little bit bigger?
Often, but that's true for all enterprise software companies, I guess, right? It's not like it shows up in the ARR right away because you have to onboard them. Jim, would you add anything to that?
Yeah. I think you know, just to be blunt, you know, we did not drain the pipe, Brian. We feel you know, that's why we're making the investments that we're making in operation. If you think about it, we made investments in the leadership in sales and marketing, and you know, we've built out those teams. You know, that's taken the whole year to do that. You understand how it takes time for salespeople to become productive and build out teams. You know, we're optimistic.
I appreciate that color. The one follow-up I had, it's a newer product, but I was wondering if you can give any update on the PRISM Analytics. I'm just kind of curious if that was part of any of these big deals that you won in the quarter and just how the reception has been for that newer technology. Thanks.
Yeah. You know, this is Sandeep, Brian. You know, PRISM is so exciting. I think it's so exciting because, you know, this whole open architecture allows us to go after a market which would have taken longer for us to go out and address, right? We have three clients live on it, which are significant. We have a pipeline which just continues to grow there, but our ability to position this in multiple industries is really interesting. You know, when we had talked to you earlier, we had talked about this being a big mover in the asset management world. Really what we're also finding is it has a lot of receptivity in the insurance sector.
The reason for that is the larger insurers have other accounting engines, and they can't replace all of them at the same time. That conversation, being able to have those conversations now, I think is very helpful. They don't always count as just PRISM deals as much as how do you bring the pipeline forward and build a pipeline you may have had trouble building otherwise.
Thank you for taking my questions this afternoon.
Thank you, Brian.
Our next question today comes from Gabriela Borges from Goldman Sachs. Please go ahead, Gabriela. Your line is now open.
Good afternoon. Thanks for taking the question, and congrats on the IPO and the quarter. Sandeep, I wanted to follow up on some of the commentary you provided on the asset management space in North America in particular. Could you share with us a little bit of detail on what you're seeing with the size of the deals relative to what you typically see in insurance and corporates? And then any color on the competitive environment, what that looks like today.
Yeah. Thank you, Gabriela, for the question here. It is different, right? When you think about asset management, it's more land and expand than an insurance company, right? A lot of the net revenue retention number comes from there. I've got to say that our asset management business just continues to do really well, especially in North America. We obviously had announced a deal out in the U.K. earlier on asset management, so we continue to see good growth in that. The insurance clients are obviously more one time normally unless you have acquisitions as Jim laid out. What else? Would you add anything else to that? You know, do you want to talk about?
Yeah. You know, Gabriela, we talk about how, you know, in general we're getting the entire book, right? At the insurance company. Whereas in the asset management space, we're nibbling at, to use the Neuberger Berman example, right? It's OCIO and wealth pieces of their business, right? Winning. Now, those are significant, you know, because we have an AUM base, it's all driven by kind of the total AUM. Not to say that that's a small piece of business by any stretch. The point is, in typical fashion, once we're in at a firm like that, we will work together and we have some other example, asset management clients where they brought us in for one piece of their business. It's working well.
They're bringing us into the next piece. Those are typically, you know, they are six-figure deals, but they wouldn't be, you know, the seven-figure deals that you would typically get at a large insurance company.
Yeah, that makes sense. The follow-up, Jim, you mentioned equity market volatility earlier and having very little exposure there. How about on the fixed income side? How do we think about the potential risk to AUM in a rising rates environment?
Yeah. Insurance companies are doing book accounting, right? As well. I think they're pretty limited. I think on the fixed income side, you know, that's possible. Also remember, we're managing their whole book, so as they hedge, you know, those things are playing out as well within our AUM base.
Yeah, Gabriela, I would just add to that, you know, when you think about who our clients are, their business really more often than not is to make sure they protect their current asset pool and then grow it. It's like a sort of almost in their minds, it's a two-step process. It's not like they're putting assets out there which they wanted to grow 20% today and come down 30% tomorrow. Just the nature of investing keeps it, ensure that it's not volatile. Now, we went back and stress tested for literally many, many, many quarters on end just to see if there was some volatility. Frankly, Jim's confidence about equity market comes from what happened, a year back, a year and a half back.
With all of that disruption in the equity markets, you know, the assets on our platform like to like, I think moved 1%-2%. We now have a different degree of confidence, if you will, on the lack of volatility on our platform.
Appreciate the call, thank you.
Thank you, Gabriela.
Our next question today comes from Kamil Mielczarek from William Blair. Please go ahead, Kamil. Your line is now open.
Hey, guys, it's Bhavin. Hey, Sandeep. Hey, Jim. Sorry, Kamil, for dialing you in.
Hi, Bhavin.
We have a couple of earnings. Anyway, congratulations. Nice job there. I guess I wanted to touch a little bit on Souvik and your CTO here. You know, how should we think about. I know it's early, but as you think about innovation, you think about expansion, some of these more complex assets, maybe crypto, maybe other things. How should we think about what his priorities are? You've talked about sort of investing in sales and marketing, but how are you think about investing in R&D? You obviously discussed this with him, but would love to get sort of his priorities.
Yeah. Thank you. Thank you, Bhavin. So look, I think if we think about our platform, does it do well today for our current clients? I think most clients would say yes, and resoundingly so. The question is, as you grow globally and you scale faster, right? Having somebody with Souvik's background, you know, who was very involved with PayPal, for example, which scaled dramatically, right, in the years he was there. We think he brings the program 30% he does about a lot is 10x, right? Is how do you take a platform today and architect it such that it is capable of executing 10x in terms of transaction load and everything else. That is one big focus is 10x. The second one is around growth globally.
A lot of energy going into thinking about how do we build software which is completely at home in every part of the world, right? That is. I think there's a lot of growth-led initiatives he's focusing on. The third one is how do we more disruptively process things like private assets and complex assets? I think we do a good job as good as others, but how do we disruptively do that? Those are the three things I think they wake up in the morning and sort of think about. That's what we are focused on. I did want to quickly add also that actually R&D spending has continued to go up, right? If you look at what it was last year and the year before that.
We are very focused on we need to protect and grow our technological lead. Those people have the background, if you will, of having built systems like that. That makes sense, Bhavin?
Yeah, no, I think it's fair. I think especially with the +3,000 data source connections and protecting the moat, I think that makes a lot of sense. I guess my other question I had was, you know, you haven't touched on this today. We did, obviously, on the roadshow earlier, but just about how you leverage partner channels, right, to enter, especially some of the new markets. Certainly in Europe, you know, you've relied on channel pretty heavily, custodian partnerships, etc.
Maybe an update on how those are progressing and sort of, you know, is there a chance to have the channel be more of a partner where the sales and marketing spend maybe in 2022 goes up, but sort of maybe in 2023, 2024, 2025 starts to trend down as the channel absorbs some of that go-to-market, whether it's Europe, Asia or even the U.S.. I'd love to get sort of a sense on how you think about that and how you're investing in that.
No, I completely agree that in the European market context, those channels make a difference. Now, the good news is we've been getting all this growth without that channel. Can there be a true accelerator of growth rather than supplanting?
Right.
The current pipeline build, right. It does take time. I think if you looked at the progress we made over the last quarter, I think it's going really well. The problem with this is it takes time. These partnerships and channels take time, and you cannot sort of bank on them until they're fully up and running. We have a dedicated team which is doing that now, which does just this, channels and partnerships. Traditionally, though, we have never used it, right? So it's a question of building that muscle. We have dedicated teams actually out in Europe and in Boston sort of addressing this.
It's not like you can look at a pipeline today or not pipeline, any of the closed deals and say, "Oh, those have come through the channel." We are very committed to building out the channel, but this is not part of our current, our current booking. We see this as an accelerator.
Got it. That's helpful. Thank you, guys. Thanks for taking my questions, and really nice job again.
Thank you.
Thank you.
Thank you.
Our next question today comes from Rishi Jaluria from RBC. Please go ahead, Rishi. Your line is now open.
Hey, guys. Thanks so much for taking my questions and nice to see a pretty solid quarter out the gate. I wanted to go back and maybe drill a bit deeper into thinking about contribution from new clients versus expansion, you know, and how we should be thinking about that mix going forward. Alongside that, how should we expect the pace of client adds to trend over the next several quarters? Then I've got a follow-up.
Sure. So look here. You know, Rishi, thank you for the question here. I think, Rishi, we continue to win this 80%. This is really it's, you know. In our core markets. In the core markets, we will win 80% of the time, when we write a proposal. We continue to see that. You know, is our client satisfaction score really high? Yes, it is. Do we onboard a large number of clients and logos? Yes, we do. Right? Now, I did want to just clarify that when you look at insurance companies, a lot of the growth is from purely logos. When you look at the asset managers, it is more divided only because asset managers have land and expand, and they also have new logos. In the corporate market, Rishi, it's almost all new logos.
We do generate a whole lot of new logos, and one measure would be if you look at the NRR, the net retention rate. I think those are from current clients, and the rest of the growth is all from new logos.
Got it. That's really helpful, Sandeep. I appreciate that. Yes, absolutely. The other question I just wanted to ask, thinking maybe a little bit more long term, you know, look, you've obviously grown to this size almost entirely organically, if not entirely organically. As you think, though, about expanding the platform and functionality, how do you think about, you know, future opportunities to do so, you know, via M&A and totally understanding that if you do that, you'd fully integrate the assets and kinda keep that single platform versus how some of your competitors approach M&A. Maybe can you give us a sense for just how you're thinking about M&A as a potential lever to accelerate R&D and accelerate that roadmap?
Absolutely. Look, firstly, we have a really high bar, right? We have a good company. It sort of works. We can grow at this pace and frankly grow on an accelerated basis using things like channel, using things like pensions and the other markets we talked about. Our bar is pretty high. When you think about it, what would we look for? I can give you some ideas on that. The first one is accelerated adoption in our core markets. Obviously, if we build out in Europe, it takes time to hire the team, get them onboarded, blah, blah. It takes time. Same thing with Asia. If there was a way to accelerate adoption in our core markets, that would be a really good fit for M&A.
More specifically, of course, growth in Europe and Asia. The third one would be growth in adjacent capabilities. If there's more things in the risk space, on the reg reporting space, things of that help, that would be interesting. The fourth item would be growth in adjacent industries which are part of Horizon Two. If there was a way to pull forward Horizon 2 and make it a Horizon 1 , like pensions or things like that, then, yes, that would be the other one which would be interesting. There's. That's sort of a list, though, Rishi, that we literally can go down that list and say, "Does it hit one, two, three, four or five?" In which case it is interesting, but we do wanna do it.
You know, the company has not had a history of doing M&A, and we think we could continue to do it organically, but really there's no reason not to accelerate adoption. We want to think about it, and we are working on it quite diligently as we speak here.
That's really helpful. Thank you so much.
Our final question today comes from Arvind Ramnani from Piper Sandler. Please go ahead, Arvind. Your line is now open.
Hey, thank you, and congrats on the first quarter post-IPO. Yeah, most of my questions have been answered, but the one question I have is, you know, since you've had your public listing, you know, can you talk about some of the customer conversations you've had? Has the public listing made any difference? And, you know, from a sales force, is that like being a new slide in the presentation deck when you're talking to prospective customers? And the last question on this is like, you know, is any kind of, is the kind of the...
Is the environment charged up and excited or are they kind of looking at this IPO as an event to sort of exit?
Yeah. Thank you, Arvind, for those questions. Look, yeah, I've got to say, and just to make sure I say this correctly, I think employees are just across the board really excited and happy about this. I think from the mindset perspective, it switches us from being a challenger in our industry to some to be a part of a company which can absolutely lead this industry worldwide. From employees literally up and down, the whole team, I think there's real excitement about this. Now, I'm gonna also tell you that one of the reasons we did the IPO, if you remember, was clients. You know, clients trust us with investment accounting, and it's a critical function, mission-critical, if you will. The fact that we're a public company is really helpful to them. They can see.
First, they get transparency, which was difficult to provide as a private company. Second, they can see that we are growing quickly, we are investing in R&D, and we are profitable. The client receptivity has literally bar none been really positive. I think the one question people had was whether we would continue to invest in R&D and operations. You know, in all of our conversations with you, Arvind, and really anyone else, we've always said that we will continue to invest in R&D and operations, and those are pretty public statements. Look, I think that the biggest benefit of this, of the IPO is the employees are really charged. They believe in what we could build.
Then the second one really is around clients really see us as having some permanence from a corporate structure point of view and the transparency they get about our company. I would say it's been really positive. It does take some time, though, you know, preparing for these analyst calls and doing report readings. You know, otherwise, all good.
Perfect. Thank you, and Happy Diwali.
Yeah, absolutely. Thank you. Happy Diwali.
We have no further questions, so I will hand back the call to Sandeep Sahai for closing remarks.
Look, you know, thank you all for joining me. I very much appreciate the time you take to understand our business and for giving us the opportunity to present the company to you. You know, we're really excited about Q3, and we look forward to discussing Q4 results with you early next year. Thank you for all your fantastic questions. We appreciate it. Thank you all.
Thank you for joining today's call. You may now disconnect your line.