Clearwater Analytics Holdings, Inc.

Q1 2023 Earnings Conference Call


spk11: Good afternoon. Thank you for attending today's Clearwater Analytics first quarter earnings conference call. My name is Tania and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, J.R. Ritchie, Vice President of Finance and Investor Relations. Please go ahead.
spk01: Thank you and welcome everyone to Clearwater Analytics first quarter 2022 financial results conference call. Joining me on the call today are Sandeep Sahai, Chief Executive Officer, and Jim Cox, Chief Financial Officer. After the remarks, we will 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 provisions of the Private Securities Litigation Reform Act of 1995. Expression 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 filings with the SEC. Actual results may differ maturely 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 statements included in our earnings press release. Lastly, all metrics discussed 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 Zahai.
spk03: Thank you, JR, and welcome everyone. We had another strong quarter as we continue to deliver value to our clients, onboard new clients, and generate strong bookings to fuel further growth. More specifically, we have had consistent and durable revenue growth, high rates of revenue retention, and strong profitability. We're very happy to announce that revenue in the quarter grew 24% year-over-year to $70.8 million per quarterly record. Our annualized recurring revenue, ARR, increased 23.5% year-over-year, reaching more than $287 million. We're also happy to announce that our Q1 adjusted EBITDA grew to $18.9 million and increased over last year even after incorporating additional public company costs while continuing to make investments in strategic initiatives. And testimony to our focus on trying success, we are happy to report a gross revenue retention of 98% for the 13th consecutive quarter. Our success in Q1 continues to prove that the Clearwater platform not only dramatically improves the efficiency of investment operations teams, but also has become an enabler of growth for organizations around the globe. Our clients in the Search for You use our platform to scale globally, invest aggressively in widely varying asset types, and confidently acquire new businesses while integrating the operations rapidly. The Clearwater platform provides investment operations teams the infrastructure to expand on demand, obviating the need for large upfront investments, which is even more important during uncertain economic times. In Q1, we worked with a firm called Hobson & Company to study the value that Clearwater brings to clients. Hobson found that in addition to a significant decrease in operating costs compared to legacy tech, Clearwater offers much greater efficiency and enables recognizable increases in AGM. Our platform continues to be disruptive and is very effective. at radically simplifying our clients' investment operations. We operate in a very favorable competitive environment, especially as more clients like Catholic Life Insurance and Highmark move from legacy incumbent providers to Clearwater. We are especially proud of these wins because as you've heard me say many times before, with each new client, we improve our ability to manage and service the next, continually adding to the network effect. There were several exciting wins in Q1. A very large asset manager signed a significant deal with us to replace the legacy on-premise solution for accounting and client reporting for approximately $100 billion in assets. We also won Tito Price as a marketing client. Clearwater will provide a dramatically improved user experience for T-Row prices, growing roster of insurance clients who will now more easily manage their books of record while staying ahead of regulatory requirements. Naveen Acid Management signed an agreement to use Clearwater as a supporting solution. As Naveen grows their businesses globally, Clearwater's industry expertise and reporting capabilities will be a critical component supporting the business growth and expansion. Looking beyond our core markets, we signed our first French insurance client and our first European foundation. Both chose our SaaS platform to standardize the investment accounting operations across several countries. These clients prove that the platform successfully addresses the needs of adjacent markets. Our clients continue to adjust their portfolio as they look at the changing economic environment. Given market conditions, we increasingly see our clients add alternative assets to the investment portfolio. But as you likely know, alternatives introduce complexity into accounting, compliance, and risk management. And increasingly, we see clients turn to our platform to handle that complexity. The Clearwater platform, because it is a single instance, multi-tenant, cloud-based solution, allows us to meet the needs of clients and support the dynamic investment goals. We are not the only ones uncovering the need for improved automation for investment operations teams. In Deloitte's 2022 Insurance Industry Outlook, report they found that 69% of firms plan to spend more on investment data processing and 67% plan to spend more on analytics. This data further supports our premise that as insurance companies grow, expand, and merge, they need trusted partners to support their operations. This is why organizations like Harvard Mutual Insurance Cornerstone National Insurance and Citizens Property Insurance Company are bolstered by going live on the Clearwater platform in Q1. A key area of focus for us is new product offerings. We continue to gain traction for our new product, Clearwater Prism, a modular data and reporting platform. Let me describe some actual use cases. Clearwater Prism's open architecture allows for seamless aggregation of data across all assets. A large multinational insurer is utilizing Clearwater Prism and Clearwater's accounting solution to consolidate data across public and private assets and real estate. Prism enables this client to get a comprehensive view of their portfolio, even though we will not be accounting for the real estate assets. Clearwater PRISM will enable investment data aggregation without the need to build or maintain costly infrastructure for consolidated reporting analytics. A pension plan has chosen Clearwater PRISM as the foundation of a data and reporting platform to combine total plan data from multiple sources. Prism provides a solution even though investment accounting for the majority of their assets will initially not be done by Clearwater. And finally, a leading wealth manager has selected Clearwater Prism to provide data and reporting across multiple portfolio management solutions where Clearwater Prism serves solely as the aggregation and client reporting platform while doing none of the investment accounting. Overall, we are very excited about the progress we are making. We expect Clearwater Prism to extend Clearwater's cloud-based platform to new customer segments and help us grow wallet shares with existing customers. We are proud to share that our chief client officer, Subhi Sethi, won the Women in Technology and Data Awards by Waters Technology. She was recognized as the vendor professional of the year because she has onboarded large global clients to the Claywater platform and improved the operations of some of the world's largest investment teams. We know this is a well-deserved recognition of the impact she has had on her client's success. 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 first quarter financial performance, as well as updated guidance for our second quarter and full year 2022.
spk06: Thanks, Sandeep, and thank all of you for joining us today. We are very pleased with our continued strong financial performance in the first quarter. Once again, our quarterly results exceeded our guidance for revenue and adjusted EBITDA, indicating the demand for our disruptive solution remains strong. from both new and existing clients. Moving now to our first quarter financial results. Please note that our results will be discussed on a non-GAAP or adjusted basis unless otherwise noted. Revenue in the first quarter was $70.8 million, up 24% year over year, and largely in line with our expectations. The continued strong top-line growth was driven by a solid increase in total clients and continued strength in client onboarding. As of March 31, 2022, annualized recurring revenue, or ARR, reached $287.1 million, a $54.7 million increase over March 31, 2021. This represents a 23.5% increase year over year, again, due primarily to continued strong client demand and revenue retention. Speaking of revenue retention, gross revenue retention was a consistent 98%, marking yet again the 13th consecutive quarter that we have reported a gross revenue retention rate of 98%. Net revenue retention was a healthy 107%, despite significant market volatility in the quarter, as existing clients continue to add new assets to the Clearwater platform. While healthy, especially for our asset management clients, this quarter's net revenue retention rate was lower than Q4 for two reasons. First, growth from acquisitions within our global insurance clients was broadly lower in the first quarter, with one specific large client's early 2021 acquisition now being fully annualized into the retention rate. In addition, we observed an unfavorable impact to our clients' fixed income security prices for future interest rates. We have incorporated the impact of those changes into our forward-looking revenue guide. Gross profit in the quarter was $52.5 million, and gross margin came in at 74.2%. Gross margin continues to be strong, even as we continue to invest ahead of new client demand in continental Europe and Asia. as well as new client verticals, including pension and foundation. In fact, we're really pleased with the progress we're making internationally, and we're further encouraged by seeing our international revenue grow to 13% of revenues this quarter compared to 9% in the first quarter of last year. With this success and this key growth driver, we expect to continue to invest to further establish our presence in these adjacent markets. As a result, we expect gross margin to remain at similar levels in the second quarter. Research and development expenses in the quarter were $16.8 million, or 23.7% of revenue, and slightly below our expectations as the labor market for top engineering talent remains tight. As we noted last quarter, we remain committed to investment in R&D and are advancing our efforts to accelerate hiring and third-party resourcing in this area. Sales and marketing expense in the quarter were $8.6 million, or 12.2% of revenue, up 110 basis points year over year. We expect increased investment in this area over the coming quarters as we roll out all of our planned marketing programs, including hosting our upcoming in-person user conference in September. Therefore, we anticipate an increase in sales and marketing expense as a percentage of revenue starting in the second quarter general and administrative expenses in the quarter were 8.3 million dollars or 11.7 percent of revenue up 280 basis points year over year as we continue to annualize the impact of incremental public company costs resulting from our ipo last fall looking ahead we expect that general administrative expenses will remain at a similar level in the second quarter before falling slightly as a percentage of revenue in the second half of the year. Adjusted EBITDA in the quarter came in above our expectations at $18.9 million, or 26.7% of revenue, due largely to the favorable revenue performance in the quarter. I'll touch on our overall adjusted EBITDA expectations for the second quarter later in my remarks. But first, let's turn to the balance sheet and cash flow. We ended the quarter with $263.7 million in cash and cash equivalents and $52.4 million in total debt. Free cash flow in the first quarter was $4.7 million and included $2.2 million of capital expenditures, which were primarily made up of capitalized software development costs. Focusing now on guidance for the second quarter of 2022, We expect revenue to be in the range of $73 to $73.5 million this quarter, representing 20% year-over-year growth. We expect the second quarter adjusted EBITDA to be in the range of $19 to $20 million, with adjusted EBITDA margin expected to be roughly flat to the first quarter of 2022. As we continue to make targeted investments, specifically in addressing new markets, while also increasing the pace of client onboarding and absorbing incremental public company costs. Now let's talk about full-year guidance for 2022. Based on our performance in Q1, we are raising our full-year revenue guidance, which is now expected to be in the range of $303 million to $305 million, representing 21% year-over-year growth at the midpoint. we continue to expect our adjusted EBITDA to be in the range of $80 to $82 million. The guidance we provided previously for all other measures remains unchanged. So let me summarize. We're very pleased with the performance of the business in the first quarter. We once again exceeded our expectations for revenue and adjusted EBITDA as the demand for our disruptive solution remains strong, both in new clients and with existing clients. We continue to see ample opportunities to expand the application of our platform across different regions and market verticals, and are therefore choosing to continue to invest, even in the face of a less certain macroeconomic environment. As always, we remain committed to driving consistent, durable, and profitable growth. With that, I'll turn it over to Sandy to provide some closing thoughts.
spk03: Thank you, Jim. As you just heard from Jim, Q1 continue to provide further validation of the disruptive nature of our platform. We continue to win new clients across the globe, win new clients in adjacent markets, and finally win new clients to solve diverse business problems. Besides winning new clients, we continue to make our clients successful. Last week, I had the pleasure of meeting more than 70 clients and prospects in London. Let me tell you, the energy was palpable. We look forward to riding that wave of energy as we execute on our goals for this year and beyond. With that, let me turn it over to the operator for questions.
spk11: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. If you're assuming today's call, please dial in and enter star one. As a reminder, if you're using a speakerphone, please remember to pick up your hands up before asking your question. We will pause here briefly if questions are registered. The first question is from the line of Gabriella Borges with Goldman Sachs. Your line is open.
spk10: Hi, good afternoon. Thank you for taking my question. Jim, I'm hoping that you can bridge us with your expectations from two months ago. Is it fair to say that the rates impact on NRR is a little bit worse than what you're expecting? And if so, what is the offset that is trending better that's driving the full year guide up by an additional one month?
spk07: Thanks, Gabrielle.
spk06: That's a great question. And so I think when you think about a raising interest rate environment, and sorry, Gabriella, did you want me to talk to our guidance or did you want to talk to the interest rate? Sorry.
spk10: Yeah, I guess there's two pieces to it. So the first is, yeah, the first piece is, was the interest rate environment worse than what you expected? And if so, what's the offset? Is there something else in your business that's trending better than you expected two months ago that's allowing you to essentially raise the four-year guide by $1 million despite the worst environment?
spk06: Perfect. Perfect. Thank you. So thank you for clarifying that for me. I appreciate it. Sorry, we jumped on. So I think you're right. I think that you would say that the expectations around interest rates in the month of March and April have gone down relative to where they were in the beginning of the year when we spoke to you at the beginning of March. And so you're right. Generally, we talk about AUM being a gentle tailwind to us. And now as we're looking at with those changes, we're not seeing that gentle tailwind. We're seeing a gentle headwind to that. But just for perspective, right, when we've seen the most kind of volatility in the markets, we've seen this ranging, call it kind of 2% plus or minus. So I just want to manage everybody's expectations around that. Underlying that, to your point, we see an incredible, you know, we had great bookings in Q1, and we feel a really strong pipeline and good demand environment in Q2, which helps us offset that. And so I would say that those are part of the pieces to think about with respect to that. Other things, just to remind everyone, contractually, we have minimums in our contracts. We have tiers in our contracts. And by the way, our clients are also moving their assets between these asset classes. And that ameliorates all of those kind of straight pricing changes that we see.
spk10: Give us a response. Yeah, please.
spk03: So if you look at our guidance at the beginning of the year, which here was 60 days back, and so we came up with the guidance, and really when you see us increase it by 1 million, that's really just an acknowledgement of the fact that we overperformed in Q1. And so we're just increasing the guidance by a million dollars. We think it's a little bit early to do anything to the EBITDA. We still expect to come in what we had laid out, which was between 80 and 82 million. And so that's really more than that.
spk10: Understood, understood. And then the follow-up to that is how should we be thinking about NRR going forward? the rates environment will do whatever the rates environment does. It's outside of your control. And so, Jim, to your point on having the minimum, what are the pieces that are within your control that can allow you to drive NRL higher from here, and what's your expectation through the rest of the year?
spk03: Yeah, if I may say so. Look, the NRL, what you should be thinking about is that the interest rate expectation for the rest of the year is priced in. So we look at the value of the assets we have on our platform that is already priced in. So unless something changes materially in what the Fed does, it looks like today they did a little bit better than we thought. So you would not see further changes on that. The other point I wanted to make was, you know, we already see on our platform enough of our clients rebalance the asset mix. Because if you understand who our clients are, you know, insurance companies, CFOs of corporations and asset managers, and they will always rebalance to try and take out volatility. And so that also should have a positive influence on how we think about it. But I do think the current situation is price jam.
spk10: Thank you for the call.
spk11: Thank you, Mr. Debra.
spk10: Thank you.
spk11: The next question is from the line of James Fassett with Morgan Stanley. Your line is open.
spk02: Great. Thank you very much. Really good, obviously, to see kind of close to mid-20s or around mid-20s revenue growth. How should we think about what kind of scenario you would need for that level to be sustainable over the long term, especially since many folks are looking for something more in the low 20% range? Is it things like uplift from PRISM, faster than expected Horizon 2 initiatives, et cetera?
spk03: Yeah. Hi. Thank you for the question, James. So listen, James, I think if you look at our performance over the last so many years, we've consistently delivered in the 20s, right? If you look at quarter one, we frankly had a really great booking quarter. Booking was great. I think the pipeline continues to show no impact of potential inflation, potential problems with Ukraine. We don't see that at all right now in the pipeline. Now, having said that, we're obviously being very watchful about Q2 through Q4 about seeing what happens. And finally, we also worry a lot about GRR, the gross revenue retention. We're still at 98%. But in our business, we do think we can deliver 20% plus growth on a sustained basis. So the fundamental change about is the platform disruptive? Absolutely. We win more new clients than... you know most of the industry sort of expects do we win against competition absolutely and consistently so we don't see any change in the either the economic environment or the competitive environment right and so we still think we can continue to deliver what we had laid out last year and in the beginning of this year which is revenue growth in the 20s or 20 revenue growth good, solid EBITDA. I think that is really important, as you and I have talked about for many quarters now, is we think profitable growth is key instead of just growth for the sake of growth. And we don't quite see any change yet, James. Like I was telling Gabriella, I think we've increased our output by a million bucks because, you know, overperformed by a million, we could not not do that. But we continue to be watchful about potential impact from macroeconomic issues, I think.
spk06: I didn't say that. Yeah, I think, James, it's a bit of the same story, right? So how do we keep going? How do we keep accelerating? What do you have to believe? We have to continue to win in the key North American markets of insurance and asset management. We've had great kind of momentum internationally over the last few quarters, so we continue to feel good about that. But we need to kind of see that accelerate. And then we have all of our adjacent markets. that we are seeing good early progress on, but they aren't yet meaningful yet. We want these adjacent markets to become meaningful growth drivers.
spk03: Yeah, and sorry just to finish up there. Really excited about PRISM. I think as I said in our comments, PRISM just seems to be opening markets we would not have otherwise had access to, right? And so we continue to get wins on PRISM And so that is just as exciting, like Jim said. We're excited with the international thing. It's a little bit faster than we thought, and we're excited about PRISM because it's a little bit faster than we thought.
spk02: Got it, got it, got it. And then just, Jim, I think you laid out really well kind of what was moving the net revenue retention rate. What's reasonable – for us to think about in terms of how quickly we can get back to more that 111 to 112% range between the price increases and upsell, et cetera. And what are the things that we should be tracking perhaps in the macro that could move that number as well? Is it just change in interest rates and impact on assets? Or just want to make sure we understand kind of how to take that into account.
spk06: Sure, sure. So I think what I mentioned, I mentioned two factors. So one thing that I didn't mention that I think is important to understand is, you know, our strategic asset management clients that have traditionally and historically, since we've been talking to public company investors, have been kind of a great source of that net retention growth within that segment. That continues, right? The momentum there continues. What we saw different was within the insurance marketplace. And when we dug in and looked at that, you could see, and we have a little less control over this in the insurance market, because typically we get the entire book of an insurance company. But when a reinsurer goes and acquires another book of business, and they put that on our platform, and and you know we enable that right that's that's really the benefit of uh of Clearwater is they can they can think about these strategic acquisitions without worrying about the operational burden well that is a little bit less than our control right because we're waiting on our clients to take that action and so so that moves around a little bit now long term how do we get that And I'm just going to speak aspirationally here, James. How do we get that NRR up to a world-class level like our gross retention? We really need to kind of um build in this multi-plot product strategy we're in the very early innings there but there's more that we can do for our clients and we need to expand within those clients across various different uh you know product verticals they need us to do more for them and uh and and we need to deliver for them but yes i do think this is something i do think this is uh
spk03: program within the company it is not something you're trying to do in half a quarter one quarter but our gross revenue retention i'm sure you'll agree is one class and our net revenue is not and that happens by price increases multi-product pricing differentiated asset class pricing there are several levels but you have to do this in a sustained way so that as you look out a year in two years you know if you can get it meaningfully higher than than where we are, growth just becomes so much easier. You can then chase larger numbers, but you have to get this – we do see it as a multi-quarter effort.
spk02: MR. That's great. Thank you both. Thank you.
spk11: MR. Thank you, Mr. Fassett. The next question is from Rishi Jaluria with RBC Capital Markets. Your line is now open.
spk08: all right wonderful uh uh thanks today thanks jim i appreciate you taking my questions um and appreciate all the detail uh i wanted to start by asking another question on nrr but um just thinking specifically you know as you are seeing more customers you know new opportunities land on prism um you know that opens up doors that you couldn't open before really encouraging to see as that becomes a bigger part of your your land and you start to get success you know, using the core platform as an expand once you have your foot in the door. What sort of impact should we expect that to have on NRR, especially as it becomes a more significant part of the business and new logo lens? And I've got a follow-up.
spk03: Yeah, thanks, Rishi. Thanks very much. But that's exactly the point, Rishi. As you know, we used to go into a client base and just sell everything for one price and that was it, right? And that is all you can eat kind of model, right? And here what we're trying to do is get a beachhead and then expand. And Prism does exactly that. So our expectation is that going in with Prism should improve NRR in the coming quarters and years. So it is not just also presentation it is about how does the company become more multi-product some of it from just disaggregating what we sell and how we sell and other things building new products clients need so i think both of those have to be done to in a sustained way grow this over the next several quarters mr cox says it was perfect
spk08: That was great. Really helpful. And then I just wanted to think about the current environment. You laid out why maybe the rising interest rates and bond markets maybe headwind we're seeing. But the flip side I think we have to ask is there's obviously been a huge pullback. in some of these, what were quite frankly, egregious valuations around. How are you thinking about, you know, the potential to take advantage of this and more importantly, to expand your platform and value prop to customers via inorganic opportunities? Thanks.
spk03: Yeah, so if I can just make one point, and Jim, if you don't mind putting the M&A part. So look, I think fundamentally in uncertain times, And you described right now, the situation right now is somewhat uncertain about, you know, economic growth, inflation, Ukraine, not quite sure what to do. It should do well for companies like us, right? I mean, people move to the cloud when you're uncertain only because there's no large upfront investment. You sort of paper the drink a little bit. So obviously it's a better business model. People search for efficiency and cost reduction. Again, Clearwater is really good at that. and really in managing risk. Risk is suddenly really important to people, and so our proposition should play well to all four things. I don't think we've quite seen it yet. We have a big pipeline, but it's not like the pipeline is massively bigger than what it was 60 days back when we spoke to you. But those should play to our strengths, is what I think. Jim, do you want to talk about M&A, though?
spk06: Yeah, I think that we're obviously... when you think about a multi-product strategy that that becomes a very important uh element of it and so we're um actively um you know looking at those nothing to announce at this point or or talk about but we we do it as part of a a real long-term strategy for delivering for our clients um one place that uh you know when you talk about some of these valuations it you know we're hopeful that for our employees you know clients really appreciate, you know, the solid, durable business model that we have. You know, we make money, they can rely on us, they can count on us. That's really important for clients. It's also important for employees. Employees like the fact that, you know, they understand this. And frankly, you know, we're really interested in hiring more employees. And so we hope to be opportunistic in thinking about that.
spk03: So, Rishi, if I can finally add one more thing. Look, I think there's definitely more activity. There's no question about that. I think when you look at it in Q3 of last year, you know, I think everybody had different ambitions, and I think you'll see a lot more activity right now without question. And the bar remains really high. We really think that if you look at Q1 and you look at last year, It's a good, you know, be executing well. So we want to be careful about any kind of acquisition, which sort of, you know, takes momentum away, if you will. So still think of it as a high bar. But yes, Mr. Cox has got $260 million of cash and more. And so we think about capital allocation quite seriously.
spk08: Got it. That's really helpful. Thank you, Jim.
spk11: Thank you. The next question is from Pete Heckman with DA Davidson. Your line is open.
spk05: Good afternoon. Thanks for taking the question. What I was wondering about is on PRISM, kind of remind us, where do you expect to see the most success both by industry vertical and industry, I'm sorry, industry vertical and geography, but Where do you think that can get to as a percent of revenue, let's say, by the end of next year? Could you make a forecast there?
spk07: So in a word, Pete, no, I'm not going to make a forecast for that because, you know, everything's growing reasonably well.
spk06: So we'll want to think about that a little bit more. So talking through the market verticals where it naturally fits, you know, so obviously we had success. It fits across a variety of different market verticals depending on the different use cases, as Sandeep spoke to in the prepared remarks. We think it makes a ton of sense in various asset management clients, and it fits perfectly. And then the other place where it fits very well is within mega insurance clients who feel somewhat like they also have a portion of their business that feels a little bit like an asset manager. And so those are the two places where we found success. But we see success across a lot of different verticals. Sundeep?
spk03: Yeah, if I can just take just real-life examples and prepare them a little bit about that. If you think what an insurance client is large, they may be willing to have us come in and do 80% of the accounting and reporting, but maybe the real estate assets are in a different system and they can't move that over quite yet, right? Or really we would have walked away from that. But today what we can do is because of PRISM, we can bring all of that together and give one comprehensive view. So mega insurance clients, that's more relevant. That's one. When you think about asset management, it's a different equation. There you have clients, institutional clients of these asset managers, and they typically will have multiple systems for different asset classes and perhaps even different countries. Again, we may get a portion of it, but not all of it. And we would have had a hard time giving a comprehensive view. With PRISM, we can bring all those pieces together. And so in the asset management side, specifically client reporting, on the institutional side, you see a lot of activity and a lot of wins there. And finally, the last one which I was talking about was wealth. Now, wealth in the deal we just won, we don't even do accounting for any of that. We just, for the client, we can bring together all of those accounting numbers and provide one comprehensive view. So PRISM does stuff on the insurance side, on the slightly larger insurance clients. Across the board, it does a lot on the asset management side and definitely gets us into the wealth space. And so again, we're just finding more and more applications for what we are building with PRISM.
spk05: Okay, that's helpful. And then just in terms of what we're all hearing on wage inflation, higher attrition. You mentioned a little bit of a delay in some of your planned hiring. How are you incorporating that in your guidance and how you think about the marketplace? Do you see further acceleration from here, or are you thinking that we've reached a level that may be enough for the time being?
spk06: Sure, Pete. Yeah, like You know, I don't think we're alone in saying that we have seen wage inflation, you know, within our employee base. And so we're committed to being competitive and attracting top talent. And so we're going there. We do have some benefits, right? So we have a pretty diverse employee base between our operations center in Boise and in Edinburgh and in India. We have some optionality around that. And so we see that that helps a lot. I mean, these inflationary pressures are enormous and are real. As it relates specifically to our guidance, everything's in our guidance. We've thought about it. We still are able to make the investments we want to make.
spk03: We just need to be thoughtful about how we make those. You know, we did make changes in Q4 of last year, I think, and Q1 of this year. I don't see anything else changing for a period of time right now. We did see some kind of pressure on hiring new R&D staff, right? I think that was a little bit harder than we would have thought, right? And I think on the operations side, we did really well, I think. as is reflected, I think, in the gross margin. We hired very quickly. So I think we can do that well. But I do think on the technology side, they've been thinking about, hey, what do we do, especially in the Seattle and California markets? Those tend to be a little bit more competitive in quarter four and quarter one than we expected. But we don't see a continuing We don't see a continuing trend that says, oh, wow, this is getting worse or something. It's not. I think we do a reasonable job of assessing employee satisfaction, and we will go out and get anonymous views from the whole company. And literally 90% of the company will participate in this survey, which literally closed on Friday. And so we have a reasonable pulse on whether people think the wages are fair, whether they're appropriate. And I think at this point we are in a good shape.
spk05: Makes sense. Thank you.
spk11: Thank you, Mr. Heckman. The next question is from Camille MacZarick with William Blair. Your line is open.
spk04: Hi. Thank you for taking my question. I just want to follow up on the macro commentary. In 2020, despite the market falling more than 30 percent from pizza trough, your AUM stayed relatively flat. Can you talk to your level of visibility into demand today relative to prior market downturns, and in what ways might macro headwinds to your AUM growth be worse or better than it was early in the pandemic?
spk06: Yeah, so I think what we said was historically we saw kind of, you know, at the highest levels, negative 2 to positive 2 was kind of the range historically seen. That March of 2020 was that negative 2. The other thing that happened in March of 2020 was demand got very quiet. We certainly have not seen that. The pipeline is full, people are active. In fact, we're out traveling again, meeting clients and trying to drive business. So it doesn't feel the same way March of 2020, April of 2020 felt when we were in during the COVID crisis.
spk04: Just to follow up on quota carrying headcount, you grew headcount very rapidly in 2021. Can you just update us on how the ramp of the new reps is trended versus your initial expectations and how you think about the growth for the rest of the year?
spk06: Yeah, so I think that what was great about the end of 2021 was we had enough port of carrying headcount in their seats at the beginning of the year. And, you know, if we're honest with you, everybody says they want to do that, and usually it ends up happening in February, March. So we've done really well there. I think. And so, so I think we've, we've built that out and now we're starting to look to try and grow the platform for this kind of call it the sales work platform for 2023. And I would say we are incredibly successful at hiring in, in North America. And I would say that, you know, our brand is still relatively newer internationally. We're seeing good success there, but we, very much a focus of ours.
spk03: The one thing, Kamil, we told all of you last year was it's going to take us a year to get Asia going, and then we announced FWD, and then we also last quarter want to deal with Mitsui Sumitomo MSIG. And again, these are a little bit ahead of when we expected them, but I do think that really the platform seems to be um effective and impactful just across the globe and frankly across markets and there's a little discussion about you know if we just continue to grow this because because it seems to be um it seems to work across industries and our approach is yeah it does cost us a little bit on of gross margin because you're sort of putting people out in singapore and putting people out in all kinds of locations but that's something i think we're just doing because we feel it's worth putting the platform out there for as many clients or as many markets as we can find.
spk04: Got it. That's very helpful. Thanks again for taking my question. Thank you so much.
spk11: Thank you, Mr. . The next question is for Brian Schwartz with Oppenheimer. Your line is open.
spk09: Hi, this is Peter. I'm for Brian Schwartz. Thanks for taking my question. I had a question on your competitive landscape and particularly around whether anything has changed since your IPO. And then are you seeing any changes Are you seeing any of certain vendors evolving in certain areas or any new entrants potentially? And then I guess to lay on top of that, as you think about your multi-product strategy and new functionality to add there, are there any areas you find more attractive or less attractive just from a standpoint of competitiveness? Anything on that will be helpful. Thank you.
spk03: Thank you. look i think what has changed is that we're not no longer under the radar everybody knows about us and when they think here what are they going to go out and compete hard right um i think a couple other things is we continue to spend 24 of our revenue in r d because we think we are disruptive but we want to continue to stay ahead and make the investments so stay ahead so that's the first thing just on a macro level do we think competition is is more aggressive somewhat, yes. Do we think that we continue to win as much as we've always won? Absolutely. So I think what makes a difference is even is that we have the only, I think, one of the only single instance multi-canon, but a single security master. All this network effect we talk about, all these efficiencies we talk about, that comes because, not because you're on the cloud, doesn't come because it is single instance multi-tenant it comes because we have a single security master which all our clients use and that is what makes us unique in the market and frankly drives the network effect which drives efficiency and which drives feature functionality for one client to be built in hong kong for our new clients, guess what? Everybody has that at the same time. So we don't see anyone else coming out with a model like that. I think a number of our competitors have put the software in the cloud, and that you must have seen several announcements, and that's interesting. I think a number of our clients are thinking about starting something in managed services, and that's also interesting. But I do see those as a validation of what we have built, is that the model of the future is on the cloud, single instance, multi-tenancy, but a single security master and a complete business solution, which includes managed services. So I do feel all of these moves which you see announcements on to my competition, I frankly see that as validation of a model. And so yeah, we are very watchful. And I'm sure you've asked us before, and we have said, look, we're going to continue to spend 24% because we don't take this for granted. continuously thinking about what else we can do to be more responsive to client needs.
spk06: I don't know, Jim, would you add something to that? I think the only additional item would be kind of the M&A question that you had. And so I think that we do think about those levels of functionality, but Sandeep hit the nail on the head. We have this single instance, multi-tenant, single security master, single, you know, kind of, and so we need, this is why we have such a high bar. We need this solution that we deliver to our clients to be elegant and consistent with that. And so that's where we're focused.
spk03: Yes, just to sort of elaborate on that just for one more second. We built the accounting engine business model you're talking about 10 years back. And this is reasonably complex and calculated, which is why even after we had built it and had clients on our territory in the tens and hundreds of them, we have continued to spend that much money to make sure it handles the complexity needed by very large clients, small clients, medium-sized clients, global clients. And so it isn't quite that easy, I think, to just suddenly say, okay, I will go build this. Yeah, it takes a little doing it.
spk09: Great. That's very helpful. Thank you.
spk11: Thanks so much. Thank you, Mr. Schwartz. The next question is from David Unger with Wells Fargo. Your line is open.
spk00: Great. Thanks for squeezing me in. I appreciate it. Most of my questions have been asked. I just wanted to touch on win rates. You know, you guys have historically had tremendous win rates, and I just wanted to – any call you could provide, how things have been trending over the past few months. Thank you.
spk03: Thank you. This is such a nice question. In this competition question, I did not want to sound too aggressive, but our win rates are, frankly, very, very unchanged. So when we go out and we compete, we win. and we win a very vast majority of the time. The win rate hasn't changed very much. I think obviously in newer markets is different, but overall, when you look at Clearwater's win rate, as we have sort of talked about before, it's very unchanged. And that's why the commentary around we think that we have a disruptive platform, we think it is a large dam, and so we can continue to grow and continue to get organic growth at a pace which you laid out in the past. So the wind rates continue to be virtually as good. And as Jim said, I think continue to build pipeline. The pipeline growth continues to be robust, and we continue to build operating capability a little bit ahead to service that.
spk00: That's great color. Thanks, Sandy.
spk11: Thank you, David. Thank you, Mr. Unger. That concludes the question and answer session. I will now pass the conference over to Sandy for any closing remarks.
spk03: Yeah, I just want to say thank you all for your interest and clear order. We know you have many things to do, and just taking the time to cover us is we're very thankful for that. We think we have a really great, durable story And so, again, thank you for your interest in us. Thank you.
spk11: Goodbye. That concludes the Clearwater Analytics first quarter earnings conference call. Thank you for your participation. You may now disconnect your lines.

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