Thank you, everyone, who has dialed in for this session of day three of the Oppenheimer Tech Conference. I'm thrilled to have with us Clearwater Analytics, and we've got the finance leader, the CFO of the company, Jim Cox, presenting. Jim is a regular here at the Oppenheimer Tech Conference, so it's good to see you again, Jim, and thanks for making time for.
Great to see you, Brian. Thanks for all your support, and thank you for this event. It's been a busy day already. Thanks.
Yep. Well, Jim, why don't we just start? You know, we may have new listeners today in the audience that aren't familiar with your business or Clearwater Analytics. So why don't we just start and take it up to a 20,000- feet view? If you could, give a quick overview of the business. So why do investment manager owners, investment managers, and providers need Clearwater's platform today? And maybe you can also talk about how important it is to have a comprehensive front-to-back office solution in the market.
That's it. Thanks, Brian, so Clearwater, we went public in 2021, and we serve asset managers, as you said, and back in 2021, we served asset managers. We served, as well as asset owners, which include insurance companies, corporates, endowments, foundations, state and local governments, and what all of those firms are-- we do the same thing for all of those firms, and we do the investment accounting for them, and this is kind of the legacy business that I'll walk through, and so when you do investment accounting, it's critical that you're obviously accurate, timely, and comprehensive, and so how we have continued to win new clients over time and consistently is instruments get more complicated. The move to alternatives is dramatic and meaningful across all of these asset owner clients and the asset managers that are trying to serve them.
And what we know is alternatives are 7x more complicated to get right than traditional kind of fixed income and equity solutions. People have also moved globally. And how can you understand both the regulatory requirements as well as the nuances of all of those markets? And so when you are an asset owner, what we provide for you as an insurance company is we give you every day at the beginning of your day a view of your full comprehensive portfolio. And that's really important because if you have something in one area, it may be a small percentage point, but your exposure and your risk may be significant as a result of that. And of course, the more sophisticated and complicated things provide that opaqueness, which creates more results.
So our value prop to our asset owner clients is really clean, reliable, comprehensive information that solves their day. Asset managers are looking to gather assets. We do the same thing for asset owners that we do for asset managers, but how asset managers use the platform is they are using it primarily to report their information to their institutional client owners, like insurance companies like Corbin's . And so they're providing that information to their clients and enabling them to communicate. So for asset managers, we're enabling them to grow their business by communicating better with their clients. And for asset owners, we're really solving their comprehensive view. Now, that's kind of a three-year-old statement that has kind of evolved over time. If we now fast forward to today, what our clients asked us time and again to do was to say, "Fantastic. We actually trust your data.
We believe it. It's clean, reliable, and you give us beginning-of-day information that we love. We want to do more with it. And increasingly, asset owners are saving some portion of their book where they're trading it themselves and where they're acting as their own asset manager. They're also outsourcing a lot to the asset managers that they have, but they're also thinking about those elements and pulling that together. And so as clients come to us and say, "We need more to do, we are doing more with your data." And in fact, we did a study where we learned that kind of investment management was about four basis points.
And for what we do on the accounting side, it was about one basis point. So obviously, there's three times as much opportunity to solve problems for clients, and they were asking us to do that. So what did we do? Now, more recently, we've acquired a business called Enfusion that does kind of intraday order management, portfolio management, and order execution management, as well as a business called Beacon that does risk, very sophisticated risk calculations. And so with that, you're able to take the clean, reliable data that Clearwater provides, and you're able to insert it into your risk calculations to really understand what you should do. And then when you decide what you should do, given your exposure, you can then trade with that as that solves, and you can do that through kind of what was the Enfusion solution.
So what we're allowing people to do is solve the full front-to-back solution. Why is that important to folks? Because that is the problem they're trying to solve. And if they can have a single vendor that they already like, do more to help them with that, it becomes more compelling to them. And it opens up incremental opportunity both in wallet share within our existing clients, as well as a more compelling change for new clients. Now, with those new acquisitions, we've also added some additional client types.
So, we've added hedge funds. So Enfusion was the number one solution for hedge funds in the market. And so, although they also serve asset managers and other things, we've also added hedge funds at that point. And Beacon not only served insurance and hedge funds and asset managers, but they also served very sophisticated banks and sell-side firms, energy trading firms, and those sorts of things as well. So again, that's kind of more in the asset owner space.
And so we've broadened our kind of customer footprint. We've broadened that functional footprint. And frankly, those also had global reach as well. Those businesses had global reach, and we've broadened our global footprint. It's a really exciting time for Clearwater as we look to the future.
Thank you, Jim. That was a great overview. Let's talk about the business highlights here. Your Q2 results that look good for the business. You exceeded your internal targets. I'm sorry, you exceeded your guidance. So tell us what's working well for the business in 2025.
So really proud. We closed both of those transactions in April. So a lot to be busy. Within the quarter, what are we really proud of? Revenue. Organic revenue grew 22%. Total revenue grew 70%. And that's obviously slightly better than what we had guided to for both of those, which was fantastic. What was incredible and very satisfying to us was our gross margins were 77%. They were basically 77% last year as well. Here we have added all of these new businesses, which you would have expected our gross margin to come down because those historical businesses had lower gross margins than we did. We were able to implement a lot of the changes that we had been looking to implement over time, implement them very quickly. And it's nice to see those results.
EBITDA was, I think it was a $5 million beat to our guidance as well and very strong. And that came from us being able to yield the synergies much faster than we had anticipated. We talked about $20 million in synergies that we would achieve over a year. We were able to do it essentially immediately. And so almost all of that $5 million beat was yielding from that. And then we had really strong cash flow conversion. We converted really strongly, and we were able to, as we've committed to everyone, paying down the debt that we incurred to be able to do these acquisitions, and we paid that down. So, free cash flow, revenue, EBITDA, gross margin, all very good. Total ARR grew very dramatically, but I think one of the elements that folks were focused on was ARR growth.
It grew 20% year- over- year, but sequentially was a little lighter than folks had anticipated. ARR is something that we report, and we know it's useful information, but it's not something we manage to, and so I think that was,-- I think if I list out all those positive ones, there's one that was pedestrian in a polite way.
Jim, maybe if I could just follow up on that last comment. The 9 out of 10 achieving all your ARR metrics, and you kind of talked about the one. It was,-- people, at least from my lens, they've been picking on that the net new organic ARR was below 20% growth in the quarter. So were there any one-time impacts to that number in the quarter?
Yeah. So I think one thing to think about is there's lots of contributing factors to it. And I think people use it as a proxy for bookings. And so I'll just talk to folks about that. I think just clearly in April , April was a slower month, both for the acquired businesses and for Clearwater. I think there was a lot of dislocation with tariffs and people focusing on market volatility related to that, as well as we closed a deal on August, sorry, April 21st. I know we're in August, but it was back in April when we did it, April 21st as well as April 30th. And so April was a slower month for us. May recovered very nicely, and June recovered and looking more like May than like April.
And so I think that that kind of "lost month" has an impact on that growth. We remain really confident in our pipeline and our ability to both convert what we have sold into revenue, which then creates ARR, as well as kind of win new business in the second half of the year. But I think that that's, look, I'll be transparent. Would I have liked that to have a 2 in front of it? The sequential kind of dollar value growth there, have a two in front of it instead of it being $18million-$19 million, whatever it was. Yeah. But a couple of million dollars, I think we understand it, and we're really focused on driving the overall business and the growth of the revenue of the overall business is what we really managed to.
That was helpful. Thank you, Jim.
Thank you.
Why don't we take a step back now, get away from the immediate stuff, and talk about bigger picture stuff? So let's start with the moat and what gives Clearwater the right to win in the market. Maybe I would point out that you have a much larger and well-capitalized competitor in the category, yet your business has grown 4-5x faster than them organically. So why does Clearwater win? What gives you the differentiation and the right to win in your markets?
Yeah. So when you think about it, people don't wake up in the morning and say, "I want to replace my investment accounting system." So something needs to change for us to be able to do that. So we think about what makes us a displacement-caliber solution. And over time, we talked about how industry trends that are changing, this move to more alternatives, the move to more global, the need to understand information accurately, completely, comprehensively, and every day and understanding that. That is kind of the core value. And what we are able to displace some of these legacy competitors. Why? One, we're built in the cloud from the start. It's a SaaS solution. It's true single-instance multi-tenant architecture that enables us to innovate at a much faster pace and innovate transparently to our client. When we fix something, it ripples to everyone.
When we do something new, it ripples to everyone without them having to do it. And that helps with that. But our real secret sauce, Brian, is what we talk about is our single security master. Every other investment accounting system thinks about the portfolio as the container in which information is held. At Clearwater, we think about the securities and not the portfolio first. So what we do is we ingest securities, and part of our moat is we have 3,800 connections to all these sources. This is all the places where we're gathering data from custodians and data feeds and bank accounts and all this security lending information. All of this type of information is being consumed in. And we're ingesting that information. We're normalizing it. We're cleansing it. And then we reconcile it. But we're not reconciling it for a specific client.
We're looking at the underlying securities that are in any of our client portfolios, and we're making sure that those securities are right. How do the cash flows look? How do they pay? What are the characteristics? Are all those things accurate? And in cleansing that, that enables us to then have truly clean, reliable data. And then if you are a particular client, you will come in, and you will say, "I want to look at my specific portfolios." And only at that point do we know, "Okay, this particular client owns these securities of different types." And we pull that up and give that information to the client almost instantaneously. And so what that enables us to do is for every connection that we have for a prior client, we don't have to build that for the next client.
But with every new client, we probably get a new connection of some sort. And so we keep increasing the number of connections that we have. Right? And for every security that a new client has, probably 80% of those securities are held by someone else already on the platform. And so we already have those securities reconciled, cleansed, and corrected. And so what that enables is a true flywheel effect where we are able to yield. And that's why, even though we're providing really investment accounting information for folks, true kind of platform service for them, we're able to yield the gross margins that we have. So that's what's in it for investors is we have gross margins, and it's easier to add the next client when you're acquiring incremental clients. What's in it for clients is the quality.
That quality is being checked by all of us, but it's also being checked by everyone else on the platform who owns that same security. So Brian, if you find that you have a security and you say, "I think that's wrong," and you call us and we look at it and we agree it's wrong and we fix it, not only does it fix for you, Brian, it fixed for every other client who holds that security. And that is really the network effect that benefits them. And that is our real moat. And so the moat is quite wide because in order to be able to, first of all, we'd have to build that type of security master. We'd have to build all that connectivity. We'd have to ingest and reconcile all those securities to be able to do that.
And even as you build all that, we're still adding more and more and more to that platform. And that's what we really believe is our moat, which then lends us to, oh, our clients believe in that information, rely on that information. It's core to their operating processes. That's why they started to ask us to do more with that clean, reliable information.
Terrific. Why don't we jump into the acquisitions? You know, that's clearly really topical for investors these days. Why don't we start with Enfusion? You know, clearly that was a transformational deal, but it also was a slower grower and smaller business in scale than Clearwater. So maybe just starting on the growth synergy side. So Enfusion was focused on the lower end of the market, asset managers, than Clearwater. So why does having Enfusion make selling it and Clearwater better in the market? And can you share any early feedback that you're hearing from customers in either of the installed base or the prospects? You know, what are you seeing in terms of pipeline shifts since you added Enfusion?
Yeah. I think that, so if you've heard what I said before, it's we're cleansing everything and giving information to our clients, clean, reliable data to start their day. And for many asset managers, they want to be in, and we would then push that data to another system where they would look at that information throughout the day, trade with it, look at real-time information. As we looked at what it took to build, you know, kind of that type of functionality for our client base. And then we looked at what Enfusion, a leading product now in hedge funds, truly a leading product in that market. And what we're talking about now is asset management where we really come together. And there's incredible synergy there.
Our ability to deliver that functionality to our clients, which they've been asking for, is going to be incredibly meaningful, and it will help us collectively both win more within that asset management space. So being able to have the clean, reliable data that you can then every day and also use that data to report to your end clients with, that's what Clearwater brings. But also to actively manage your portfolio and understand what's going on intraday and communicate in an operational way across your firm. That's what a smaller asset manager needs. They need a true end-to-end solution. We would call that front- to- back, from trading to recon to accounting to reporting. And with us together, we're able to deliver those capabilities to those clients. We can do it so much faster than we would have been able to do had we gone and built that ourselves.
And then how about thinking about the future pricing model, you know, with Enfusion? You know, your company, Clearwater, used to have it based on AUMs, went through a pricing model with your installed base. Enfusion is still selling software the old ways. They've got a seat-based model. So how quickly can you bring a new pricing model into that Enfusion installed base? Do you need to wait until renewals come up? How long are their contracts? Can you share with us how you're thinking about testing and then potentially enabling a new pricing model in Enfusion?
Yeah. I think that, when people think about evolving their commercial model, I think in some industries that would be very, very exciting, right? Very, very interesting, and I think we are very confident in our ability to evolve the commercial model only because we've done it ourselves. You know, like if you think back in 2022 when we pivoted from the AUM base economic value that customers are deriving with the price we provide to them, and so that's an important win-win opportunity for both clients as well as the company. And so what we've done is, first of all, we've done a lot of analysis to make sure that we understand that. We also want to make sure that clients are absolutely as delighted as they can be today with the service that they're providing so that they're enthusiastic about it.
And what we'll do is we'll end up evolving this, rolling it out in small cases, but then first initially with similar to what we did at Clearwater. New clients will be under a new pricing model, and then we'll work our way through the existing client base. And to the extent it makes sense mutually for us to do that, we'll execute on that. I think we'll definitely be rolling that out. We're doing the analysis now. We're testing it with the teams. We're testing it with clients. And we'll figure out how to execute against that so that we can roll that out in 2026.
Okay. Maybe shifting to Beacon. This was a different business that you added. So share with us what Beacon, you know, gives your business, and how you see the timeline for achieving the growth synergies with Beacon.
So Beacon is truly, truly world-class risk calculation engines used by the biggest, most sophisticated firms in the world. How we grew to meet Beacon was at a mutual client, Blackstone, which was using both Beacon and Clearwater to provide information to a platform that they used, which was an internally built platform called Bistro, which we've also purchased the intellectual property of that Bistro platform. What that enabled was the visualization and the utilization of the data that Beacon was generating as well as the core underlying values that Clearwater was generating. And so, you know, I would say that, you know, Beacon has impeccable credentials when you look at their customers. You know, the world's most sophisticated firms are using Beacon to really run their business, understand their exposure, and manage that. So that is an incredible opportunity. We've had lots of interest.
That's obviously an interesting cross-sell opportunity. And we knew we were on to something when we met with the folks at Beacon. And again, it was one of these situations where we learned that, sorry, my computer just bleeped up. Apologies for that.
We hear you well.
You can hear me okay? Yeah, it was beeping. We learned how risk was calculated and what those risk engines were and those math models. And it was what I learned there was in a million years, I wouldn't be able to understand. We're better at accounting than anyone else, but we didn't know risk. So we thought these folks really understand risk. And they said. I said, "What's hard about it? This seems baffling to me. What makes this complicated?" And they said, "Well, here's the thing. We just can't get clean, reliable data. We can't really get everything to align with each other." And so people are looking at different things, and so they get different results when they should be getting the same results because of the underlying data. And that's when I knew we were on to something.
We're like, "Oh, we're good at the clean, reliable data. You're good at the math. Our clients need this." And so I think we see an incredible cross-sell opportunity through that.
Maybe last question, just on the acquisition. So 2Q was the first quarter that you owned these businesses. So what would you say has been the biggest surprise so far now that you've had these companies under your belt?
Yeah. I think, you know, there's always a number of surprises. I think we felt very good. I would say one surprise that seems in retrospect, I probably shouldn't have been surprised by it, but some of we thought about how Enfusion and Clearwater would work together. And we thought about how Beacon and Clearwater worked together. We spent a lot of time thinking about how that would work. And what's been interesting is some of the largest clients at Enfusion have said, "I'm very interested in Beacon as well." So I hadn't thought about how Enfusion and Beacon could work together to build that opportunity as well. In retrospect, it seems obvious, but at the time, you know, you think about each of these in level. So I think the opportunity there is very good.
Another pleasant surprise is that we've been hearing from prospects for a very long time how we needed a real end-to-end solution. So what we really wanted to see was some proof points from clients, right? We've been working on it. We think it's the right strategy, but strategy is interesting. Clients are what are really, it's really important. To be able to get an early win where we were able to sell to a displacement sale where we're using Enfusion, Beacon, and Clearwater together, I think I'm surprised at how quickly we were able to win. I'm not surprised that we won it. I'm surprised how quickly it happened. It has given me a lot of optimism about our opportunity in those markets.
Jim, I wanted to shift to international. Have an update on international. That's a big part of the growth story over at Clearwater. You've landed this year, you've landed, you know, a mega insurance provider in Europe. You called out a huge bank that you won in Asia, asset owner bank in Asia. Talk to us about how you think about the outlook for international and how these new wins could potentially, you know, improve the positioning and pace of deal activity as you think about international.
Let's just at the highest level, let's think about half the world's investments are outside of the U.S. You know, so at a steady state, we should have, you know, roughly 50% in North America and 50% in the rest of the world as far as revenue and growth goes. And yet we're only at 22% today. Now, we were like in single digits five years ago, so we've been making consistent progress there. But it's still, and I agree with you, Brian, it is very important to us in our growth opportunity as we think about the opportunity. To drill down another level, so that's at the highest level, and then that's interesting, but not very helpful. Let's talk about insurers where we've been really successful in North America winning a reasonable market share in insurance in North America.
The TAM of insurers in North America compared to the TAM in Europe, it's double in Europe what it is in North America. In fact, in Germany, it's about the same size as in North America. And in France, it's about 80% of the size of what it is in North America. And so there's, real TAM opportunity there. Then when we went public, we talked about Europe and North America, and we kind of didn't even talk about Asia. And the TAM for insurance assets in Asia is equivalent to what it is in Europe. And it's growing faster than the assets in North America or, and this was kind of honestly, it was a market that we kind of backed into. So now with these acquisitions, one of the benefits of these acquisitions is we truly have a global footprint.
We have an office in Japan. We have 70 people in an office in Hong Kong. And I think that that really did help with the signing of that Asian bank. We have folks in Germany. We have over 100 people in Paris. We have 300 people in the U.K. We have 50 people in Ireland. So we've got things spread throughout all of these geographies and real people connecting closely to clients. And that enables us to really understand at a very nuanced level, you know, what the market needs and to get signals much faster from the market on what is interesting and what is the opportunity there. And so that's another, oh, I forgot Australia. We have also a footprint in Australia now as well. And so these are all opportunities that if you go back two, three years, it was just talk.
Now it's action. And so I think that's a really incredible opportunity for us. There's nuance. This is why I know we're getting closer is the nuance, the detail with which teams are talking about what's necessary to win in these markets. Who's our center of target? Who are we competing against? What are the real drivers? That level of granularity is obviously really important to win in each individual market. And I think we're getting there with that.
Jim, last question is I wanted to make sure that I give you a plug for your Investor Day, which is coming up not too long from now. It's September 3rd in New York City. Are there any previews for what investors can expect next month at the Investor Day?
Yeah. You know, we're working on the materials now as we speak. And so the themes that we're really looking for is, look, we have spoken with investors about these acquisitions in this moment with you and at each quarterly earnings call. And so I think what we want to do for investors is if you back up two years ago, we laid out some high-level goals for investors that we talked about for what we wanted to achieve as a business. And I think , investors will know we have achieved those things. And so what we want to do is we want to set a new marker for these high-level goals going forward, including really the strategy behind to do a deep dive on the strategy behind these acquisitions and the vision for what we could be.
So that right now we're talking about what we could do. We see some early wins around it, but I believe that when we have the opportunity to really revolutionize the investment management landscape by connecting together asset owners and asset managers across all asset classes, and so to enable people to really understand that is going to be part of what we talk about during that time, and hopefully people come away from that inspired and understanding really the strategy behind this because I think we have folks who are focused on kind of the numbers and how it pulls together and all of that and appropriately and what are the synergies and how's this going to work. Oh, very appropriate. We live quarter- to- quarter. I totally understand that.
But the strategic optionality that we have enabled for our firm and our investors as a result of doing these transactions is fundamental. Now it's up to us to make sure we execute on that. And so we want to talk about how we're going to execute on that and what the world looks like if that really is the case. September 3rd.
In New York City. We look forward.
New York City.
We look forward to it. Jim, I want to thank you very much for.
Thanks, Brian.
Spending some time with us in the audience and sharing with us a really exciting story over at Clearwater. Great to see you again.
Thanks, Brian and the whole Oppenheimer team. Cheers. Thanks.