This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: based on the new subscription model by the end of the year. If that kind of happens and you slowly get closer and closer to that 100%, would you consider introducing or highlighting RPO as a more relevant disclosure since it will be more upfront and more contracted rather than on the variable AUM, AUA-based pricing model?
spk04: Well, let me walk you through what the pieces of the new commercial construct are, just so that everybody's baselined on that, so that folks understand that. So the first piece is a base model, which really reflects, call it an annual fee, which, by the way, we would move to that RPO view if we were actually doing that annual billing up front. But presently, we continue to bill monthly under that, but it's an annual fixed fee based on the full AUM that the client has on their current book of business. So that's step one. So we set kind of a base mark for that. Then secondly, there continues to be that element of a scaling of the fees based on the growth of the client's business. Typically, that's through their AUM balances. The third piece is that we've really drawn a box about what core Clearwater is, enabling us to sell separate modules discreetly. And then lastly, there is a annual increase of that base fee to continue to drive that through. And so I would say, Rishi, we will, as we continue to evolve, One more thing I'll say. For our new clients, I think the acceptance of this model has been incredibly high. And so that's been terrific as well as with our going back to our existing clients. And so as we move to that final step of invoicing that annual base fee annually in advance, that would be when we would pivot to that RPO.
spk03: Got it. That's really helpful. Really appreciate the thorough answer. Thanks so much, Jim and Sandeep.
spk00: Thank you.
spk01: Thank you. The next question today comes from the line of Camille McCarrick from William Blair. Please go ahead. Your line is now open.
spk06: Hi, everyone. Thanks for taking my question. First on the pricing model, it's nice to see the strong progress there. I just want to follow up on how the Wave 3 is progressing. Can you provide me with some more color on how you approach these more complex conversations, how the change is being received by the larger customers, and where are you seeing the most pushback, if any, given the favorable pricing in this market with the existing model?
spk00: So I've got to say thank you for the question. I don't think we see real pushback. I think literally almost to a client, the clients have been receptive, they've engaged with us, but it does take longer. I think when you talk about the wave three clients, the numbers involved are obviously higher and therefore there is resistance to getting it done in five weeks. It takes a while. So that's how I would characterize it. I don't think we have seen Any difference in, you know, constructive nature of the conversations? We just haven't. It just takes longer. Anything else you might want to know whether there's a market or something where we see?
spk04: I think the acceptance in corporate and insurance is almost universal. And in asset management, it takes a little more time to kind of walk through that. Yeah, I think that's fair.
spk06: That's helpful and it's good to hear. And if I could just follow up on a question on Europe, can you update us on how demand is trending there? In what countries have you seen the most traction and have you seen any changes in customer conversations in recent months?
spk00: Yeah, so Europe continues to have a really strong pipeline. I think we disclosed that 15% of revenue now is international. So that's huge from last year, if you remember. So we've been really successful with Europe. We are very bullish on Europe. Frankly, the acquisition of Jump in Europe is a little bit testimony to the fact that we think we can grow really quickly. It just takes a while to set up these offices and hire all the people. And that's why the acquisition made so much sense. So we'll continue to expect to get, you know, very strong growth there. I think intraday, We've added 13 new logos in Europe. So we have about 13 new logos there. So all in all, it's going about as well as we think it could have. We're also a little bit excited that we had FWD go live. I mean, this is one of the larger insurers in Asia. Also a little bit excited we got our first client in Australia. And this isn't with a team there. It is with them calling in. And so we really think all the international business is going quite well.
spk06: That's great to hear. I appreciate the call. Thanks again.
spk01: Thank you. Thank you. The next question today comes from the line of Ella Smith from JPMorgan Chase. Please go ahead. Your line is now open.
spk02: Hi, thanks so much for taking my question. My first question, so your revenue guidance would imply about 19% growth year over year. Would you say this increase is mostly due to new client acquisition versus pricing, and would it be possible that your overall client count is actually north of 19% year over year by year end?
spk04: So we're definitely growing from new client acquisition, and we are also growing from assets, so from clients adding assets. to the platform. And so, Ella, as we have kind of evolved as a company, we continue to go up market. And so as you see, our total client count is going up nicely. It is not going up 19%. But when you start looking at our clients that are larger than $100,000, larger than $250,000, larger than $1 million, which we disclose on an annual basis, you'll see that those are ticking up. And as you start to see the share of clients that are those larger clients, you'll see that operate. That is really the mechanism to drive that 19% growth.
spk02: That's very clear. Thank you. Perhaps it will be 20. Perhaps it will be 20.
spk00: We like 20 more than 19. I think we're driving to between 19 and 20. So we're not ready to concede the 20 quite yet.
spk02: Great. Very clear. Thank you. And my second question pertains to the jump acquisition. I believe during the call in September, you referred to an IFRS discrepancy due to licensing. I was wondering if you have any updates about the accounting nuances associated with the acquisition.
spk04: Yeah, we're continuing to work through that with them as we move to US GAAP. And obviously, as we kind of bring the jump solution into the cloud consistent with what Clearwater does. That IFRS-CUS gap diminishes over time, but we're just still working through that as we work through the closing process. And I think we'll be able to give you a full debrief of that after Q4 once we've closed.
spk02: Great. Thank you both very much. Appreciate it.
spk00: Thank you.
spk01: Thank you. The next question today comes from the line of Michael Turin from Wells Fargo. Please go ahead. Your line is now open.
spk07: Hey, great. Great. Thanks. Appreciate you taking the question. I mean, the retention rates seem to be stabilizing here. At least the net revenue retention number is close to what you saw last quarter. You're clearly holding strong on gross retention rates yet again. um is it is it fair to expect the net revenue retention to mostly stabilize around these levels given just the gap is closing between where the gross number sits and how does the transition that you're embarking on impact the expected trajectory there if at all yeah i think that's a great great point um and uh so i do think that we have we've uh frankly i think short of any you know very
spk04: impactful macroeconomic event I think I think we've seen the bottom and I think we would you know when you think of all the additional modules we have and you think of the jump acquisition coming to fruition there's a lot of levers we have to pull to start to move that net revenue retention number north as as we kind of move through this
spk00: Yeah, no, I would absolutely expect all of these contract changes we continue to work on and have worked on to start to have an impact in Q4 towards the latter part of Q4 in the beginning of next quarter. So we absolutely expect that number to improve. And obviously, barring something strange happening in the battery economics sphere. So yeah, we're happy to stabilize, but we're not happy with the number. We think it's going to be an alternative number. Yes.
spk07: Understood. That makes sense. Just on the guidance, you're taking the top line up a touch on the beat. Obviously, there's a little bit of jump assumed in there as well. On the EBITDA, just sort of the fine-tuning versus that number moving up a touch in tandem with the top line, is that mostly tied to jump as well, or are there other impacts for us just to be mindful of on the EBITDA side?
spk00: Yeah, I just want to say on the EBITDA, no, we don't have anything of jump in there. It's just that jump exact day of closing and all that is hard to forecast. But like Jim said, expect to close in Q4. So then the question of what's going on with EBITDA, look, the revenue is sort of on plan. And frankly, our ability to manage it is high because we're really investing in people. That's really the bulk of it. So then the question is how quickly do you want to ramp up operations teams out in Asia and Europe? And that is really what what this is about. Where we are with EBITDA and Q3 is about, we don't want to go any further below this number. So if you look at our Q4 guidance, it is meaningfully higher, and we expect to do better than where we are. And this is what we had said, Michael, last year, that we like this about 25% and no lower. And, you know, we've given it 24.7, and then we expect to come right back to a higher number than that.
spk07: Appreciate you asking the follow-on questions for me, Sandy. Thanks very much.
spk00: What was Q4? It's almost like 28% is what we're guiding to. So when we saw the 24.7, we were like, no, this is not the number we want. We like 25 and we like both of that.
spk04: We had Clearwater Connect. We had some nuances with commissions and we also had some some nuances around the vesting of RSUs and the employee tax costs of that, which caught us out a little bit, but we really understand all that. We have the ability to manage. We think the investing has been fruitful, responsible, and I think we'll continue to, but we think Q4 will be a more profitable quarter from an even to margin perspective.
spk00: Michael, we thought you would like the fact that we paid higher commissions in the quarter. So that means I book you.
spk07: That's also a good point. Thanks very much.
spk01: Thank you. Thank you. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. The next question today comes from the line of Brian Schwartz from Oppenheimer. Please go ahead. Your line is now open.
spk08: Brian, you may be muted, Brian. Can you unmute me?
spk05: Operator, can you unmute me? Oh, God.
spk03: We can hear you, Brian.
spk05: Someone unmuted me in the sky. Sandeep, I wanted to follow up on kind of the big logos that you won in the quarter. You gave us drivers in your introductory commentary on those wins, but I was wondering if it's possible to parse that out a little more or rank them in the sense that when these customers are buying the platform for you, is a bigger driver coming from them looking to replace legacy architectures to save money in what is a very tight budget environment that we're heading into versus, say, the other drivers, which are really more about driving automation in the organization to help increase productivity.
spk00: Yeah, thanks, Brian. So, you know, we obviously have been very watchful simply because of the news coming out about the economy, you know, just every management team I think is being more watchful. So three things are driving the funnel right now, right? The first one is people who need efficiency, they need it now, they need it quickly to manage costs better, right? So that is, there's definitely a big segment of the prospect base and the client base, which needs to manage that. So that's one. Second one, which is really interesting is, you know, people are, looking at these market dislocations and buying books from other asset owners. So there's lots of acquisitions going on, buying books, getting into new asset classes, and people want to do that in a bit of a hurry. And it's impossible to go set up a brand new architecture system for that. Coming to Clearwater makes them very nimble. They can buy assets in Germany tomorrow, They can buy assets and mortgages or whatever. So there's definitely a class of people who are pushing on that. And that seems to be the sole reason they are doing that. And the third thing is it just risks people from audit committees and literally getting calls from audit committees saying, you know, you need to get your risk in order with this rapidly changing and volatile environment. And so that drives it is just better control on a day-to-day management of risk and managing it better and being responsive to the market. And so one of those three is what's driving it. I mean, you still have some cases where people are doing large scale financial transformations and that drives it. And sometimes you will have a currently awarded client go to another another company and saying, well, this is not the way to do it, and they would bring us along. So if you think about these five elements, I would hazard that the vast majority of our prospects would fall into one of these.
spk05: Thank you. And then one follow-up for Jim, just thinking about the guidance for Q4, Is it fair to assume that there's still going to be a slight headwind here from the customers that are still on the old pricing plan? We see where AUMs are going. And then, Jim, are you factoring in the macro at all as you contemplated and initiated the Q4 guidance here today? Thanks.
spk04: Yes. I think when we looked at the Q4 guidance, we... understood what the perspective of what the Fed was going to do, and it looked like they did exactly what folks expected them to do today. And so we did consider that as part of it as we looked into the guidance.
spk05: Thank you for taking my questions.
spk04: Thank you. Take care, Brad.
spk00: Thank you, Brad.
spk01: Thank you. There are no further questions registered at this time, so I'd like to pass the conference back over to Sandeep Sahai for closing remarks. Please go ahead.
spk00: Look, I just wanted to thank you all for your continued interest in Clearwater. I think we've had a really good year-to-date performance. I think we've had headwinds, but we're really proud that we continue to deliver and target a 20% growth rate for the year. We're very excited about that. We're very excited also about I think being able to make all these contractual changes while booking the right amount really throughout the year. And really that was really important for calendar year 2023 is that if we had not done this, we would continue to be subject to the volatility of the market. And we hope to mitigate that quite a bit. So thank you all. I really appreciate your interest and your time. Thank you.
spk01: Thank you all. This concludes today's conference call. Thank you for your participation. You may now disconnect your lines.
Disclaimer