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spk09: Ladies and gentlemen, thank you for standing by and welcome to the Clearwater Analytics fourth quarter and full year 2022 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. And now I would like to welcome June Park, head of investor relations, to begin the conference.
spk12: Thank you and welcome everyone to Clearwater Analytics fourth quarter and full year 2022 financial results conference call. Joining me on the call today are Sandeep Sahai, Chief Executive Officer, and Jim Cox, Chief Financial Officer. After their remarks, we will open the call to a question and answer session. I would like to remind all participants that during this conference call, any forward-looking statements are made pursuant to the safe harbor provisions 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 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-backed reception of our filings with the SEC. Actual results may differ materially 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 included in our earnings press release. Lastly, all metrics assessed on this call are non-GAAP unless otherwise noted. A reconciliation can be found in the earnings press release that we have posted to our investor relations website. With that, I'll turn the call over to our Chief Executive Officer, Sandeep Sahar.
spk05: Thank you, Jun, and welcome, everyone. Let's start with the numbers, because we are delighted to share robust results for both Q4 and the full year 2022. Revenue for the full year grew 20.4%. Gross revenue retention stayed at 98% for the 16th straight quarter. Net revenue retention climbed to 106%. Gross profit was 75.7% in Q4. EBITDA margin for Q4 was 29.4%. We generated free cash flow of 16.6 million in this quarter. And in the last 100 days of 2022, two more of the 20 largest insurers in North America chose to move to the Clearwater platform. That, I hope you'll agree, is very compelling execution. Looking back at the year, I could not be more proud of our team. As all of you know, Like other FinTech firms, we faced headwinds throughout the year. And I believe the urgency and effectiveness with which we reacted and executed was very strong. And we didn't just address the challenges we faced. In fact, we made our business stronger and more resilient by working with our customers to craft a modified commercial model. Given what we accomplished in 2022, we have renewed confidence that our overall plan, our commitment to building disruptive technology, our product strategy, and our customer-centric approach will stand the test of time. Let's dig a little deeper into the fundamentals of the business. When we completed our IPO in September 2021, we laid out five pillars to guide us and we continue to build upon them throughout 2022. Given the new year, we want to provide an update on those pillars, which are largely unchanged. Pillar number one is consistent, reliable and durable growth. This is the first pillar for a very good reason. We want an ever increasing number of clients to choose our platform And for those who are already on our platform, we want them to grow. Consistency and predictability in our growth is important to our ability to invest in the medium and long term. Our Q4 revenue was 82.7 million, and full-year revenue was 303.4 million, which represented year-over-year growth of 20.4%. This accomplishment in a turbulent and challenging time is testament to the resiliency of our business and the ability of the team to navigate challenges as they arise. With strong booking in Q4, booking for the year 2022 exceeded the budget we had laid out in the beginning of the year. That allows us to look forward to 2023 with confidence in our plans, and we expect to deliver another year of 19 to 20% growth. We continue to watch the economy and the market conditions, and we'll remain vigilant and agile in our response. More specifically, we will look to our booking to guide our continued investments. Pillar number two is our sizeable total addressable market. We have always approached the sizing of the market opportunity with a lot of rigor because our GTM investments are determined by it. We have built a detailed view of our TAM by market, some markets, and geographies, and have previously communicated a market opportunity of $10 billion plus. In addition to using our own teams to validate this on a continuous basis, we work with leading consulting firms to further validate and refine this estimate. More importantly, they help us define areas for TAM expansion. It is easy to be content with the long runway we have in our current markets, but our ongoing investments in R&D is in service of finding adjacencies that can continue to enhance the TAM on an ongoing basis. An example of actions related to this effort is our acquisition of Jump Technology. Not only does it double our European presence, it also enhances our TAM by one billion by allowing us to develop front office systems including order and portfolio management to current and new clients. 157 new logos went live on our platform in calendar year 2022 and is proof of our ability to capture them. In addition to the two large insurers we spoke about earlier, our new customer wins from Q4 include Adventist Health System, Bimini Advisors, Homestead Advisors Corp., Meter Investment Management, Payden & Retail, Robinson Capital Management, and Westcap Management, just to name a few. Geographically, we encouraged with our early continued successes in Asia, and in Q4, we signed Avalis Investments in Singapore, MSIG Insurance in Thailand, and PT Assurancee MSIG in Indonesia. These organizations joined a growing group of clients in Asia and Australia. In a majority of these cases, we continue to replace legacy solutions and clients get a daily, reconciled, comprehensive view of the portfolio across asset classes and geographies. This is where a third pillar comes in, our competitive next generation platform with deep competitive modes. Across the industry, investment operations teams face real challenges when they deliver to the businesses. That's just a fact. They have to deal with multiple systems that are narrowly focused on a given geography, a given asset class, or a business function like risk. And they have to bring all that together for the business who want to see a comprehensive view of the assets. Then there is data quality. They have to ingest and reconcile and keep track of ever-changing regulations and regulatory reporting requirements. Operations teams need to manage all of that and deliver on time. Our single instance multi-tenant architecture is truly the next generation technology that has been proven in industry after industry. The value of the single instance architecture results in a constantly updated software platform that keeps pace with changes in accounting and regulations, obviating the need for costly and time consuming upgrades. Clients no longer need to watch the tens of thousands of regulatory alerts that come out every year. They simply rely on KWR. I was talking to a client recently who left a competitor to join us and asked them why. They said they had been following our regulation and compliance advice for years. So they came to the conclusion that they would benefit from it being baked into our software. Multi-tenancy is changing the data quality landscape. Our platform fosters a network effect that allows for the highest data quality. Instead of each client having to ingest and reconcile their own data, we do it once for everyone. But we are not content or complacent about our position. We continue to invest in our product to further deepen our competitive mode. In 2022, we invested 25% of revenue in R&D and plan to continue this level of investment in 2023 before moderating that in subsequent years. Moving to our fourth pillar, expanded product offering. We believe that the continued and sustained investment in R&D allows us to bring additional products to market. When you first met us, Clearwater was predominantly a single product company. But that has and will continue to evolve as we build a best-in-class commercial model. Today, we offer multiple adjacent products which can be used independently of Clearwater Core. Clearwater Prism continues to get greater market acceptance. Clearwater Jump OMS PMS for order and portfolio management. Clearwater Jump for the full investment management lifecycle. And we offer add-on modules, which can be used alongside Clearwater Core. Clearwater LPX. Clearwater LPX Clarity. Clearwater Performance Plus. Clearwater unit-linked funds. Let's take them one by one, starting with PRISM. We are proud to announce that in Q4, two of our largest clients nationwide and JPMorgan Asset Management chose to use Clearwater PRISM. The Clearwater platform combined with Clearwater PRISM aggregates data and performs a series of calculations and data validations and generates reports that allow JPMorgan Asset Management to comply with the daily regulatory reporting obligation. We're also excited to share that we have signed our first significant seven-figure PRISM deal in Europe, expanding our offering for one of our largest clients. This client will be able to use PRISM to generate reporting for their end clients. representing over $290 billion in AUM. Next is Jump. As you will recall, we closed the Jump acquisition in November of 2022. In December, we sold the Jump platform to Luxembourg-based insurance provider Cardiff LuxWe. This key new client win in EMEA demonstrates that the combination of Jump and Clearwater constitutes an attractive offering to the European asset management market. We look forward to supporting Cardiff Lux Re with the investment performance, regulatory compliance, and reporting needs. We also expect additional customers in our core markets to be attracted to our combined product offering. In addition to Jump's standalone offerings, we have integrated Clearwater and Jump's development and product teams for defined products so that we can offer integrated solutions for unit-linked funds and an enhanced, feature-rich performance module to existing Clearwater clients, which brings us back to adjacent products like Clearwater LPX. Clearwater LPX are products focused on limited partnerships, is being well received and gaining traction with both existing clients and net new logos in the market. We added more than 40 clients to the Clearwater LPX offering in 2022. As you can tell by its rising popularity, the solution is being selected because it helps organizations dig deep into their private equity investments, providing them the visibility they need to understand long-term returns. Clearwater LPX Clarity takes it one step further to convert unstructured data to structured data to provide our clients' front office teams with underlying portfolio exposure and look-throughs, including investment and risk analytics. PRISM was our first adjacent product. and it is now starting to deliver meaningful booking and revenue. We similarly expect our other expanded product offerings to create increasingly higher impact in 2023 and beyond. The fifth and final pillar is Clearwater's client-centric approach. The ultimate value of any tech platform rests in the value it delivers to clients, the impact it has on the business, and overall client delight. In Q4, we once again received an NPS score in excess of 60%. That is simply the best in the industry. We work hard to ensure that our tech and our global teams are working towards a singular goal of client delight. Truly, client satisfaction is at the heart of everything that we do. In Q4, as a testament to this fact, Clearwater won numerous awards. The Tech Provider of the Year Award for Excellence from Insurance Asia News, the Best RegTech Solution from Insurance Post, and the Technology Firm of the Year from Insurance Asset Management. These honors acknowledge the profound impact Clearwater is having on a client's investment operations in the U.S., Europe, and the Asia Pacific region. We are happy to report that Clearwater's CMO and CHRO both won awards for their leadership in marketing and HR innovation, respectively. Now, looking forward, many of you might ask how we expect macroeconomic conditions to impact our business. We are not reacting by laying people off. Rather, we are growing in line with our business. We are not cutting corners in R&D. Rather, we are consistently investing. We are not afraid to expand geographically or through acquisition. But rest assured, we are watchful of the economy and the markets. We will be led by bookings and not by economic forecasts about what might or might not happen in the coming quarters. We stand steadfast on our pillars. Consistent, reliable, durable growth. Focus on TAM. Enhancing our SaaS platform. Innovating our product offering. And dedication to clients. Little has changed in our philosophy, approach, or culture, except that after weathering 2022, we have proven our resiliency and therefore have even higher convictions. Before returning with a few closing thoughts, I would now like to hand the call over to our Chief Financial Officer, Jim Cox, to provide more details on our fourth quarter and full year financial performance, as well as updated guidance for our first quarter and full year 2023.
spk10: Thanks, Sandeep, and thank all of you for joining us. It is rewarding to report our Q4 and full year 2022 results. I plan to spend our time summarizing a few items from our Q4 results and then explain the financial impact of the jump acquisition, which closed on November 30th, the tax receivable agreement, or TRA expense, update you on the continued progress of our transition to the base plus model, and then conclude by providing color on our 2023 guidance. Please note that our results will be discussed on a non-GAAP or adjusted basis and include the results of jump since the acquisition, unless otherwise noted. Turning to Q4 and 2022 results, let me start with the top line and the metrics that drive revenue. In 2022, we're especially proud to have delivered 20.4% year-on-year revenue growth in an otherwise challenging market environment. Q4 revenue was $82.7 million, and full-year 2022 revenue was $303.4 million. Q4 revenue included $2.7 million of revenue from Jump in December, which was roughly $1.5 million higher than we expected when we provided our Q4 guidance. Jump's revenue included a perpetual license agreement with Cardiff Lux V, which closed in December. We were happy to see that the combination of Clearwater's scale and Jump's functionality achieved such success with a large European client so quickly. Annualized recurring revenue, or ARR, at the end of December 2022 was $323.5 million and included $6.4 million of ARR related to the jump acquisition. The insurance vertical comprises 52% of ARR. The asset management vertical comprises 33%, with corporates, governments, and other entities comprising 15% of ARR on December 31, 2022. As of December 31, 2022, the Clearwater platform processes and reports on $6.4 trillion in assets daily, up from the $5.9 trillion at the end of 2021. This increase reflects business growth from new clients and existing clients that more than offset the market decline from lower equity and fixed income prices caused by the significant increases in interest rates throughout 2022. The bedrock of our business continues to be our client-focused approach, which has led to best-in-class customer satisfaction and an industry-leading 98% gross revenue retention for the 16th straight quarter. In the fourth quarter, net revenue retention increased to 106%, a nice uptick from the bottom we predicted in Q3 of 103%. The 106% net revenue retention shows the positive impact our commercial model transition has had on our business. Let me highlight more in relation to our commercial model transition. As a reminder, we have historically charged our clients a fee, primarily based on the assets they manage on our platform, subject to contracted minimums. A significant majority of the assets on the platform are high-grade, fixed-income assets, which had historically led to very low levels of volatility and predictable revenue streams. With this significant market volatility in both equity and fixed income in the first half of 2022, we evaluated our commercial model. We transitioned our contracting structure to a framework we now describe as base plus. A base plus contract framework includes a base fee for a prospective client's existing book of business plus an incremental fee for increases in assets on the platforms. The base plus model includes annual increases in the base fee and enables us to charge additional fees for supplemental services or additional products should the client subsequently select to utilize those services. This base plus structure has the effect of limiting the downside volatility in our asset-based fees. I am happy to share that since July, 100% of our new clients with contracts greater than $500,000 in expected annual revenue are using the base plus commercial model. We also made significant progress with the commercial terms across our existing client portfolio. In 2022, clients representing 80.1% of ARR either agreed to modify contracts or price increases in their existing basis point contracts. This is precisely on target with our goals. We simply would not be able to make these changes if we did not have exceptional client servicing and a market-leading solution for these clients. Going forward, we aim to have a vast majority of new customer contracts on the base plus model. Additionally, we will continue to engage with the remaining clients to transition them to the base plus model. Within one small portion of our client base, we do plan to maintain an AUM-based pricing model. Our largest asset management clients have historically relied on Clearwater to be an enabler of their growth. For those clients, their NRR growth rates were consistently higher than our reported NRR. For those clients, we will continue to focus on growing with those clients as their assets grow. Now, let's turn to profitability. We reported $81.1 million in EBITDA for the full year 2022. and $24.3 million in EBITDA for Q4, which both exceeded the midpoint of our guidance by $1.6 million. EBITDA margin was 26.7% for the year, our first full year as a public company. Q4 EBITDA margins were 29.4%, as our better revenue performance combined with a more cautious hiring approach resulted in a 60 basis point improvement over that margin from Q4 2021, which was our first full quarter as a public company. Gross profit in the quarter was $62.6 million, and gross margin came in at 75.7%. Gross margin continues to be resilient, even as we continue to execute on building operations for new client growth, including our investment in international markets, where we are onboarding clients in Singapore, Thailand, Hong Kong, Australia, Japan, France, the UK, and Netherlands, to name a few. Research and development expenses in the quarter were $20.1 million, or 24.3% of revenue, an increase of $0.2 million from Q3. Sales and marketing expenses in the quarter were $10.4 million, or 12.5% of revenue, an increase of $0.2 million from Q3. General administrative expenses in the quarter were $7.8 million, or 9.4% of revenue, a decrease of $600,000 from Q3. These strong results reflect our continuing focus on execution and efficiency while also successfully integrating JUMP. Let's talk about JUMP. After closing the JUMP acquisition on November 30th, we began the process of integrating JUMP into Clearwater with the creation of joint teams to merge our development efforts and provide a single solution for a business function, like performance or regulatory reporting, as Sandeep described. Jump doubles our European presence with over 100 employees and ramps up our expansion efforts in Europe, extending our offering to our existing clients as well as providing full investment lifecycle functionality to the investment management industry. We already have opportunities to enhance the performance reporting for current clients and add trade order management to their existing Clearwater solution. We're also tremendously excited about a number of European prospects where Jump will be the solution for unit-linked funds and Clearwater will be the solution for the rest of their investment book because this validates our acquisition hypothesis and shows the esprit de corps celebrated by the combined team. Jump has historically been a perpetual licensed business and recorded their results under IFRS, not US GAAP. Throughout 2023, in addition to merging the go-to-market teams and bringing their product to the cloud, We also plan to harmonize Jump's offering into a recurring revenue model consistent with Clearwater. At year end, Jump had $6.4 million in ARR. Given the joint selling motion, the transition to US GAAP, and product integration, we will generally not report Jump results separately. As we migrate the Jump business to a recurring revenue model, we expect the transition will reduce our overall EBITDA margins in the first half of 2023 and then improve margins as new recurring revenues from jump layer into the financials. Since jump is less than 10% of our overall cost structure, we continue to expect consolidated EBITDA margins to increase in 2023 compared to 2022. Moving to the tax receivable agreement expense, you will see that we incurred 5.9 million in tax receivable agreement expense in Q4 and 11.6 million for the year. These expenses are incurred in lieu of tax expense when we utilize tax deductions subject to our TRA. Although we reported a gap pre-tax loss, we would have had taxable income in 2022, primarily because of the capitalization of R&D expenses and lower stock-based compensation tax deductions. Absent the upsee structure and tax receivable agreement, we estimate that the income tax expense would have increased by $14 million. The recording of the TRA expense did not impact operating cash flow in 2022. However, we expect to have to pay the liability related to the 2022 expense in Q4 2023. Let's turn to the balance sheet and cash flow. We ended the quarter with $255.6 million in cash, cash equivalents, and short-term investments, and $50.5 million in total debt. resulting in net cash holdings of approximately $205 million. Even with the jump acquisition in Q4, the ending cash, cash equivalents, and short-term investments at end 2022 was still $1 million higher than at the end of 2021. Free cash flow for the fourth quarter was $16.6 million higher reflecting a conversion of EBITDA to free cash flow of 68% and included $1.9 million of capital expenditures. Now let's turn to guidance. For most of 2022, we hired in advance of our growth. For 2023, we plan to more tightly align our headcount growth to our new business growth. Therefore, we expect modest EBITDA margin expansion in 2023. For the full year 2023, we expect revenue to be in the range of $361 million to $364 million, representing approximately 19 to 20% year-over-year growth. We expect our adjusted EBITDA to be in the range of $97 to $98 million, which is 20 basis points better than the 2022 adjusted EBITDA margin. For 2023, equity-based compensation is expected to be approximately $80 million. After 2023, we expect equity-based compensation to decrease as a percentage of revenue. Equity-based compensation related to the jump acquisition is expected to be approximately $25 million. Decretiation and amortization expense is expected to be approximately $9 million. And our full year non-GAAP effective tax rate is expected to be 25%. We project full year diluted non-GAAP share count to be approximately 255 million shares. Focusing on guidance for the first quarter of 2023, we expect revenue to be $83 million. and adjusted EBITDA to be 20 million. In Q1, we expect an adjusted EBITDA margin of 24%. This is impacted by the jump transition to recurring revenue. Additionally, annual merit increases impact the Q1 EBITDA margin. As in previous years, we expect to expand margins throughout the year in 2023, resulting in an expansion of EBITDA margin for the full year. After a year of strong execution in 2022, in 2023, we look forward to more of the same. Winning new logos, expanding with existing logos, integrating Jump into our further growth plans. With that, I'll turn it over to Sandeep to provide some closing thoughts.
spk05: Thank you, Jim. We appreciate your interest in Clearwater Analytics. Despite some of the pressures that came with an uncertain market environment, 2022 was our strongest year on record, and we ended with great momentum capturing impressive client wins across the globe and demonstrating just how resilient we are as a business. We enter 2023 with renewed confidence in our ability to capture more TAM, displace legacy vendors, drive R&D and technology innovation, and deliver greater value and growth opportunities to our clients. As always, we remain relentlessly focused on our clients' long-term success and supporting them as they benefit from our technology's powerful network effect. With that, let me turn it over to the operator for questions.
spk09: Absolutely. We will now begin the Q&A session. If you'd like to ask a question, please press star followed by one on your touchtone keypad. If for any reason you'd like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly to allow questions to generate in queue. The first question is from the line of Rishi Deluria with RBC. You may proceed.
spk06: Oh, wonderful. Thanks so much for taking my questions. Nice to see continued resilience in the business. I want to start by the outlook for next year. I mean, really impressive numbers. Maybe two points on that. Number one, can you really help us understand what is giving you the confidence and what is playing out as acceleration relative to the ARR growth that you just put up in Q4. And alongside that, I know, Cindy, if you had mentioned you're going to invest based on what you see in your bookings and not on macro assumptions. But as we think about the guidance that you gave us for 2023, are you kind of assuming that macro stays the same, that it improves in the back half of the year? Any set would be helpful. And then I've got a quick follow-up.
spk05: Yeah, Rishi, thank you for the question. Before I begin, I did want to say that we sort of went on for quite a bit there, you know, like 37 minutes, but there was just so much to cover. We thought it would be helpful to get that all out there so that we can proactively answer some of that. But Rishi, just to your question, I do think that when you look at our business, we have a really good sense of the ARR. And then you have a net gross revenue retention of 98%. So the ability to forecast that is actually quite high. And the second element is bookings they have done in the last six months. When you look at that, we have a really good understanding of what revenue will come about from that booking. Obviously, that booking builds up through the year, but we know exactly what the project plans are and how that booking sort of translates to revenue. And that's why when you hear Jim and me talk, we always say we are going to let booking guide our investment, not revenue. because booking is really for us the forward indicator. So that's how we think about it. I did also want to make one other point here is, you know, Rishi, last year was hard, but if you go back to February of last year and you look at our revenue guidance from last year, it was 302 to 304 million last year. With all of the challenges we faced, we delivered 303.4. If you look at the EBITDA guidance we gave in the beginning of last year, was 80 to 82.82 million go back and look where you delivered 81.1 so i do think this model works really well and frankly you know there's we thought we would do better than the numbers we guided to but all of the headwinds we face we still deliver to guidance so we feel really strongly about what we can do and our current plan sort of assumes that the macroeconomic condition is not going to improve very much, but it won't get a whole lot worse like it did last year. Like last year, we felt the interest rate increases are dramatic. We don't expect dramatic increases, but we do expect continued increases in interest rates. We also assume that inflation is not going to abate. And if those happen, you know, those would be nice deal wins to further our business.
spk08: Jim, would you add something? Great. I know you said you had a follow-up issue. Did you want to ask?
spk06: Oh, yeah, yeah. Sorry. My apologies. Yeah, just a very quick follow-up. So when I look at the guidance, right, I appreciate that you're guiding to stock-based compensation. And, you know, stripping out jump, it looks like actually SBC in dollar terms is going to come down as well as a percent of revenue. You're guiding to kind of a low-level dilution, which I think is great to see in this sort of environment. Can you just speak really quickly to what are kind of the – the drivers of that and maybe what you've done internally and philosophically to kind of bring that level down to a more normalized level. Thank you.
spk10: Yeah, I think that the key metric to look at is when you look at the diluted share count year over year, it's flat, right? That non-GAAP 252 has stayed consistent. So there really hasn't been any dilution through that. As we think about stock-based compensation, we've obviously isolated the jump portion of that. That was all considered as part of that business combination, but they need to earn that over time, and so that's why it's going through compensation. For the stock-based compensation related to Clearwater and our guide for this year, it reflects the additional awards in this year that are going to be granted across And we feel like we're really well set across the organization to get everyone locked in and really committed to drive for the next extended period of time. And obviously, when you're growing 20%, 20% plus, you continue to grow through those numbers that we're trying to keep flat and static. And therefore, we would have kind of increasing leverage as a percentage of revenues of our stock-based comp expense. Again, we looked, we sat down with our compensation consultants and looked to see what are all our peers doing and where do we sit. And we're incredibly comfortable with where we're landing relative to our peers. And given how we performed last year, we feel very, very good about that tradeoff for shareholders.
spk06: Wonderful. Thank you so much, guys. Thank you so much, Rishi.
spk09: Thank you. The next question is from the line of James Fauset with Morgan Stanley. You may proceed.
spk13: Hi, guys. It's Michael on for James. Appreciate you taking our question. Appreciate the color you provided on the standalone modules and their relative adoption. I was hoping you could give us some incremental color on some of the PRISM wins specifically. I know you mentioned JPM as well as another seven-figure deal, but is there any directional color you could provide us in terms of the ACV expansion you saw in both of those PRISM deals?
spk05: Hey, Michael. Thank you for the question. Look, PRISM was the first product we went out with, and so these wins at both JPMorgan and Nationwide are really, really significant. So the question is, what was the primary use case, right? So in the first case, The situation was there was a client reporting need which had to be done on a daily basis. And they had to bring together data from many spots and bring it all together, merge it, and deliver that on a daily basis on time. And this is just hard to do when you're trying to do that manually or home written software. What PRISM does is brings data from various sources, puts it together, ingests it, does the calculations, and provides that report to the regulatory body on a daily basis. So that is one way to use PRISM. The other one was really about AWAR combination. So you have accounting systems of various kinds, some on Clearwater, some not. And the question is, how do you get a comprehensive view of all of your assets? And PRISM is able to do that. Now, I think the interesting thing for us is, Michael, that initially we were seeing PRISM deals of $300,000 and $200,000 ARR. And we have now seen deals in excess of a million dollars ARR. And this one in Europe, we just announced, or we talked about today in the call. So we feel like you have Prism, which has become more of a growing product with significant impact on both booking and ARR. The rest of the products which you have talked about, they're more in the infancy, if you will. And so those will still take time before they start to deliver in 2003 and in 2004, 2023 and 2024.
spk08: Great. That's really helpful.
spk13: Maybe on pricing, how should we think about the difference in the economics between the customers who are adopting the base plus model versus those who are now commanding or those who are now adopting a higher take rate? I'm just trying to sort of understand the longer-term impact of some of the potential resistance from your Wave 3 customers to sort of transition to that new model fully.
spk10: Yeah, so the way we think about it and the way the numbers are playing out is that the base plus model doesn't necessarily impact our NRR number overall. It just takes the volatility out, that downside volatility out. And so as we kind of, the adoption with all of our new clients has been fantastic. When we reflected and saw that 100% of all of our large contracts in the second half of the year were on the base plus model, it made us feel terrific about just how this resonates and makes sense to all of our clients. For those largest strategic asset managers who we are growing with, As I mentioned, they typically had higher NRR rates than kind of what we had typically reported. And so we also have a go-to-market model with those folks where we're actively helping them source and grow their businesses. And so from that perspective, it just made sense to continue to align with that. So I would say that to finally get around to answering your question, I'm not sure that the contracting model impacts that NRR or that take rate. And it's more about the use case to the customers. And as we drive that. So as we think about how do we really, you know, aspirationally think about moving net revenue retention to, you know, 115, right? Let's just throw that out as kind of an aspirational number. the base plus model doesn't necessarily get us there. The base plus model, you know, we feel like this 106 that we were at reported in the fourth quarter is really reflective of our current business environment and kind of the current business. Us to move to that 115 is really about getting more leverage out of adding on additional products and increasing that take rate. Sandeep just spoke about Prism, LPX. And all of the jump modules are the path. That will take time. That's a multi-year project. But that's clearly a really important goal for the company. And most importantly, it's what our clients are asking for and want. They want to do more with us. And so we're building the capabilities to be able to do that.
spk05: Michael, if I can just add to this. Look, I think what happened was some of the largest asset managers the way they allocated clearwater costs internally to the businesses was driven by AUM in those markets. And that's how they charge their fees, right? So there we did have resistance. But over time, if you look at the last two years and four years and six years, that's been the highest NRR business for us, those large asset managers. So we sort of spoke with them. Was there resistance with that subsegment? Yes, there was. And so we've gone back and said, okay, fine, but we will live with the current model because we feel the NRR would anyway be the highest there. I want to provide that detail so that you understand why Jim said that we've done this with 80.1% of ARR clients representing that much, but we're not pushing to try to get to 100.
spk13: That's great, Kalar. Thanks, Sandeep and Jim.
spk09: Thank you. Thank you. The next question is from the line of Ella Smith with J.P. Morgan. You may proceed.
spk04: Hi. Thank you for taking my question. I appreciate you breaking down the split between insurers, asset managers, and corporations. That seemed to be pretty much in line for what it's been for the past year. Moving forward, do you see any particular growth from any of the verticals, either for 2023 or beyond that, any place you're maybe getting shares?
spk10: I think we're, thanks Ella. Good to hear your voice. I think we're gaining, the good news is we're gaining share in all the verticals. And so as these percentages change, it's just about how relatively quickly we are gaining share in each of those. Insurance has been and continues to be, you know, about half of our business and is a really large and important piece of our business. With our investments in both Prism and in Jump, we see greater opportunity as well in asset management. And if you just look at our TAM at the highest level, the largest TAM is in that asset management segment. And so if you were to look out to the future, you know, multiple years into the future, I think you would assume that asset management would continue to kind of increase, you know, kind of on the margin as far as a percentage of overall ARR. Sundy?
spk05: Yeah, I think you may see some change in a quarter or two because you get a large deal, like they announced two very large insurers. Actually, two more of these insurers were in the top 20. And so you may see that bubble up and down. But we don't not expect to win in every segment. We expect to win in every segment. We expect to win in the REIT market. We expect to win in, you know, traditionally, which we haven't won in. We expect to continue to literally grow every industry. And then if you look at the TAM, there is runway in each one of them. So there really isn't a need to say, hey, we're not going to go push in that segment, why not, right? And so we have teams which are dedicated to a specific industry and to a specific size. So for example, when you say insurance, there's a team dedicated to large insurers, there's a team dedicated to small insurers, and there's a team dedicated on very small insurers. So we have broken up the marketing into the segments and sub-segments and each one has a dedicated team going after it.
spk04: Great. That's very helpful. Thank you. And one other question for me, digging a little deeper into your 20% revenue guidance for 2023, do you have any thoughts about how much of that would come from new logos versus higher pricing?
spk10: So the vast majority would come from You know, adding new business, those could be both new logos as well as additional products and services to existing clients relative to the price increase. Absolutely.
spk05: So just to give you a sense, Ella, that I think more than 90%, we don't have an exact number, but I can tell you more than 90% of the revenue would be from current clients who we have either fully onboarded or we are onboarding. So these are deals which have been won. I don't want to put a number on it, but I do know it. will be in excess of 90. Is it 92, 93? I don't know exactly. We're happy to sort of get back to you. But it is that overall magnitude.
spk04: Great. Thank you so much. Appreciate it. Thank you.
spk09: Thank you. The next question is from the line of Gabriela Borges with Goldman Sachs. You may proceed.
spk00: Good afternoon. Congrats on the quarter. Sandeep, I want to follow up on your comments that you've made in the past on what's the business enablement use cases that Clearwater really allows some of the asset manager customers. Give us a little color on what you're seeing in terms of willingness to invest and specifically because Clearwater can be tied to a front office business enablement use case, is that allowing you to maybe tap into more budget or tap into more greenlit projects than if you were solely viewed as an accounting tool? Thank you.
spk05: Yeah, thank you, Gabriella, for that question. I really think it's a really important question about why asset managers who are under some pressure, you would agree, on cost would sort of go out and sign up for Clearwater. And what I'd like to tell you is that almost always it is because it is seen as a growth enabler. Clearwater helps clients get deals because the reporting and the analytics it can provide is superior. I think there are many software products which do that reporting well for a given asset class, many. I think there are many which provide it for a given geography. And I think why clients sort of continue to grow with us is we actually, Gabriela, we go into pitches with them. We will go do joint pitches with asset management clients when they bid on a book of business with a potential client. And so, When you start to be seen as an enabler of growth, I think that changes who we are. There is a client, obviously probably not appropriate to name, but who really lost a number of RFPs. And when they did the analysis of why they lost the RFPs, they found that other asset managers just had superior reporting. Online, they had superior analytics. they had one aggregated reporting and accounting function. And so I've always thought that if I, if you go back at 2022 and look at why we won, it is because of that. Even the big prism deal we announced in Europe, which was, you know, in excess in seven figures. If you listen, the part of what I was talking about was they are reporting to their clients. That's why they bought us. So they have $200 billion of assets. They used to take days and days to get these reports ready and sent to the client, and they come to Clearwater, and we should be able to generate that in a matter of hours. It should be available online. So again, if you think of the proposition, like you said, not as an accounting software, but as an enabler of growth, that's why I think we get traction.
spk00: That makes sense. And Jim, a clarification for you on the four-year guise. The implied revenue acceleration in the back half, that is a function of the bookings in the pipeline that you're seeing today, plus the jump model transition. Just a little bit on the moving pieces that I get into that.
spk10: Yes, yes. I think it's the onboarding of the assets from our Q3 and Q4 booking flowing into our revenue line item, right? So first we win the business, then we onboard the business, And as those assets are being onboarded, they grow. And it takes, obviously, some time to onboard that. That's the major element of the growth throughout 2023. There's some impact as well from the transition to term for Jump. But relatively speaking, it's $6.4 million in ARR.
spk05: And, Gabriel, if I could add to that, you know, the booking in the second half of 2023 will likely have very little impact on 2023 revenue. What really impacts 2023 revenue is booking in the second half of 22 and Q1 and Q2 of 2023. So it does matter. Of course, it does matter. But a very vast majority would be based on the last two quarters of bookings. and the pipeline in this quarter. Those three will matter the most.
spk00: That makes sense. Thank you.
spk05: Thank you. Thank you, Gabriel.
spk09: Thank you. The next question is from the line of David Unger with Wells Fargo. You may proceed.
spk03: Great. Hi. Thanks very much for taking my question. I'll keep it to one just given the time here. So we obviously all understand that you just completed the ecosystem jump. but you're in a good financial net cash position, as you've mentioned. Sandeep, I think you said at the beginning of the – or at some point in your prepared remarks that you're not afraid to make more acquisitions. So this suggests you're on the offense. Can you elaborate on what you're seeing out there as it relates to private market valuations and your appetite to invest? I believe on the jump acquisition call, you mentioned that you screened over 300 companies in your due diligence process. So I would love to just hear more on that. due diligence process you're going through right now. Thank you.
spk05: Thank you, David. Thank you for that question. So look, it's got to be, Jump I thought was, we're really excited about Jump. I think what we can do, not just for Clearwater, but for the employees of Jump themselves, and being able to take their brand and what they've developed, sort of take it around the world, I think it's so exciting. Also for our current clients. Our current clients need those modules. So we're very excited about what Jump can bring to us. But, you know, I wrote down what matters. I think Jim's always telling me the bar has got to be really, really high, you know, because you have a good, clean business, grows nicely, nicely profitable. So let's do something to screw that up, right? So it's a feel like, hey, the bar has got to continue to be high. So then what are we really looking for? One is if it helps us expand geographically. For example, in the case of Jump, it does that, right? But if we found something which would help us expand geographically or in a market, so this could be, you know, is it something that does well with REITs or things like that? So that is one. The second one would be something that makes our platform more comprehensive. So if there were functionality which clients wanted, which we don't do well enough or deeply enough, well enough is probably the wrong term, but deeply enough, then that would be another area where I feel like we would look at acquisitions. And the third thing is, you know, if they were helpful in bringing more value to our current clients. So, for example, some form of analytics would be really helpful. So really it's more about adding value to current clients who are unhappy. So we do, all of us will acknowledge that investment accounting isn't working for many, many, many clients around the world. So if we can hasten that process of them coming on to Clearwater, I think that would be really interesting. So we obviously just did a jump. It is going nicely. We'd love to see them start to deliver some results. And the early sign, this Cardiff was great. It happened in December, and frankly, it was brilliant that they got that done. But we do expect that we'll continue to look aggressively for acquisition. And that's what I would say. I don't think there's a goal to do one this year or something like that. But if we found the right one, we would do it. We would not wait.
spk03: I appreciate that level of detail, Sandy. Thank you.
spk05: Thank you, David.
spk09: Thank you. The next question is from the line of Camille Mazurek with William Blair. You may proceed.
spk02: Great. Thank you for taking my question. I want to follow up on some of the commentary made around the modules, but I understand that it'll take time to see the full impact from the portfolio of upsell modules. But looking at these products today, how should we think about the ASP difference for an average Core Plus customer who buys just the Core Clearwater platform versus someone who buys the full suite? Is that a 20%, 30% upsell? And given the strong R&D investments, How can that upsell opportunity grow over the next one to two years?
spk10: Sure. This is Jim. Let me take that. So I think it's important to think about when you're on the core Clearwater platform, you're doing all of the accounting for all of these. Let's just take LPX as an example. Okay. The LPX, we're doing the accounting for those LPs for you already. And that's being charged, you know, as part of your base fee and as all of that grows. Now, let's say that you say, OK, I want to step through and do LPX and add more kind of visibility into that functionality, a little bit more broader and more robust than just the accounting and reporting functionality or LPX clarity. I want to understand the underlines in this. We would then charge an incremental amount per LP for those on that. And obviously, it depends on the functionality. Sandeep spoke about how PRISM, in that instance, was a seven-figure deal. LPX could be a few thousand dollars per LP as an example of the variability between those. So it just depends on the specific circumstances of the client.
spk05: Sandeep, the biggest value, though, just in the LP processing. It really is always in the, you can get a comprehensive view with the LPs and the mortgages and the derivatives and the equities and the fixed income products. And that's where the real value comes from. I don't think we do LP accounting any better. Yeah, we are trying to improve the look through so you can see your portfolio better. But the value of J-Work really comes from that whole comprehensive ability.
spk02: That's very helpful. Thanks again. Thank you.
spk09: Thank you. The next question is from the line of Brian Schwartz with Oppenheimer. You may proceed.
spk11: Yeah, hi. Thanks for taking my question. Congratulations on the quarter. Sandeep, just wanted to ask if you could comment on the trends you are seeing with the top of the funnel and also the pace of conversions that you saw in Q4 versus prior quarters. Thank you.
spk05: Yeah, you know, Brian, thank you for that question. I think we were, you know, being a little, you know, we said always that we will follow bookings, but not economic forecasts, because we just have got bitten by these forecasts. Every time we hear the forecast, we think the world's going to fall apart. But Q4 was great. We were surprised. As Jim said, we became a little cautious in hiring because we started to believe the forecast a little bit. And we did really, really well. So we have now decided internally to say, no, we're just going to follow booking because booking is a much better for us, at least a leading indicator. So do we see the funnel really continuing to grow? Absolutely. Do we continue to see very large clients wanting to come onto Clearwater? Absolutely. Do we continue to see smaller clients? So yeah, we don't see, we just don't see the softness quite yet. And if we do, and our bookings sort of, even come down just a little bit, we will re-evaluate. But right now, we just don't see it. We're looking, though, Brian. Believe me, with every report I see on Wall Street Journal, I'm always looking for signs of it. But I think there is enough pain in the market there that people want to continue to look at something like a clear water.
spk08: Thank you for the caller. Thank you. Thank you, Brian.
spk09: Thank you. Again, to ask a question, you can dial star 1. The next question is from the line of Yoon Kim with Loop Capital Markets. You may proceed.
spk01: Okay, great. I'll make this quick. First, congrats on getting to that 80% target for the customers on BasePlus in just two quarters, which is amazing. Do you expect that mix to change much going forward? Just curious if you have any specific target for 2023.
spk10: For all of our new clients, the other metric that was really terrific was 100% of those clients that signed up for larger contracts. We're on the base plus model going forward. So as we continue to add customers, the base plus model is the de facto way that we add those customers. And so obviously as we add customers over time, that will gradually tick up.
spk08: Okay, great. Maybe I could just squeeze in one more question.
spk01: Sandeep, you mentioned a lot about the momentum you're seeing in Asia. Can you just kind of share us what's going on there in terms of go-to-market and the momentum that you're getting in the Asian market?
spk05: Yeah, I must admit I seem to speak too much about it. I think I speak about it because we get surprised by it, right? So we don't have – we have a big office in Europe. We have made a lot of investments in Europe. So when Europe goes, we are like, okay, this is what we expected. I think Asia, we still have a very limited footprint, and we get surprised when we win there. But what we have today, just to be clear, is we now have an operating team there. We have a sales team. We have a pre-sales team. So we now have a full organization there. But when you think about the problems in Asia, I think they are more acute. Every country has its own gap. Every country has its own regulatory reporting need. And that's not the case if you've got an American client. If not the American client, guess what? It's all US GAAP. It's quite simple. The regulatory needs are understood. But when you go to Asia, Thailand is different from Vietnam, which is different from China, which is different from India, which is different from every country. So at an intuitive level, we believe that the need for a solution like ours should be much stronger in Asia. And that's why we are somewhat more excited than China. than the size of our business suggests.
spk01: Okay, great. Thank you so much, and congrats on a solid quarter.
spk08: Thank you. Thank you.
spk09: Thank you. That concludes the Q&A session. I'd like to turn the call back over to the team for concluding remarks.
spk05: Look, I just want to thank everybody for your interest in our company. We are trying to build something special here, and we always appreciate just your engagement. So thank you all. I'm sorry this ran over just a little bit. Thank you.
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