Clearwater Analytics Holdings, Inc.

Thank you and welcome everyone to Clearwater Analytics' second 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 acquisitions 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 a forward-looking state. 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 statement. 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 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, Mike. We had a very strong second quarter. Firstly, the core business continues to perform very well. meeting and exceeding our expectations. Secondly, we're very pleased that the strategic rationale behind the acquisitions has been enthusiastically validated by clients, partners, industry analysts, and employees. Thirdly, we have acted purposefully and decisively to integrate the companies and set ourselves up for the next phase of growth. And finally, our due diligence was comprehensive and there were very few surprises resulting in us delivering very solid financial results for the integrated company. Our total revenue grew 70% year on year to 181.9 million with a core business contributing 130.6 million representing a solid 22% year-over-year organic growth. ARR was 783.5 million, up 83.4% year-on-year. Core NRR stands at 114%, with consolidated NRR at 110%. showing that our existing clients continue to expand the use of Clearwater. Our adjusted EBITDA of 58.3 million was 32.1% of revenue and up 74.3% year on year. What makes this truly remarkable is that 32.1% is 70 basis points higher than our standalone profitability in quarter two of 2024. Think about that for a moment. We integrated Infusion, which had meaningfully lower levels of profitability, and yet we grew profitability 70 basis points compared to last year. What makes all this possible is the inherent disruptive nature of our platform, and it's nice to see it continue to assert itself. The single instance multi-tenant architecture with a single security master and a single data plane is disruptively better for both business functionality and efficiency. The network effect simply makes operations more efficient and each new client is inherently more profitable. And where does it show up in gross margin? Let me walk you through what we have achieved on gross margin this quarter, because it simply tells the story. When we announced these acquisitions, analysts rightfully expected significant margin compression because we were integrating Infusion, whose gross margin was approximately 10% lower than us. And the math was really straightforward. if you assumed approximately 69% gross margin for Infusion and close to 79% for the rest of the business, all consistent with analyst expectations, we should have delivered a blended gross margin of roughly 76.5% as an integrated company. We had committed a 400 BIP improvement in the infusion business at the end of the first 12 months, at which point we were then expected to deliver a gross margin of approximately 77.8%. We delivered a gross margin of 77.4% in Q2 itself. That's remarkable. This was achieved in large part because gross margin of the core accounting and analytics business exceeded 80% for the quarter. A big shout out to both the operations and technology teams on achieving this long-term goal we had set for ourselves. And this was delivered in just two and a half years. What I find exciting is that we still have several impactful levels we can pull to improve our margins in the coming quarters. Looking ahead, we see a clear path to continued margin expansion as we realize additional operational efficiencies, and perhaps more importantly, as our generative AI initiatives continue to scale the platform. Helios, our proprietary data reconciliation platform, and the generative AI version of Helios should both have significant impact on our business. Financially, this is already a very compelling proposition. And we have already delivered the synergies and margin improvement goals we had laid out for the entire first year. But as we have said before, these acquisitions were primarily driven by a vision for an integrated platform that would alter the investment management technology landscape for our clients. And while Clearwater and Fusion and Beacon were already market leaders in the industries they focused on, our ability to jointly deliver this vision expeditiously is meaningfully higher. We began by working jointly across all three organizations, Clearwater, Infusion and Beacon to develop a detailed and joint vision for the combined business. To validate this vision, several members of our leadership team and I traveled to 14 cities across the world, engaging over 450 clients in intimate settings to discuss what we were building, and seek their feedback. The response was near unanimous enthusiasm for our vision and direction. And clients immediately grasped the industrial logic of bringing these companies together. Equally important was ensuring that our entire organization was aligned. we met over 2,600 employees in person across our centers, close to 85% of our workforce to share our plans and build a shared vision for the integrated business. With this foundation in place, we moved decisively to reorganize the business around what's best for our clients. We integrated the GTM teams and restructured the business to serve four markets, insurance, asset managers, hedge funds, and asset owners. We then took the product and engineering teams from all three organizations and combined them to build integrated capabilities that can be taken to these vertical markets. And finally, the enabling functions were integrated on day one. These actions were done to serve our clients better and not to reach any specific synergy goal. But these actions allowed us to realize 20 million in synergies, our full year one target within the first few days as an integrated company. But back to our vision for the platform we are building. We have the components to build a true front to back platform that will have exciting implications for our clients and the industry. The core tenets of the platform will be number one, it will have a single instance multi-tenant architecture. This is the last upgrade our clients will ever need. Number two, the platform will share a security master across the entire investment life cycle. When an event happens anywhere in the trade lifecycle, a trade, a corporate action, or a regulatory change, it will be reflected everywhere in the platform in near real time. Number three, managing cross asset class risk, risk across geographies, understanding cash flows at a comprehensive level which will all be possible in near real time, vastly enhancing decision-making capability. And finally, number four, integrating data ingestion, aggregation, and reconciliation to work the way it should be. Doing it once and using it for all clients across all functions. Data quality will also be vastly enhanced. And when we solve a problem for one client, every client will benefit. This integrated architecture eliminates the complexity and inefficiencies that plague organizations using multiple disconnected systems. While this will be truly disruptive, the availability of an integrated data set already powers and will continue to power our push into infusing generative AI into all aspects of the business. We will deliver next generation reporting, deeper portfolio insights, and operational efficiency, applying agentic AI and other capabilities that legacy systems simply cannot match. A good proof point of our joint offering was our recent signing of VKB, Germany's largest public insurer. We are replacing a leading legacy provider and delivering a disruptive solution for them. VKB will be able to modernize its operations while significantly enhancing the accuracy and timeliness of data across all asset classes. Our solution brings together components of Clearwater, Beacon and Infusion to deliver an integrated front to back platform. Since the announcement of this combination, we have received numerous client requests and RFPs for a front to back solution. Something none of the standalone companies would have been able to deliver on their own. We also made progress on our partnership strategy and are very excited about the recently announced partnership with Bloomberg. When it comes to large asset managers, we expect to partner with them to deliver a full front to back solution. The collaboration creates a bi-directional integration between Bloomberg AIM and Clearwater that eliminates manual workflows and delivers a seamless front to back experience. While we have long supported other point-to-point connections, the Bloomberg collaboration offers true interoperability, greater automation, and a differentiated client experience. We're already working on over a dozen active deals where the joint solution is the key differentiator. In closing, we're not trying to build an incrementally superior platform. We have the intellectual property, client support, and engagement from our team to build the next generation investment management platform. In fact, we hope to build the nervous system of the future investment management industry. With that, I'll hand the call to Jim to dive deeper into our financial results.

Thanks, Sadiq. I am excited to report another outstanding set of quarterly results as the momentum in our business continues and the strategic transformation of the acquired businesses is progressing faster than expected. We achieved record revenue of $181.9 million, up 70% year over year, which comfortably beat our guidance of $174 million. our core Clearwater revenue continued to grow at 22%. What is impressive is how this growth came from both our traditional drivers, for example, our steady net revenue retention rate of 114 for the core business, as well as from newer drivers, including international insurance and global asset management. We've been investing in those areas, and it is gratifying to see those successes. As it relates to the acquired businesses, I'm happy to state that those businesses performed very consistently with their forecasts for the second quarter. The outperformance in revenue relative to our guidance was a function of conservatism applied to the forecast process of the two newly acquired businesses. Given that both businesses were quite new to us, for our guidance, we had kept the nine days of April revenue of the infusion business as a hedge against any unanticipated surprises. And fortunately, the hedge proved entirely unnecessary. Annualized recurring revenue, or ARR, at the end of Q2 was a record $783.5 million, up 83.4% year-over-year. On an organic basis, ARR was $513 million, an increase of 20% year-over-year. As for the progress on the acquisitions, we've been particularly pleased with the progress we've made with Infusion. This past quarter, Infusion delivered the highest bookings achieved in any quarter in their history. And we welcomed 49 new clients with strong performance across all global regions of that business. And I look forward to seeing the momentum continue in the second half of this year. We also have seen incredible customer interest in Beacon. as their risk capabilities cut across all of our client segments. Now let's turn to unit economics and profitability. We achieved non-GAAP gross margins of 77.4%, which is impressive since Infusion historically had a materially lower gross margin profile than Clearwater's. We'd previously communicated we expect around 400 basis points of gross margin improvement from the infusion business. And we're pleased to report that we have delivered on almost all of this faster than we had expected, demonstrating the power of our integrated platform approach. In terms of EBITDA, we generated $58 million of EBITDA, representing a margin of 32%. and 74% year-over-year growth, which again comfortably beat our guidance of $53 million by $5 million. This beat resulted primarily from the achievement of the $20 million in expense synergies within this quarter. With the expense synergies achieved, we're now focused entirely on growth across all of our lines of business. In terms of retention metrics, our gross revenue retention rate at June 30, 2025, remained solid at 98%, and the net revenue retention rate was 110. As these are point-in-time metrics, these results fully reflect the impact of both acquired businesses. Therefore, Maintaining a 98% gross retention rate while including all acquired businesses is meaningful. Our NRR for our historical business for the quarter remained consistent with the first quarter at 114%. And as discussed in a prior call, we remain confident that the measures we are currently undertaking to improve retention metrics for infusion will enable us to achieve our company target of 115% on a consolidated basis over time. Turning to gap results, we recorded a gap loss in the quarter largely due to increased intangible amortization expenses and costs related to the acquisitions, as well as increased interest expense. Even with these transaction expenses, in Q2, operating cash flow was $47.1 million from strong non-gap earnings and effective working capital management. That strong cash flow enabled us to repay $50 million of our revolver within the quarter, and we ended the quarter with total debt of $872 million. We continue to be committed to repaying our debt quickly and fully expect our leverage ratio to be very comfortably below four times by the end of this year. Now let's talk about guidance. We exceeded our guidance by $7.9 million in the second quarter, with $1.6 million coming from our core business outperformance and $6.3 million from our guidance for the businesses acquired in April. For the third quarter of 2025, we expect total revenue to be $203 to $204 million, representing a year-over-year growth rate of 75 to 76%. For the full year 2025, we expect total revenue to be between $726 and $732 million, representing a year-over-year growth rate of approximately 61 to 62%. In terms of EBITDA guidance, we expect third quarter EBITDA to be $65 million, representing an adjusted EBITDA margin of 32%. We also expect EBITDA to be $232 to $237 million for the full year 2025, representing an adjusted EBITDA margin of approximately 32% for the entire year. Now that the acquisitions have been completed, we can provide some additional guidance for those items below EBITDA. We expect interest expense to be about $16 million per quarter in both Q3 and Q4. We expect depreciation and intangible amortization to be approximately $29 million per quarter in both Q3 and Q4. And lastly, we expect equity-based compensation expense to be between $34 and $35 million per quarter in both Q3 and Q4. We look forward to providing a more detailed update at our second Investor Day on September 3rd at the New York Stock Exchange. With that, I'll pass it back to Sandeep for some closing remarks.