I want to thank everyone who's dialed in for today's presentation. I'm thrilled, 'cause I have one of my highest quality mid-cap companies, Clearwater Analytics, with us presenting. We have the Chief Financial Officer, Jim Cox, who's gonna take us through the story. I'm sure a lot of our viewers are familiar with Jim. Jim, for, for our viewers who are not familiar with the Clearwater Analytics story, is it okay just to level-set the discussion, maybe from a very high level, 20,000- -
Yeah.
... feet view on, maybe the company's background-
Yeah
The problems that the company is solving for your customers today?
Yeah. Yeah, thanks, Brian. Thanks for having me, thanks for having Clearwater. We always appreciate your support. Just, just to back up, you know, the Clearwater brand is really around durable, reliable, consistent growth, and profitability, and just really reliability. When you go back to the origins of the business, interestingly, it was founded by two brothers and a friend in Boise, Idaho. You can see from my background here, this is. That's actually Boise, for those of you who haven't been there. Very livable in the summer, a little chilly in the winter. They, they actually- the two of them worked at Goldman Sachs. One of them worked for the Chicago Board of Trade. Family circumstances required them to go back to Boise, where they started a hedge fund.
They really believed that the most important thing was to provide transparency and visibility into what they were doing for their clients, so they built this tool, this analytical tool, Clearwater Analytics, to share with them. Unfortunately, or fortunately, depending on your perspective, fortunately for me, I guess, for Clearwater Analytics, they couldn't get many investors to invest with them, but every investor wanted to see their tool. They said, "Forget about giving you any money, let's use this tool. I'd love to use that for my own system." They started with corporates and kind of providing this visibility, this daily... What, what do we do? We do accounting, reporting, compliance, and risk. Started with corporates and kind of...
If you think about it, I was a Clearwater customer four or five times before I became the CFO, so I understand exactly the value prop that they're providing for corporates. They then moved from corporates into insurers and other asset owners, think of us as, as a solution for any asset owner, pensions, governments. 52% of our revenues are insurance companies, so that's our largest kind of piece of our business on an asset owner basis. Lo and behold, all the asset owners were using us to be able to get a very comprehensive view across all asset classes, across all geographies, across all asset managers that were providing them that information.
Lo and behold, asset managers were asking for business from other asset owners, and the asset owners said to them, "Boy, if you could just do your client reporting as good as the reporting we get from Clearwater, we would put our money with you." Lo and behold, asset managers started using Clearwater for client reporting, and that's kind of how we've kind of continued to grow across both the asset owner and asset manager space.
Great. That's a great intro, Jim. How about maybe just open-ended question here?
Yeah
What are some of the things that have you most excited-?
Yeah
- these days at Clearwater?
Lots to be excited about, I think it's, it's... First of all, great to be the CFO, great to be a salesperson at a company where you have the best product in the market that you're serving, and, and so that's, that's something to be excited about. We have a lead in the market. You know, we're 100% SaaS. We also have something that's really unique. I'd like to say that it was deliberate. It might have been a little bit, a little bit lucky, but I- but we understand it to be a real critical asset, which is, is we have something called a single security master. The single security master enables us to bring on new clients, and, instead of reconciling each client discreetly, we're reconciling the information for a security once, and the benefit accrues to everyone.
It allows us to pull data from a single source and use it for all of our clients, and that creates an incredible network effect. That product is really exciting, okay? To, to have the benefit. What we're doing is, is we're competing generally against incumbent legacy solutions. It's a replacement market, where generally we're. You know, these are replacement, you know, these are incumbent solutions that are sometimes on-prem, sometimes in the cloud, but always have their own unique data model. We're really able to offer relief from the pain that our clients feel. That's what I'm excited about at a most fundamental level. We see the, you know, so that's a tailwind. When you have a lead in a market, you never give up that lead, so we invest very heavily in product and technology.
About a quarter of every dollar of revenue is, is being pushed through into development, and we're adding new products and, you know, kind of at an exciting pace, so LPx, MLx, additional solutions. We're also... You know, that core market of asset management and insurance in North America has been very, beneficial to us, and we're seeing now the opportunity to become a global leader and expand that market leadership position we have in North America around the globe. So that's what gets us really excited, and, you know, lots to work on. You know, most importantly, our salespeople are excited because, you know, they think they have a winning, solution.
They do have a winning solution.
Yeah.
They should be excited, Jim.
Yeah
... on top of that. Let's talk a little bit about, maybe about the macro, what you could-
Yeah
... shed light on it. last week, company reported very strong 2Q results. You, you had a really good quarter.
Thank you.
What can you share with us in terms of what you're seeing in demand trends, across your core end markets? Because you do sell into, different verticals and...
Yeah
Also talk about what's underlying that demand. You know, why do investment accounting departments need to re-platform to other systems or extend their Clearwater system today? You know, what's, what's driving the momentum?
Yeah. Yeah. First of all, the demand environment. We're continuing to see strong demand, and our pipelines are big and good. Thank you for the compliment on Q2 results. That's very good, and so we felt good about that till last weekend, and now we're working on Q3 results, and pushing hard to deliver on those. The trends that we are seeing is, one, additional regulatory reporting, additional volatility in the markets, and additional interest in insurers, asset managers, and asset owners broadly in investing in new markets and finding the opportunity for safe, secure yield. In order to be able to do that... Why would someone switch from their legacy platform, because mostly people are switching, to Clearwater?
It's because, at an insurer or a corporate, you need 100% comprehensive visibility. Maybe, maybe your platform works for certain fixed income and equity products, but it doesn't work for LPs, or it doesn't work for derivatives, or it doesn't work for residential mortgage-backed securities. Our value prop is 100%. No matter what the, the instrument is, it covers. So many firms are turning to us because their investment mandates are evolving, okay? Other firms are turning to us because the regulatory burden has gotten too much. Other firms are turning to us because they're saying, "We wanna go global," or, "We want to acquire another business, and I can't understand how I'm gonna onboard that business." With Clearwater, that's our problem to solve. That's on the asset owner side, what folks are looking for.
On the asset management side, it's very much around, "How do I grow my business? My clients are demanding more transparency into the decisions I'm making for them as a manager. Let me help them do that," and that's what we do. Those are really the drivers that we're seeing. Those trends continue. On the asset management side, you know, I think, for all the, for all the folks listening to this, they, they feel this, right? You know, the fees that you're able to charge are, are under pressure. They may not have gone down, but people are always asking those questions. People are looking for things to do things more efficiently and more accurately, and also to be able to grow, and so that's another value prop we provide for the asset management organization.
So those are really the drivers. So the health of those markets. We see health in all of those markets. What I would say is, historically, kind of the AUM that we've been serving kind of has had a natural tailwind of about 3%. Last year, it was a headwind of about 5%. This year, it's neither a headwind nor a tailwind that we're seeing in that, in that AUM space. But it isn't about an overall market trend. Where we see AUM changes, it's more about specifics, related to a specific firm or a specific, you know, deciding to do something specifically, as opposed to an overall trend.
I think there's health in the pipelines in asset management, there's health in the pipelines in insurance, and interestingly, in corporates, which is maybe the one place where we do get a little greenfield. 'Cause generally, when a company goes public, they usually buy Clearwater either before they go public or right after they go public. You know, we saw that pipe trend down throughout 2022. We're starting to see that tick back up. I'm sure your equity capital markets friends at your firm are making you very busy, Brian, so you probably see those indicators as well, and we do as well in that marketplace.
Let's hope for both of us, those.
Yeah
... indicators continue to go in the right direction, Jim.
Definitely.
Let me ask you about the asset management business, really the new market. Because you've announced here that you've moved down market into-
Yeah
... let's call it the mid-market for asset management.
Sure.
Probably a lot of clients who are listening on this webinar right now.
Yeah.
plus, I wanted to ask you, why does that market look underserved or so, ripe for disruption? Are there other alternative investment markets that potentially look ripe for disruption, just the mid-market of asset management?
Yeah, I think that, I think that so if you think about it, just to, just bit of a history lesson, right? As I said, how do we get into the asset management market? Well, the asset owners pushed the asset managers to do client reporting. So I think that everyone who says, "I want my assets to be stickier. I want my relationship with my asset owner clients to be better," thinks about Clearwater as a facilitator of that relationship, and thinking about that. We also, last year, acquired a company called JUMP, and there's about 100 people, relatively small business, about $12 million in revenue, and when we bought them. They provide a full suite for which we think is appropriate for that smaller asset manager.
That smaller asset manager wants to be able to do trading and portfolio management and accounting, client reporting, risk, performance, all in one platform. They would prefer that. So in that area, the acquisition of JUMP opens up that market to do more for our clients. I think generally you'll hear, you know, strategy 101: add more clients and do more for the clients that you have, right? This is, you know, not a, not an incredibly landmark concept, but this idea, we do have actually high NPS with our existing clients, and they do ask us to do more. How are we gonna do more for them?
This subset of the asset management market, they would like us to be able to do more for them, and we think we have the tools in place to be able to do that. I think that they're frankly looking for a next-generation solution out there. They do like to have, you know, one throat to choke, and so that helps. As we build out that broader platform, we think that that's an interesting opportunity for us.
Jim, I wanted to switch gears and talk a little bit about the new Base+ pricing.
Yeah
model. I don't know if it's still new any- anymore. just wanted to ask some questions around that.
Yeah.
Maybe the, the first question just to ask on the landing. You know, now that you are able to sell modularly, are there any modules or even bundles of modules that, that you're seeing landing first? Does it, does it differ at all between the different end markets that you're selling into, in terms of which are landing?
Yeah. It, great question, Brian, and, and the next evolution- so you're right. Base Plus, which is, "Hey, here's a base fee for your book. Plus, as your business grows, we have a basis point model to grow on that." Third is the base fee goes up every year, just like a software subscription revenue. Then the most important piece of that is, is that which you bought today is all that you bought, and if you want to buy something else, come back and talk to us and we'll, we'll kind of talk about another plus. The next evolution of that, which we are rolling out today for new clients, is a bundled offering, okay? Let's just talk through it in, in a little granularity for the insurance market, just to, just to kind of give you a sense.
We have a base package, we have a professional package, and an enterprise package. For a base package, this would be for a relatively small insurer that has relatively short duration, you know, reasonably, reasonably short duration, you know, less than a year duration securities, but needs to do the accounting for them. They're looking for us to do accounting and NAIC reporting. That's the kind of... There's more pieces to the bundle, but if you think about that, if that's all you need, then that, then the base module is good for you. Once you want compliance, performance, and risk, now you're moving into a professional module, and those are generally more sophisticated. You know, now we're talking about 6-figure clients and, and kind of folks who have, who have kind of a full asset base.
Suddenly you want to move data between systems, and maybe you're doing your own trading as an insurer. Maybe you're global and you need GAAPs from all around the world and adding that. That's the enterprise module. That's kind of how we think about it. It's less about, It is a little bit about the market vertical, but it also has more to do, Brian, with the instruments you're investing in, the duration, and the size of your portfolio, and, and your strategies are gonna drive, are gonna drive that. That's kind of on that, kind of, I'll go through that whole vertical there. I would say that, you know, everyone, everyone so everyone is using accounting, and then you add on compliance, risk, performance, and, and those functions.
Then there's another vector, which is, if you have specific investments like Limited Partnership investments, then we would land also with LP, LPx. Obviously, if you don't have LP investments, then that wouldn't be something we would add. Does that, does that help with kind of? You know, I think that what this commercial construct between Base Plus and these bundles allows us to do is really be instructive to the prospect in understand, and it also reflects our real deep understanding across our 1,200 clients of what our clients need and what they probably want at this point in their journey. It also puts us on a nice path for them to be able, for those with aspirations to grow, for them to be able to start with us and grow with us.
Mm-hmm. Are there any, maybe one follow-up, Jim, just-
Yeah
on the pro- products and, and packaging. Are there any products that, that tend to, always land together? Like, I think of accounting, I think of reporting-
Yeah
- and those. Then, you know, are there any modules where you're seeing where the customer starts having some success that, that tends to pull in other modules?
Yeah. I think that as you, as you as an asset owner, as you add more and more asset managers, the, the compliance tool becomes more and more valuable. It's always valuable because you, you know, as a CFO, the one thing I wanted to do with my investment portfolio is make sure I didn't run out of compliance with my audit committee. 'Cause when I got the investment charter, I went to my audit committee and I said, "This is what I'm gonna invest." I knew as long as I stayed within that investment charter, it was gonna be okay, right? Compliance is always very valuable. Once you start having multiple asset managers, they might each have their own compliance view. Having a consolidated view across that becomes really, really valuable.
That's, that's something where we see as they- as the assets of a client really scales, that becomes a really, really, much, much more valuable piece. I would say for performance, that again, very valuable at the asset owner, level. Yeah.
Okay, let's shift over to, you know, some of the other, the growth initiatives. I, I guess we'll start with, with new customer acquisition and new logos. Wanted to ask you just how, how to think about penetration. You, you mentioned earlier in our webinar that, you know, half the revenue is coming from insurance or large insurance. You know, how, how should we think about at least just from the number of customers...
Yeah.
how penetrated you are with insurance, insurers in North America, and as well as in Europe? How about with maybe some of the other segments, like the asset management?
Yeah. Maybe, maybe just to frame at a TAM level, right, for insurance, we'll start with insurance, and then we can, we can go to the other markets. I think that at the, at the highest level, you know, 60% of the world's assets are in North America, and 40% are international. There's a big opportunity internationally. When you click down into insurance, it caught me by surprise when we actually did the bottoms-up build-up of TAM, which you can do because everyone has regulatory reporting, so you can find out the assets of every insurer. There's actually more insurance TAM in Europe than there is in North America.
Mm.
Just put that in the back of your mind. Now, now I'll just pivot to North America.
Mm.
We think that... So we kind of, within the insurance vertical, we have four teams, right? One that covers kind of, call it the top 20-25, kind of market out there, and we probably have 20% of that market today, right? We have kind of what we'll call the, the bulge bracket, which is where we've kind of been very, very successful, and we're probably maybe 40% penetrated into that market space. There's the small end of the market where, where it really, you know, at that- at those levels... Pardon me. Excuse me.
You know, you start to ask yourself, and in those kind of below that top level, if, if you're not on Clearwater, you should be asking yourself: "Why, why am I not?" You know, what are the benefits that everyone else is getting, that we're shifting to there. We see that there's, like, a significant runway in our most, even in our most penetrated market in, in North America. I think we're only 20% penetrated in that kind of very mega insurer base because the. You know, honestly, these, these organizations, it takes time to evolve, and so, so we focused on that higher level and, and, and think there's lots of penetration there. I think we have plenty of runway in North America in insurance and asset management.
We, we named a couple new logos in Q1 and Q2 of large asset managers that you probably would have thought, "Oh, aren't you already a Clearwater customer?" No, we're still adding, you know, those bulge bracket firms to, to our, to our area in North America. In Europe, it's very much a greenfield opportunity for us, and so we see that there's. We're massively under-penetrated there. I think last quarter, non-US revenues were about 17%. Again, if 40% of the TAM is outside, there's a long runway there. That's on insurance. Asset management, I think we just, we have a long, long runway there. To be fair, asset management is a more nuanced market. You know, we're doing client reporting for lots of folks, and there's more we can do for, for lots of different folks.
So, so that's a very big market, and obviously, like I mentioned, JUMP earlier, I think that helps us to address more areas of that market, going forward.
... Jim, in terms of the install base spending or the NRR, you know, in 2Q, there, there was a new development that you've... you, you, you, you gave it out as guidance on your news call that-
Mm.
you know, you raised the NRR target from 110%+ to 115%+. Quite a bit big jump there, I don't think you did that because you're predicting the macro is suddenly gonna be re-accelerating.
Yeah
... and ripping. Maybe you can share with us the drivers-
Yeah.
how you think about the drivers of the expansion motion within the install base.
Yeah. I would just say, you know, Brian, that just to be clear with everybody, I'm, I'm not predicting when we're gonna do it but it's more of an aspirational, but this feels like something we should be able to do, given the install base that we have, the needs that those clients have, the high NPS that we have. We believe that there's a path to 115 by providing additional solutions to our clients because they're asking for it. Because they're asking for it. We need to go through that. There's a lot of things we need to do to be able to put that together, but it's just so powerful to be able to have look, our gross revenue retention, 98%, you know, 17 out of the 18 quarters. It's...
I think you would even agree, like, it's world-class. Like, that is a very. That is. You know, 106, 109, even 109, we're very happy with 109, but it's not that's not world-class. I think 115 becomes a very, very acceptable NRR, right? How do we get there? It's because we are we've created a commercial model where we can charge discreetly for additional solutions, products, services that we're providing to clients. We're also so we're doing that. We're also building out sales teams that are focused on just back selling. We've generally only had sales teams that focus on new logo acquisition, so we've got to get a go-to-market engine in place. We've got to get the product pipeline rolling in this way.
We also have the opportunity to do M&A to add to that product pipeline. I think between all of those, we're able to build a path that says that, that starts to march us from the 98 up to that kind of aspirational 115 level. You know, we have some small price increases, we have some small tailwind from AUM, but really what we've got to do is help our clients grow and solve more problems for our clients, and do that in a durable, reliable, sustainable way, and I think we can march our way up to that NRR over for the next, you know, years. Yeah.
Yeah. Thanks, Jim. That's very clear. Helpful.
Excuse me. Sorry.
No, that's... No, you're fine. No. Jim, wanted to ask about JUMP.
Yeah.
I guess I had two questions I wanted to hit upon JUMP. Maybe the first one, sounded like the business, you know, performed better in Q2.
Yeah
... there with JUMP. Can you share with us maybe some of either the early cross-selling traction or maybe the early revenue synergies that, that you've been seeing with JUMP?
Yeah. Just for listeners, let me, let me remind them why we did the JUMP acquisition, right? Number one, it was geographic footprint expansion. You know, 100 people in Paris actually helps everybody sell, you know, we thought it would help us sell. Number two, it has a suite of solutions that is modular, that fits the asset management market, so it helps us do more for our asset management clients. Number three, some of those modules we think we can sell back into our existing client base. All three of those were really the drivers. Backing up to number one, you know, has it helped in Europe, in French-speaking markets? It has. I think we can unequivocally say it has. It's helped for us. We have some nice wins on the Clearwater product in France.
Also, actually, I didn't think this through, but JUMP, being part of Clearwater, a larger organization, has actually probably helped them with their clients, okay? Prospects, as, you know, more stability. I think that's helped there. As far as cross-sells go, which, which was the third thing, was we signed up three clients to cross-sell. We were very deliberate. One was unit-linked funds, which is a really interesting, and it's kind of a bespoke product, but that we believe they're the best in the market at that. That happened in Europe, and we're really excited about that win there.
Then we had one client that's using JUMP for their portfolio management, order management around the Clearwater platform, and another client that's using JUMP's Performance Plus to do their performance reporting for their clients. Now, we're onboarding them, and the team that's onboarding them is an identified Clearwater team that's building. We're learning the integration and the connectivity and all of the excitement that goes around, you know, melding products together in the phase. I think that we'll learn a lot through that onboarding process and then build that, and then I think that gives us incredible confidence to really think about how do we really cross-sell? What's the right fit? How does that work? So I think we feel we're never satisfied with how quickly things are going.
They could always go quickly, but I think the partnership we've seen has been fantastic, and, and I think that we're onto something here. There's nothing better than having a client help to guide where we're gonna go, so we're really appreciative of that. On the specific asset management stuff, I think we're gonna hear a lot more about that in 2024.
Okay, we'll save that as a teaser.
Yeah.
You answered my second question, Jim, so I'm gonna move on.
Okay
... to artificial intelligence, to generative AI.
Yeah. Yeah, yeah, yeah.
Relevant topic, you know, Clearwater-GPT-
Yeah
... announced a couple, couple weeks ago. Maybe we'll just start there with early use cases. Maybe help our listeners can understand, you know.
Yeah
... the potential use cases for your customers. Help us understand-
Yeah
the real-life value creation of AI-
Yeah
... in the end market.
We see, we see opportunities in this market, both on the revenue generation side as well as the efficiency side, and we spoke about that during, during the call on both sides. I think backing up, what makes us special is that single instance security master and data all in one place. When you think about what do you need for predictions, you need data for predictions, and if you have more data than everyone else, then your predictions are probably gonna get better. I think that's how AI works. I think we have a reason, a real legitimate reason to believe that we should be appropriately differentiated, given that kind of standing on the shoulders of that data.
Couple examples that clients won't see, but they'll feel the benefit of, and eventually they'll see, but I think the way we think about it is we're gonna start with human in the loop to do it, you know, first time right. You know, we have roughly 200 people who, you know, although we have machine learning rules already that handle all of these trade breaks and how to work, a lot of times you have to make a decision. We have 200 people that help kind of work through all these trade breaks and reconciliations every day because stuff breaks every day. When you have $6 trillion in assets on the platform or more than that, you know, there's always something breaking, and so that's what these folks do. We see AI being able to benefit them with giving them a next best choice.
Which of these three would you- do you think is the right answer? Because our Clearwater-GPT is going through all of our kind of case log information and all of our product-level information and all of that, and can help provide them with an answer that our most knowledgeable reconcilers have and our least knowledgeable reconcilers learn over years. If we can give that to them in days, think of the efficiency that they can have with that. There's that example. There's also onboarding. You know, onboarding requires a lot of kind of interaction between each other, so as you think about a chat interface to try and gather data and click through and understand that, that's a use case that I think that will create efficiency and benefit to our clients.
With respect to kind of what are the revenue-generating opportunities, that single data set, we're already working on providing insights to clients. That's something near and dear to my heart. It's something I always asked for. As a CFO, I understand how I'm doing, but really, how am I doing compared to everybody else? Today, Brian, I do that by calling my friends and asking them. What if we can be that? What if there's a chat interface where you can kind of understand that? You can say: "Who is like me? How does that look? Why is that the case? What do we wanna do?" In an anonymized way to make you feel like you understand whether you're doing well or not. That's another example on the revenue side. Enough talk.
We're gonna show this to our clients at Clearwater Connect in September. What I'll say is is we, you know, kind of moved quickly to move, you know, some of our best engineers and operations people to kind of move to this group. We've got a dedicated team working on these four programs. We look forward to showing people really what this has looked like. Look, it's not gonna be done in September, right? I think it's powerful to show people and then... You know, how we work best is by iterating with our clients. So after we show folks, I expect a lot of clients will raise their hand and say, "We wanna, we wanna be part of this," and then we'll move forward from there.
Jim, last thing I just wanted to touch upon. You, you answered it a little bit, but I just wanna make sure we touched on the competitive moat and how you're differentiated and, and why you win in the market. You talked about the single data model-
Yes.
... which is a big, big part of the differentiation. But share with us and, and the listeners, you know, the mode and the differentiation.
Yeah. I think that the value prop comes across as clean, reliable, comprehensive data that you can use to, to do your best work. In order to be able to do that, we have a single data model, and all of the sausage-making that's done there, it's transparent to you. We take care of it, and it just comes out as right at the beginning of the day for you to go use. On other systems, you're probably doing all that sausage-making yourself, and you're spending the time doing that. Even if you were to be able to build something in the cloud, which, there's many offerings that are in the cloud, the simple fact that most other systems...
In fact, to my knowledge, all other systems are designed thinking of the portfolio level, not the security level, and it's just a fundamentally different way of architecting the system. If you think about things at the portfolio level, then that same security across all your different portfolios needs to be reconciled for each portfolio. The data needs to be ingested for each portfolio. When there's an error in that data, it needs to be corrected in each portfolio across each client, and there is no shared knowledge base there. People can't build that because you have to start with client number one, thinking of a security model, not a portfolio model.
I think that's really a key differentiator when you think about, 'cause obviously, we're in the cloud, obviously, we're very efficient, obviously, you know, we've got great reporting and features and functionality, but people can try and build all that. I think you need a different architectural model to be able to solve that.
Yep, good place to be. Jim, we're out of time. I want to-
Thanks, Brian.
Thank-
Thanks so much.
Thank you so much for your time and presenting.
Appreciate it.
What a time.
Have a great, have a great conference. This was. Really appreciate it. Take care.
Thanks. It was great seeing you. Thanks for everyone for dialing in.