Clearwater Analytics Holdings, Inc.

Participants are in a listen-only mode. After this speaker presentation, there will be a question and answer session. And now I would like to turn the conference over to June Park, Head of Investor Relations, to begin the conference. June, please proceed. Thank you.

Thank you and welcome everyone to Clearwater Analytics First Quarter 2025 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, expectations for the acquisition of Infusion, Beacon, and Bistro, and their expected benefits, 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 materially from any forward-looking statements. 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 on 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, Jun. I'm pleased to report that Q1 marked another quarter of strong execution and continued progress. Let me share some highlights that underscore our strong performance. Revenue for the quarter was 126.9 million, a 23.5% year-on-year growth. ARR was 493.9 million, up 22.7% year-on-year. Our adjusted EBITDA of 45.1 million was 35.5% of revenue and up 40% year on year. Gross margin was 78.9%, very close to a long-term target of 80%. In today's environment of heightened market complexity, our value proposition has never been more relevant. In times like these, Institutional investors want to make ongoing adjustments to their global portfolios, which in turn requires a comprehensive view of their assets and the ability to perform advanced analysis at a much higher frequency. Managing investments through disconnected legacy systems is no longer merely inefficient, it has become an existential risk. Data silos across legacy platforms slow decision-making, they mask critical risks and introduce unnecessary costs precisely when agility and transparency are most essential. Take regulatory reporting next. Conforming with the new NAIC mandate, often requires extensive work. And most of the industry is in various stages of planning and execution. But most of Clearwater's clients are already compliant. We made changes to our platform in a timely manner, and it was immediately available to all our customers. And the effort required to comply was dramatically reduced. The single instance multi-tenant model is simply superior. This is the last quarterly call focused almost entirely on Clearwater before these acquisitions. And it is therefore a good time to take stock and reflect on what we have achieved over the past few years and what lies ahead. Looking back, it is clear to us that these enduring financials are not just a matter of chance. We have been focused on improving the quality of our business very programmatically and methodically and have executed with rigor. Let's start with revenue growth. We have grown 20% plus for each of the last six years. Our platform is clearly disruptive and our win rate of 80%, GRR of 98% plus, NPS of 60% plus are all testimony to that fact. Our single instance multi-tenant platform with a single security master is simply the right technology to address the complex global portfolios that our clients have. We believe that all clients will migrate to this architecture in the days and years ahead and are confident in our competitive position versus the legacy platforms most of our major competitors have. But we did not stop there. We launched a large commercial contract restructuring program in 2022 that aimed to dampen revenue downside in times of AUM decline while still retaining a majority of the revenue upside when there is an AUM tailwind. This was again apparent in Q1 of this year. Markets were very volatile, but ARR grew 22.7% year on year. Looking back, growth and sustained growth powered by investment in innovation and the development of new functionality helped us become more responsive to clients while increasing TAM. add to that superior client servicing and operations, and finally, a balanced commercial model, and you get sustained, durable growth. Looking ahead now, we believe that this playbook can be applied almost in its entirety to both Infusion and Beacon. The finance and legal teams have already been integrated under common leadership. And we will start work on this almost immediately. Let's discuss gross margin and unit economics next. Firstly, the key to consistently improving both of these metrics starts with a focused on client satisfaction and ensuring consistency and reliability in our operations. Essential ingredients to earning the trust of our clients and in delighting them. We use NPS and CSAT extensively to track and measure progress at a team level, at an industry level and at the company level. We use a metrics driven approach to measure productivity and drive constant improvement. Not rocket science, but relentless execution is what sets us apart. Second, and as importantly, we invest in technology to make our workflows and processes much more efficient. We developed a proprietary reconciliation tool, Helios, to modernize how we aggregate and process daily investment data from custodians, clients, asset managers, and brokers. And given the single security master and single data ingestion system, we have led the charge on generative AI. The financial expression of these programs have been very strong. Gross margin has grown from 75.1% in fiscal year 2022 to 78.9% in Q1 of 2025, a 370 basis point improvement. We discussed gross margin improvement at an investor day conference in September, 2023, and forecast a 50 bps per year improvement. From 75.8% gross margin in the first half of 2023, just before the conference, we have grown gross margin by 300 basis points in less than two years, far exceeding the 100 bps improvement investors should have expected. We have taken that technology and piloted the use of Helios to drive efficiency across Infusion's operations. And the early signs are very positive. Similar improvement in client onboarding. A single security master has enabled us to reduce the average time to onboard a client to just 5.5 months. A remarkable achievement. when you consider other similar platforms. Once again, we expect to bring these technologies and capabilities to infusion and beacon and drive meaningful gross margin improvement. To facilitate this, all operations and client servicing teams have been brought under one common leadership and will be operating as one integrated team. R&D and operations are increasingly seen as partners in growth. And we were very excited to have reached our NRR target of 115 at the end of 2024, a full year ahead of a January, 2026 goal. Finally, then let me discuss EBITDA expansion. Here again, we continue to meaningfully outpace the goals we set for ourselves. Q1 2025 generated 35.5% adjusted EBITDA, which was 420 basis points better than Q1 of 2024, which in turn was 470 basis points better than Q1 of 2023. That is extraordinary. And when you consider the organic growth we have been driving while improving profitability, it should give you very high confidence in our ability to execute. None of this would have been possible without the infectious passion, active collaboration, and the striving for excellence that my partners in the leadership team have displayed over the last several years that we have been together. Our entire team works tirelessly to be client advocates, and we have been fortunate to have built an extraordinary team across the globe. I could not be more thankful. Before we move on, I'd like to highlight some of the notable strategic wins from Q1. a magnificent seven tech leader selected a Prism solution to integrate the investment data into their Snowflake cloud environment, supporting both immediate liquidity management needs and longer-term plans to consolidate the investment operations infrastructure. In Europe, we secured a pivotal win with a leading German insurance company, the first step in replacing a competitor's middle to back office solution. This validates our expansion strategy and opens up significant market opportunity and TAM in Europe with potential replacements for firms managing over $5 trillion in AUM collectively. A global asset manager expanded the partnership to include both LPX and MLX solutions to support their insurance clients' book of record accounting and regulatory reporting needs. These wins demonstrate our ability to solve very complex operational challenges across diverse clients' while also showing strong cross-sell momentum for our PRISM, LPX, and MLX solutions, as well as our generative AI capabilities. Now though, let's look ahead. Our strategic acquisitions of Infusion, Beacon, and Bistro position us to deliver what the market has long demanded and what is increasingly necessary to manage a complex global portfolio. The industry's first fully cloud-native investment platform that seamlessly integrates the front, middle, and back office operations. By combining Clearwater's trusted middle and back office infrastructure, with Infusion's industry-leading front office platform, Beacon's next-generation risk and quantitative analytics, and Bistro's visualization capabilities focused on alternative assets, we aim to eliminate the fragmentation that has plagued our industry. Our single instance multi-tenant architecture is already disruptive in our industry. But what sets us apart now and in the future will be our ability to create a single security master and a single data plane for all asset classes, public and private. We believe that the business value of this will be completely transformative. Number one, the platform will provide a comprehensive global view of our clients' assets, public and private. This is incredibly hard to do when you think about LPs, mortgages, loans, private credit, derivatives, structured products, et cetera, along with equities and fixed income instruments. Number two, drill down to understand real exposure to a company, an industry, or geography. And most importantly, across asset classes. You must know what is in every CLO, every MBS, every LP investments, every real estate portfolio, and so on and so forth to generally understand real exposure. Number three, understand overall risk. Very tough to model because it is difficult to ensure that the assumptions are consistent across asset classes. Risks across asset classes often compound and or cancel each other, making it important to understand overall risk, model cash flows, perform shock analysis and scenario review across your entire portfolio. Number four, all of this will lead us to an event driven platform, where actions taken anywhere in the trade life cycle are immediately reflected across the front to back platform. Fully integrated, our platform will deliver this and will completely revolutionize the industry. Integration does not happen overnight. but gives us high confidence of the fact that all these platforms use modern cloud technologies and are operating at scale. Secondly, and perhaps more importantly, large sophisticated clients already use these platforms together with one stellar example being Blackstone Building Bistro. And while this vision is very exciting, we also want to deliver in the short and medium term. Given the complexity and time needed to launch new products, enter new markets and geographies, we have developed a roadmap for execution that has three phases. In phase one, The focus will be on maximizing the potential of each standalone business as it relates to their 2025 goals. We want the GTM and operations teams to do what they were doing before these acquisitions, but do it incrementally better. For Clearwater, the ability to provide industry leading front office functionality cutting edge risk and market leading alternative assets visualization should make the market proposition stronger and help growth incrementally. For Beacon, they will have the ability to take the platform to over 1400 Clearwater clients and over 900 Infusion clients. And that should help them grow incrementally faster. For Infusion, a joint ability to invest in R&D and GTM for both hedge funds and separately for asset management and to take the solution to over 1400 Clearwater clients should also help them drive incrementally higher growth. Phase two consists of a robust cross-sell strategy across the combined organization. Building on the successful model we developed with our Wiltshire cross-sell team, we are creating a dedicated organization to capitalize on the need for a comprehensive platform for investment management across our client base. This approach will not only drive revenue growth, but also deliver enhanced value to our clients. In the third phase, we are gonna bring a long-term vision of one platform to fruition. The R&D, operations, and GTM efforts to drive all these phases will start in earnest right away. This includes developing a single security master on a unified data plane that will form the foundation for the industry's most comprehensive front-to-back platform. This integration is our goal and its success will be built on the momentum we generate from our immediate focus on standalone growth and cross-selling initiatives. That's the strategic opportunity. But on the financial side, we think these transactions create an extraordinary opportunity for shareholders. We have issued shares that led to dilution of approximately 15%, but have added a little over 50% in revenue, though not at the same level of profitability. But we are very confident about our ability to execute and drive incrementally higher growth, higher gross margin, and meaningfully improve profitability to get these businesses to financial metrics that are similar to ours. Taken together, all of these actions should power 20% growth, 50 basis point gross margin improvement, and 200 basis point EBITDA expansion per year, all very consistent with our earlier guidance. Finally, we begin this chapter as one integrated team, strengthened by the addition of executive and exceptional leadership and talent. I'm delighted to welcome Neil Pawar, former CEO of Infusion, and Kirat Singh, former CEO of Beacon, to our leadership team. Their expertise and vision will be invaluable as we execute on an ambitious roadmap. To the Infusion and Beacon teams joining us, welcome to Clearwater. And to all our employees, thank you for your unwavering dedication and collaborative spirit that have established Clearwater as a global leader. Together, we are doubling down on our commitment to innovation and operational excellence as we build the industry's most comprehensive cloud-native investment management platform. The future has never been brighter for our clients, our shareholders, and our entire Clearwater team. With that, I'll hand the call over to Jim to dive deeper into our financial results.