Clearwater Analytics Holdings, Inc.

third quarter 2025 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 Camille Milcharik, Head of Investor Relations, to begin the conference. You may proceed.

Thank you and welcome everyone to CLON's third 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'll 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 Security 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 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 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 Sai. Thank you, Kamil.

I'm pleased to report that Q3 was a very strong quarter for C1. The near-unanimous adaptation of our strategy from clients, partners, analysts, and employees is very inspiring, and we look forward to continuing to build the investment management platform of the future. We delivered revenues of $205.1 million, a 77% year-on-year growth and ARR reached 807.5 million, also up 77% year over year, demonstrating the durability and predictability of our business model. I don't use the word stunning very often, but it is hard to use another word for our adjusted quarterly EBITDA of 70.7 million, up sequentially, from 58.3 million in Q2. This was exceptional for several reasons. Number one, adjusted EBITDA for Q3 was 34.5% versus 32.1% in the second quarter. It is helpful to remember that the lower margin infusion business was a part of C1 for only a portion of Q2. And therefore the expectation was that the overall margin would decline in Q3. Instead, it improved by 240 base response. Number two, gross revenue retention or GRR for the combined company was 98%, an excellent metric that can be attributed to the exceptional work done by the operations teams. Number three, Our gross margin performance tells an even more compelling story. We achieved 78.5% gross margins for the integrated business, hitting our targets meaningfully sooner than the two year timeline we set with investors. In another significant achievement, Gross margin for the steady state clients of the core business of Clearwater reached 82% in Q3. The use of Gen-AI is continuing to accelerate and is outpacing our own assessment of the margin improvement it can drive. We are working on several levers that allow us to continue identifying use cases for Gen AI and improving overall margin of the business. Number four, another data point that was very impressive. Compared to the standalone Q3 margin in 2024, the integrated business delivered an additional 140 basis points of EBITDA in Q3 of this year. Think about that. We integrated two businesses with meaningfully lower profitability profiles and still expanded our margins very meaningfully. It's all about the team, relentless execution, and the power of the platform. I want to now spend some time discussing the incredible opportunity we have to grow our business into an industry powerhouse. There are several vectors of growth worth noting. Number one, our time has grown to roughly 23 billion and is balanced across geographies and markets. And this is not a passive opportunity. There is real need driving a yearning for next generation technology. The move to alternative assets, globalization of portfolios, increased need for risk and performance, increasing complexity related to regulatory and compliance needs, all result in the need for technology like ours. Number two, our platform gives us a very deep technological moat. Our ability to build and deliver An open, modular, extensible front-to-back platform is, we believe, largely uncontested. And finally, number three, a highly favorable competitive landscape leaves us with multiple avenues for growth. This dam and our competitive position should provide an extended runway for us to continue growing. Let me talk about our current achievements. Number one, while it is becoming harder to identify the revenue associated with each individual business, Core Clearwater grew close to 21% year to date over last year. That resilience is what we expect. Number two, we expect Infusion to grow 12% for the year and are very energized by the continued booking execution in Q2 and Q3. Number three, Beacon continues to perform very well. That was our number one priority, ensuring that the core platforms and businesses continue to grow. It's reassuring to see the progress we have made in the last two quarters. Growth in Q3 booking was very evenly spread across insurance, asset management, asset owners, and hedge funds. For the first time on a year to date basis, asset management accounted for the highest booking. matching the opportunity size as defined by available time for each market. In new client acquisition, we signed a global multi-billion hedge fund with a record three-month sales cycle when also creating expansion opportunities across asset classes. Our wins in the hedge fund market during the quarter went very balanced between launches and conversions and geographies, North America, Europe, and Asia. Insurance continues to do very well, powered by a strength in alternatives. LPX, MLX, RISC, and PRISM all had a strong quarter, reflecting the growing breadth of a solution. We are establishing ourselves as the partner of choice for the asset owner sector. We welcomed a leading global AI platform to C1, and our relationship with another global AI leader continues to flourish. In the government market, Texas Treasury Safekeeping Trust chose us to account for 30 billion in state assets, winning against multiple providers. Our differentiated ability to address complex alternative assets with LPX and fund accounting was the key differentiator. Internationally, our expanding global capabilities continue to drive growth. A global asset manager selected our premium close and income analytics solutions while expanding with us into the UK operations leveraging our UK GAAP and Solvency II expertise. The Latin American Reserve Fund, a regional financial institution supporting central banks through credit facilities and international reserve management chose C1. Finally, I could not be more excited about our risk, valuation and performance capabilities. In just the last week, we signed two seven-digit deals with leading financial institutions. Cross-selling has become an earnest and we entered Q4 with the best pipeline we have had in our history. We expect cross-selling to power growth in Q4 and in 2026 and beyond. Overall, our growth plans for each platform remains the same. And we approached 2026 with renewed confidence. Specifically, the growth plans are for core Clearwater. Number one, insurance. Continue to win new logos and accelerate wins in Europe and Asia on the strength of our recent wins there. Beyond new logos, providing a more comprehensive solution with a back-to-base motion is a key driver. And we expect to provide solutions for alternative assets, comprehensive risk and valuation capabilities, and a front-middle, office-back solution. Number two, combining the capabilities of the Infusion and Clearwater platforms, we are seeing very high traction with asset managers. and we continue to invest and grow in that segment. We expect this platform to continue to mature and become the platform of choice for the industry. Helping global asset managers provide a comprehensive reporting solution to the clients is another avenue of continued growth. Number three, asset owners continue to be a very important growth sector. Corporates, trusts, foundations, state and local governments, REITs, pensions, and regional banks are all significant opportunities for our platform. Number four, executing against opportunities across geographies, markets, and products will allow us to continue our current growth trajectory. Those were the vectors of growth for Core Clearwater. Now let's talk about growth of the Infusion platform. Number one, we have a dedicated product and engineering focus, and we want to ensure client delight across the entire spectrum of clients. Number two, there is significant time available, and we expect the core business to accelerate. With the addition of Beacon and Wiltshire, we now have an outstanding solution for various sub-segments including global macro hedge funds and funds that focus on risk-aware investing. Number three, we have begun work on the commercial model and we expect that to have impact in 2026. And number four, finally, we are building a strong back-to-base motion that includes providing risk, client reporting via PRISM, and expanded reconciliation using our internal tool periods. Each platform's growth is very important, but the driving force behind the combination of these businesses was our ability to build and deliver an integrated, open, modular, and extensible front-to-back platform. One that has the capacity to disrupt our industry and dramatically alter the efficiency and operations of our clients. With that aim in sight, we have started to make progress on number one, a single security master. Number two, a single comprehensive data platform that incorporates all asset classes. Number three, a single interaction layer that allows clients to talk to the data. And number four, a single interchange layer that allows effective internal and external connectivity. This is incredibly exciting. And we expect to bring these to market in H2 2026 and early 2027. Now let's talk about generative AI. We believe that generative AI represents the most important technological advancement of our lifetime. We embraced the technology early in 2023, used it to drive very meaningful gross margin improvements, and have brought this technology to our clients. We have built out a team of gen AI experts who are actively automating internal and client processes. we have partnered with global leaders like AWS to build our own agent tech platform. In fact, AWS recognized us as an early adopter of Amazon Bedrock Agent Core, which was made generally available last month. Unlike experimental AI tools or co-pilots, layered on legacy systems, C1 GenAI is fully integrated. and deployed into production on a front-to-back platform. Our platform hosts over 800 AI agents created by internal teams and clients and is available to act across more than 10 trillion in institutional assets. We are, we believe, uniquely positioned to lead our industry in bringing the full potential of Gen EI to our clients. And it is fair to ask, why are we so uniquely positioned? Gen EI leadership rests on three foundational pillars, which are very difficult for our competitors to replicate without many years of investment. First is the modern architecture of our platform. We have a single instance multi-tenant architecture where all the data flows into a single logical data store. All our clients are on this single platform. A decades long history of ingesting data, aggregating it and reconciling it are all recorded on the platform. This makes it relatively easy for Gen-AI agents to learn. And the agents are only as powerful as their ability to learn. Without this foundation, you cannot properly leverage Gen-AI, and competitors will need to rebuild the entire tech stack to reach priority. Second, the breadth of data on our platform is extensive. We connect to approximately 4,000 data sources. This ecosystem of complex data permissions, websites scraping, cleaning, and unifying thousands of data sources, and incorporating constantly changing accounting, tax, and regulatory rules This would be incredibly difficult to replicate without many years of investment. The analytics related to valuation, risk calculations, accounting values, and performance are generated by our platform, providing valuable insights for the C1 Genia agents to learn from. In addition to this, details about many alternative assets publicly available, but if any one of our clients wants us to track and account for it, we add it to our security master. What we already have is a production-grade general AI platform live in the market, transforming how our clients operate. While others are still talking about what general AI may do, we are already executing at a global scale. Our clients are seeing 90% reductions in manual reconciliation, 80% faster regulatory reporting, and 50% faster financial close cycles. We believe that it is not a six or 12 month lead, but a multi-year competitive mode, positioning us to capture significant market share. Before closing, let me review the strategic and financial merit of the acquisitions we did. Strategically, the expansion of our TAM, the ability to provide an open, modular, and extensible platform has changed our position on the market and dramatically enhanced our ability to cross-sell and compete with all providers of legacy technology in our industry. Financially, with an approximately 15% dilution in the share count, the quarterly revenue has grown 77% year on year, and EBITDA has grown 84%, partially from our organic growth, but the majority of it from these acquisitions. We have already improved the margin and profitability profile of these businesses to a level close to ours and expect to improve growth over the next year and a half. We see this as incredibly accretive to our shareholders and very valuable to our clients. We are very excited about the two recent board conferences of Dr. Mukesh Ali and Bas Neobarveman, as well as several key leadership hires across multiple functions. We are very proud of the progress we have already made and the platform we are building for our clients. With that, I'll hand the call to Jim to dive deeper into our financial details. Thanks, Sandeep.