Clearwater Analytics Holdings, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Clearwater Analytics second quarter 2024 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.

Thank you and welcome everyone to Clearwater Analytics second quarter 2024 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, intentions, and expectations, including in relation to business outlook, future financial and product 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 factor section 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 discussed in this call are presented on a non-GAAP or adjusted basis unless otherwise noted. A reconciliation to GAAP results 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 Sahai.

Thank you, June. I'm pleased to report that Q2 2024 was a very strong quarter for the company. Our ability to win in the market, to develop new products for our clients, and our ability to execute consistently on all fronts has never been more evident. Revenue for the quarter was $106.8 million. a 19% year on year increase. The momentum of a business was evident in which grew 22% year on year. Growth was balanced between new logos and current clients, between the North American and international markets, And finally, between new products and the core platform. New products were an incrementally higher contributor to booking in the quarter. And that gives us confidence to continue down the path of developing adjacent products in partnership with our clients. All of that. combined with an industry-leading 99% gross revenue retention for the second consecutive quarter and continued success with bringing clients live on our platform gives us confidence to meaningfully revise revenue guidance upward for the year. It's not just about revenue growth. Our disruptive platform and our outstanding customer focus allows us to grow earnings very meaningfully while we continue to grow. Adjusted EBITDA margin for the quarter was 31.3%, which is 34.7% higher than last year, and 370 basis points better than last year. meaningfully higher than the margin expansion goal of 200 basis points a year we had laid out at last year's investor day. Finally, free cash flows from operations during the quarter was 42.4 million, which is 116.9% higher than last year, a truly exceptional number. An interesting observation that we substantially paid for the Wilshire acquisition in Q2 using the cash generated from operations in Q2 alone. Let's discuss a few elements of our business and our plan for continued revenue and earnings growth. Starting with revenue growth. Number one, new logos. There is little to no change in the competitive landscape. Competitors have tried to create offerings by taking legacy platforms and making them accessible on the cloud or by stitching various products together, but that does not change the core legacy offering. Clients come to Clearwater because we have a single instance, multi-tenant platform, allowing us to ingest data from over 3000 sources. reconcile it and provide clients with a comprehensive view of the global portfolio. This has been a core offering of the company and continues to drive new logo booking. Number two, back to base growth. As we have said before, we are spending 60% of R&D capacity on building new products in partnership with our clients. In the last call, we had said that approximately 25% of our booking in the quarter was from these new offerings. It is with great enthusiasm that we note that booking was incrementally higher in Q2 from these products. We had expected these new products to be adopted by current clients first, but were pleasantly surprised to see that more than 50% of booking for these new products came from new logos. Number three, alternatives remain one of the biggest drivers of growth because the efficient processing of these asset classes continues to be challenging for clients everywhere. The innovation and functionality we're bringing to the market has led to significant client adoption as evidenced by the roughly 30 deals we closed with new or existing clients in Q2 alone. Our substantial investments in this area have been pivotal in attracting new clients and deepening existing client relationships. I'm delighted to share details about a major addition to our platform. A US investment advisor recently selected our LPX solution because they have a broad footprint that encompasses private equity, real estate, credit, and secondary markets. They were previously mired in manual processes, compiling data from GPs, and living in Excel spreadsheets. The combination of Clearwater's LPX user-friendly interface, seamless data ingestion and validation capabilities, and its robust reporting features dramatically increase the scale of the operations. With Clearwater, clients receive a single platform that ties accounting and performance book of record, all from a single source of data, thereby gaining a level of transparency that they did not have before with other legacy systems. Number four, Clearwater Prism continues to make inroads with a range of use cases emerging across a diverse client base. In Q2, we announced M&G Investments selected Clearwater to automate its investment management and regulatory reporting while supporting the complex need of the global insurance clients. With a white labeled version of Clearwater's platform, M&G's insurance clients will have access to an M&G web portal and rely on Clearwater Prism for monthly report generation. This automated investment reporting system will provide clients with a complete view of their investments and enable them to meet complex, multi-basis accounting requirements. Number five, let me give you a status of both Jump and the analytics platform of Wiltshire. The Clearwater Jump platform had an exceptional quarter. In North America, we secured five deals with managers who had diverse multi-asset portfolios that not only replaced the accounting, but order management as well. In Europe, the Clearwater Jump platform was chosen by numerous new clients, demonstrating the growing demand for high-value solutions that span the front, middle, and back-office operations. Let me illustrate with a few examples here. In Q2, we announced that France-based Galilee Asset Management will implement Clearwater Jump to consolidate fund and wealth management activities across its entire investment life cycle. Their selection of Clearwater Jump is a vote of confidence as Galilee Asset Management seeks to support its rapid growth and consolidate its activities after acquiring several investment management companies. A leading life insurer based in France selected Clearwater Jump to modernize their IT stack, while another French-based fund and wealth manager chose Clearwater Jump to increase efficiencies across their entire end-to-end investment and management operation. All these wins underscore the value we bring to leading firms. Cost efficiency, modernization, scalability, and unparalleled user experience are just a few reasons clients continue to choose Clearwater Jump. Number six, following our acquisition of the risk performance and analytics platforms of Wiltshire Advisors, The integrated Clearwater Wilshire platform can offer an integrated solution for transactions and positions. Our clients can now leverage a unified reporting platform for portfolio construction, quantitative performance attribution, risk analysis, stress testing, and portfolio analytics. all using the same underlying data from the core Clearwater platform. This has already started to pay dividends as seen with the expanded relationship with a leading portfolio manager who's now leveraging Clearwater Wilshire Analytics for daily performance attribution and factor-based ex-ante risk analysis. The expansion highlights the success of Clearwater's strategy to offer an integrated platform encompassing accounting, performance, attribution, and risk. And strategically positions us to strengthen existing client relationships that help to drive future growth. Number seven. And finally, let's discuss are continuing expansion across Europe and back this quarter. As our platform continues to make a significant impact across the world, we're delivering best-in-class localized accounting and investment analytics that provide our clients with a comprehensive view of the assets and give It gives them confidence that they're making the most informed decisions about their investments. Let me highlight a few of the impressive deals we closed. In the UK, we announced an exciting new wind with pooled rain. Britain's government-backed reinsurer. Polri will leverage Clearwater's single-instance multi-tenant platform to streamline and modernize their finance and investment processes and support highly efficient monthly closed processes. The scalability and flexibility of the Clearwater platform will also enable Polri to rapidly adapt to evolving market dynamics and their treasury reporting obligation. In APAC, we signed on a new asset manager in Singapore that is now able to redesign a cross-company asset strategy and build the technology infrastructure for significant asset growth. Another client in that region can now significantly decrease operating risks and free up the investment team to play offense versus defense. Now I'd like to switch to unit economics and overall profitability. The foundation of our continued growth and profitability is industry-leading retention and NPS and our ability to onboard clients in a relatively short time. How do we do that? A platform allows us to reuse public data we are already ingesting, reuse custody connections we have already built, and reuse the thousands of other connections we have already built. Accounting is very nuanced. And over the years, we have created an incredible array of configuration options, which is needed as we onboard increasingly sophisticated clients and portfolios. The benefits of this approach are twofold. Number one, it is incrementally easier to onboard the next client Because we already have many of the data sources and securities modeled on our platform. Number two, on a day-to-day basis, we reconcile data once and use it for every client on the platform who invests in that security. Both of these practices incrementally improve gross margin. Add to that the progress we are making with generative AI, and you will understand why we have outperformed our margin goals and have strong confidence in continuing to improve unit economics. Our client's onboarding experience continues to be incredibly positive, including notable goal lines with leading global firms such as France Active in Europe. In less than five months, they're realizing significant business benefits, including timely book of record accounting, efficient period and operational tasks, and increased productivity because the Clearwater platform helps automate data ingestion, reconciliation, and reporting. On a regulatory front, Clearwater experts continue to provide valuable guidance, ensuring our clients remain ahead of the curve with the most significant NAIC update since 1991. Global regulatory reporting is built into the Clearwater platform, so our reports always stay current to meet the latest regulatory guidance. Our team of regulatory product experts monitor guidance closely and work with our engineering team to incorporate those changes into Clearwater's platform. Because Clearwater is a web-based SaaS solution, those updates deploy seamlessly to users. Switching gears, I want to talk about our continuing investment in our core platform. We live in an ever-changing world. When new securities are created every day, entire asset classes emerge. regulations change, and accounting standards evolve. It is critical for our technology to be a beacon of reliability, scalability, and operational rigor, attributes critical to a world where change is constant. Last year, we completed our movement to the cloud, completely changing our ability to scale. That change has helped us continue to process data daily, meet deadlines, and lower costs, even as data volume grew substantially over the year. At month end, our data intake increases by a factor of roughly two and a half times. But we successfully handled the surge using the cloud, where it is easier to add and then reduce compute power on demand. Earlier, we would have had to provision for the peak load, and that would have sat idle during much of the quarter. In another significant change, our investment in non-differentiated heavy lifting has gone down meaningfully, allowing us to deploy our engineering resources to growth. And finally, having a single instance platform obviates the need to maintain and manage multiple versions of the software. A follow the sun model is not just a good to have operating model. It is essential when you want to effectively address the needs of the clients around the world in a reliable fashion. Even in the face of a global IT outage like the one on July 19th that caused technological havoc, Clearwater responded with urgency and agility. Because we have a single instance platform that all our clients use, we had one version of the software to focus on and rectify not multiple versions some on-prem and some on the cloud as the events unfolded our team in india swiftly diagnosed and worked on rectifying the problem ensuring that by the time europe and the us started the day The disruption was already well understood and largely mitigated. Such instances reaffirm the stability and scalability of operational capabilities and highlights the technological superiority of the single-instance multi-tenant model that is now the de facto standard across industries. The success of generative AI is largely dependent upon access to data on an ongoing basis. This is where Clearwater's single security master shines because all our data resides in one logical database. Using generative AI, we harness this technology's potential to a natural advantage and eventually to benefit all our clientele. We have already seen benefits from this technology and expect to deploy more applications across our platform. Last month, I had the pleasure of connecting with our European user base and prospective clients at Clearwater Connect in London. The interactions I had were enjoyable and insightful, and I'm really excited about the momentum we are seeing across the board. We have a strong team in London, Paris, and Germany, a local operating center in Edinburgh and deep domain expertise across the market. We continue to grow our presence in the UK market, and we are energized by the growing momentum in the French and German markets. We are even more excited about our next user conference, Clean Water Connect in Boise, set for September 17th and 18th. where we expect institutional investors will come together to learn about new technologies and solutions that can help them grow their business. And with that, let me hand the call over to Jim to review our financial results in more detail.