Clearwater Analytics Holdings, Inc.

Hello and welcome to the Clearwater Analytics third quarter earnings conference call. My name's 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 JR 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 Zahai, Chief Executive Officer, and Jim Cox, Chief Financial Officer. After their remarks, we 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 items with 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 in 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 Sahar.

Thank you, JR, 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 seven countries. We have over 1,000 clients, and on a daily basis, we process over $5.6 trillion in assets on our platform. But 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, analyzed 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. A recurring revenue model and high gross retention provides stability and predictability to a business. Our non-GAAP gross margins are approximately 75%. It 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 our 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 1, 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 and 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 the technology lead as well as gain additional traction with governments pension funds and sovereign belch funds the longer term opportunities for horizon 3 include delivering insight for current and future trends 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 way of working that simply delights 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-plus 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. So why are clients moving to our platform? Clients in our cold markets are facing growing challenges driven by low yield 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. But there is an easy way. They 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 the universal security master, that allows us to reconcile the data once every day, clearly and without duplication. We then run our reconciled data to 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 service routines. The Clearwater platform also creates a network effect where every new client we add increases the security and asset 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. And we believe that we can leverage our technology to eventually revolutionize the broader world of investing. Now that I've 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. They will achieve solid year-over-year and annualized recurring revenue growth. We achieve consistent margin, even with our investments in growth, and those investments are starting to show promising results. And we've 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 growths. 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 weak client, Chimera Investment Corporation. Chimera 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's, Berman's OCIO, Outsource Chief Investment Office and Trust, and Wealth Business Labs. 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 Koscianski, our president of product and technology, spent most of his 25 years building and running the product group at one of our largest competitors. And Shomit 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, a first seven-figure Asia-Pacific client, in addition to a European insurer and reinsurer, a UK-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 One United Bank, the largest black-owned bank in the U.S. in Q3. Under this partnership, Sharewater 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 deeded 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 five pillars of growth and are very pleased with the progress we have made in this last quarter. And now to provide more color and details on this quarter's performance, I'll hand it over to our Chief Financial Officer, Jim Cox.