CWAN - NYSE

Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the Clearwater Analytics Second Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen mode only. After the speakers' presentation, there will be a question-and-answer session. And now I would like to welcome Joon Park, Head of Investor Relations to begin the conference.

Thank you, and welcome everyone to Clearwater Analytics' second quarter 2023 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 provision 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 Factors 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 statements included in our earnings press release. Lastly, all metrics discussed on this call are presented on a non-GAAP or adjusted basis and include the results of JUMP Technology since the acquisition on November 30, 2022, 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, Joon. And welcome to our Q2 earnings call. Allow me to start by saying that I'm incredibly proud of the entire Clearwater team for our outstanding execution in Q2. There are four key areas where we executed very well. One, we successfully brought both large and small clients live. And even more impressively, we saw best-ever customer satisfaction and NPS scores. Second, the sales team had a very good quarter, and they continue to win against competitors who largely offer legacy solutions. Third, we continue to see positive impact from the commercial model we rolled out last year. And fourth, we continue to innovate and deliver products that address our customers' pain points. Let's dive into each of these. First, let's start with operational excellence. We have been investing increasing maturity and scalability of our onboarding team, and Q2 was a testament to how far they have come. Aviva is fully live on our platform. As you know, Aviva is a leading U.K. provider of insurance, wealth and retirement products serving over 18 million customers. They have the global assets on our platform and we provide a daily comprehensive view of their portfolio consisting of more than £350 billion in AUM. Achieving this milestone is very significant, because we had to build unique functionality specific to Europe; including asset class coverage, coverage for local accounting standards and regulatory reporting for countries across Europe. With this accomplishment, we have proven to the market that we can handle the highest level of complexity in Europe, combined with the multi-country onboarding of FWD in Asia. Our platform is now used by large sophisticated customers across the world. Other major go-lives in Q2 included Amica Mutual Insurance, Greenwich Investment Management and Highmark Health to name just a few. In Q2, we saw our average go-live time decrease with average time taken to bring customers live on our platform was approximately six months. The network effect of our single-instance multi-tenant platform allows us to continue improving this process and bring value to clients faster. As you all know, our NPS is one of the highest you will find in the industry and is a metric you're incredibly proud of. In Q2, we exceeded our already industry-leading numbers and recorded our highest NPS to-date. To me, it says that our customers are happy with the platform, the access we provide to best practices, and an acknowledgment of the care our client services and onboarding teams provide. It is a giant team effort and we are thrilled that our customers acknowledge that and place their trust in us. That allows us to continue growing with significant support from references, provided by our current clients. Second, let's discuss the demand environment. The pain our customers feel while working with legacy systems in the industry is significant. We continued to close deals and saw our pipeline build throughout the first half of 2023. Our growth has been fairly even across our key industries of insurance, asset management, corporates and government. In the second quarter, we expanded our footprint with existing clients and added marquee clients, such as Apollo Syndicate, Covenant Capital, Delta Dental of Wyoming, Finance Incorporated Limited, Intellia Therapeutics, Medical Protection Society Limited, Omnicap Group, Viridian Therapeutics and Western Asset Mortgage Capital Corporation. We announced a strategic partnership with JPMorgan Asset Management, integrating our platform with the Morgan Money Global Trading Platform. This allows permission users to easily navigate between both systems. The joint solution will make it easier for financial professionals to have a global connected view of the investment portfolios and empower them to make real-time investment decisions on the Clearwater and Morgan Money platforms. We continue to see strong sales of our add-on products like Clearwater LPx and Prism. As an example, one of our large existing insurers signed on to use Prism for reporting which led this client to more than double the AUM with Clearwater. Europe had a very strong first half with several new wins in Northern Europe and the French and Benelux market. This included both midsized clients and large institutions in the insurance and asset management industries. We've had several successes here in the US with JUMP's full front-to-back platform. We were also successful with an offering that paired JUMP's front office suite with Clearwater for accounting and reconciliation. As you may recall, Clearwater acquired JUMP with a vision to revolutionize the entire investment life cycle and we're executing on that plan. These deals underscore the value our clients receive from both our platforms working together. They also validate our premise of an expanded TAM with a combined product offering. Overall, our product continues to resonate across the globe, and we don't see any change in the competitive environment. Our sustained investments in our platform continues to set us apart in the market. Thirdly, on our commercial model, we continue to be pleased with the changes we drove last year and the impact it is having and can have on our growth trajectory. As you might recall, last year we made the leap from a pure AUM-based model to a base plus model. We couldn't be happier with the results and this commercial model has now become the default way, we contract with clients across industries and sizes. With Prism LPx and JUMP's modules, we are increasingly acknowledged by our customers as a multiproduct company capable of providing solutions across the value chain. Our strong NPS clearly helps customers feel confident in purchasing more software from us. Clearly, our approach here continues to create a win-win for both our clients and for Clearwater. Fourth, our aggressive and sustained investments in R&D, allowed us to expand the platform to address the needs of clients in both Europe and Asia. We have invested in building products to solve the need of existing customers here in North America. Many of these efforts involve using clients as design partners and that gives us confidence that our investments will continue to pay off. I already mentioned Clearwater LPx and Clearwater Prism, but also in Q2, we began a beta program with Clearwater MLx, which is a solution designed to improve the visibility and detailed accounting for commercial and retail mortgage loans. We expect to launch Clearwater MLx in Q3. Another frontier of investment would be to bring front office and front-to-back functionality to the US using the Clearwater JUMP platform. We're delighted that we already have North American customers who want to work with us. Next, we are working on additional capabilities including health service allowing our customers to configure and manage the growth of their accounts. We are also enhancing intraday data and recon, which is sometimes referred to as T+0 processing. This will help us improve how we deliver same-day investment book of record for clients that need near real-time visibility. We have to talk about the work we are doing with generative AI and the potential to transform and disrupt the market. You may have seen our recent press release on this topic, where we announced that we stood up our own instance of a large language model which we are calling Clearwater GPT. We are working on rolling out new gen AI-driven solutions and dramatically improving the way we service clients. Clearwater GPT is the first solution of its kind that seeks to address the full investment life cycle. We see this effort as both adding to the revenue growth of the company with new Gen AI based product offering and impacting the bottom line with efficiencies across our operations. I'm sure you're immediately wondering, if we can predict what this might mean to our financials. Let me just say that, the product is very promising and the early results are very good. But the technology is new and it is hard to assess the full impact it can have. We expect to have more details for you in the coming months. Given that our robust multiproduct offering caters to diverse geographies around the world, we are excited to welcome Sunil Dixit as our new Chief Product Officer, who brings proven expertise in innovating and building multiproduct platforms at leading SaaS companies. When I stop and think about these four areas, operational excellence, demand based on addressing clients' pain with a large DAM, an effective commercial model and a disruptive platform. I'm not only proud of our team, but I also recognize that this is what allows us to deliver stable growth with the potential to increase margins consistently. That is what we set out to deliver and our actions and results in the last two years since we went public bear out the strength of our approach. We are setting aggressive goals and executing on our plan. It's frankly a great time to be at to Clearwater Analytics. Now, let me turn it over to Jim to discuss the financial results of the company and the outlook for the year.

Thanks, Sandeep, and thank you all for joining us. We're very proud of our Q2 2023 results. Let me start with the top line and the metrics that drive revenue. In Q2 2023, we delivered $89.9 million in revenue which translates to 22.4% year-over-year revenue growth driven by solid expansion at our existing clients and continued strong on-boarding activity by our operations team. Over the last few quarters, we've completed 83 onboarding programs. And in Q2 those onboarding program had an average duration of just over six months. With time to value like that, it's not surprising that so many prospects are choosing Clearwater. We reported annualized recurring revenue or ARR at the end of the second quarter of $349.5 million, an increase of 20.4% year-over-year. This is particularly satisfying, when we look back one year to Q2 2022 and recall the worry over asset price value and our announced transition from AUM pricing to the base plus model. I expect not many investors would have predicted back then that our durable, reliable 20-plus percent growth would remain intact one year into the future. Today, we remain even more optimistic about our future for one reason, our clients. Clients stay with us as evidenced by our return to 98% gross retention as of June 30, 2023. That's the 17 out of the last 18 quarters for which gross retention has been 98%. More importantly, clients grow with us, as evidenced by our net revenue retention rate of 109%, as of June 30, 2023. We are seeing success within our client base by doing more for our clients. And this in fact is the true NPS dividend. We aspire to expand NRR to 115% or beyond because we believe we can help our clients do more. We've completed the foundational elements with the market acceptance of the base plus model, and our recent rollout of bundled offerings for the North American insurance and corporate markets. With the new bundled offerings, we offer prospects of choice between base, professional and enterprise bundles. These market-specific bundles allow prospects to select the Clearwater offering that matches their sophistication and solve today's burning problem, while providing a path to our expanded capabilities when they expand. Now that we have LPx Prism and all of the functionality that JUMP solutions provide coupled with the expected launch of MLx, we have the opportunity to expand our reach within our clients. We will continue to evolve our go-to-market engine to focus on both new client acquisition and add teams focused on expanding our relationship with existing clients across all of our market segments. The fee in second quarter revenue flowed through to our full year revenue guidance as we are raising our full year guidance by $2 million and our guidance range for the full year is $364 million to $366 million or 20% to 21% year-over-year growth. Now let's turn to profitability results. We reported $24.8 million in adjusted EBITDA at 27.6% EBITDA margin in the second quarter which is a solid result and better than our guidance by $2 million. This translates to a 9% fee as our revenue outperformance flowed straight through to EBITDA. Non-GAAP gross profit in the second quarter was $68.1 million and gross margin came in at 75.8% which was a slight improvement from the 75.7% in the second quarter of 2022. This is the fourth consecutive quarter where incremental gross margin exceeded our reported gross margins illustrating that we are making progress on our path toward our long-term goal of 80% gross market. Non-GAAP research and development expenses in the quarter were $23.6 million or 26.2% of revenue. That is a sequential decrease of 0.6% of revenue from the R&D spend of 26.8% in Q1 of 2023. We expect R&D expense to trend down as a percentage of revenue going forward with the efficiencies we are achieving in R&D. For example, large programs in Europe are entering more of a steady-state base. Sales and marketing expenses in the quarter were $10.9 million, an increase of $1.1 million or 11.5% year-over-year. That equates to 12.2% of revenue. General and administrative expenses in the quarter were $8.8 million sequentially flat with the first quarter. And as a percentage of revenue G&A decreased to 9.8% showing better leverage. On a GAAP basis equity-based compensation increased to $28.7 million, including $5.5 million related to the JUMP acquisition as the full quarter of expense from awards granted in Q1 were reflected in Q2. We expect that this is the high water level for equity-based compensation expense and that it will decrease as a percentage of revenue going forward. The significant expense in 2023 results from the granting of three-year performance-based awards in Q1. Although, the awards vest one-third in each 2024, 2025 and 2026 assuming achievement of the performance criteria; for GAAP purposes 61% of the expense is recorded in the first year versus 33% as you might intuitively assume. Below the operating income line, we recorded $1.3 million of interest income net from the investment of our excess cash balances and we recorded $6.7 million of year-to-date tax receivable agreement expense. We record tax receivable agreement or TRA expense in lieu of income tax expense. We will be a cash payer of the TRA because of capitalization of R&D costs for U.S. federal tax purposes. After the amendment of the tax law we expect to pay the tax receivable agreement expense in the fourth quarter of 2023. Let's turn to the balance sheet and cash flow. We ended the quarter with $277.8 million in cash, cash equivalents and investments and $49.3 million in total debt. That results in net cash holdings of approximately $229 million. During the quarter, we continued to invest our excess cash and fixed income security for excess yield. Free cash flow for the second quarter was $19.6 million representing year-over-year growth of 18.5% from senior cash flow in the second quarter of 2022. This includes $1.6 million of capital expenditures. In the second quarter, the conversion of EBITDA to free cash flow was at a rate of 79%. We reported a GAAP EPS loss of $0.06 per share and fully diluted non-GAAP EPS was $0.08 per share. For non-GAAP EPS, we utilize our fully diluted share count for which Q2 was 252.2 million shares. That fully diluted share count is essentially flat with last quarter and with the end of last year and even Q4 of 2021, reflecting that there has not been shareholder dilution since the company went public. Now, let's turn to guidance. Focusing on guidance for the third quarter of 2023, we expect revenue to be $92 million and we expect adjusted EBITDA to be $25.5 million or approximately 27.7% for EBITDA margin, consistent with Q2. For the full year 2023, as I said before, we've increased the revenue guidance to $364 million to $366 million, which is an increase of $2 million in the low and high end of the range and represents approximately 20% to 21% year-over-year growth. We have also increased our full year EBITDA guidance by $2.5 million at the midpoint to $100 million for the full year 2023. That guidance represents EBITDA margins of 27.3% to 27.5% for the full year an expansion of 60 to 70 basis points over 2022. As Sandeep noted and our numbers demonstrate, the second quarter was another quarter of strong execution with reaccelerated revenue growth to 22% solid EBITDA and free cash flow. We look forward to keeping the momentum going. With that, I'll turn it over to Sandeep to provide some closing thoughts.

Thank you, Jim. As I reflect on the second quarter, I'm incredibly proud of the exceptional team we have at Clearwater. We remain laser-focused on our mission to revolutionize the investment management industry. By every measure our growing portfolio of product offerings are undeniably best-in-class. I'm particularly excited about the potential for generative AI and its capabilities to ignite new opportunities that will disrupt and transform the fintech sector. Our team at Clearwater continues to innovate boldly consistently meeting our clients' ever-changing needs. At the end of the day, seeing our clients satisfied with our platform and growing their assets under management, matters the most to us. When they achieve their goals, we achieve ours. Thank you.

[Operator Instructions]. Our first question is from Peter Heckmann with D.A. Davidson. Your line is now open.

Hey good afternoon. Thanks for taking the question. Can you comment a little bit in terms of the onboarding you said 83% in the first half and you're speeding the go-lives? I guess is that -- how do you think about it in terms of average size of the clients? Are they getting larger staying about the same?

Thanks Pete. This is Jim. Can you hear me okay?

Yes.

Okay, great. I just wanted to make sure I was on mute, sorry about that. So, yes, so those are 83 programs. So, some of those could be onboarding of additional assets at some of our larger existing clients onboarding additional products and solutions as well as onboarding -- Sandeep spoke about Aviva, one of kind of top 20 insurance companies across the globe, right? So, there's a broad variety across those. I think what it comes down to -- it's less about the number although that's very impressive. It's more about shrinking the size and shrinking the period of time it takes for clients to get to value and that really comes down to a few elements. Number one, it's the network effect, right, as we're adding more clients in different geographies and building out that networking opportunity, you're seeing that. Number two, the onboarding team has done a really -- has put a lot of effort in over the last couple of years to really formalize and structure the collaborative onboarding process with our clients and holding mutual accountability between all of the participants in that process, the data providers, the custodian, the clients, that upstream and downstream streams as well as ourselves; principally and most importantly ourselves. And so this -- what we're seeing here, which we saw in the first quarter and continue to see in the second quarter, is really the amalgamation of all of those elements coming together. And I think we feel proud of the accomplishments of that team.

Pete, this is Sandeep. The only thing I would add is, just talking about things like six months to go live. I'm sure you've covered ERP systems in the past. You talk about years. You talk about several years for programs to go fully live. And the fact, that we talk about six months and how to improve it, we're just trying to provide a contrast to what the network effect allows us to do. So, I do think it's super impressive, just having been in the industry for that long.

Okay. That s helpful. And then just in terms of Morgan Money and their global trading platform you -- it sounds, as if you, have a strategic partnership in place, it's going to allow users to use Clearwater. But in terms of the contribution, I guess, how do you think about that ramping? And could you maybe size, a little bit about how big that client could be, if you're successful in cross-selling with existing JPMorgan customers.

Yes. So, one is that JPMorgan is already one of the largest clients we have. So that's point, one. The point two is, that it allows people use functionality on both platforms very easily. And that usually allows clients to bring on more and more AUM on our platform. So that's the play for us. The play is, the ability to trade on that platform and look at the data on our platform, if you can do that easily, it attracts more and more clients to our platform. Now we have done that with other partnerships, and we saw a sustained growth of AUM from those clients. And we also had new clients join our platform because of the ease with which they could go, between these two platforms. So, we think it's quite strategic. We think it continues to cement our relationship with JPMorgan, and continues to grow them in the years to come.

All right. Thank you. I’ll get back in the queue.

Our next question is from Rishi Jaluria with RBC. Your line is now open

Oh, wonderful. Hi, Sandeep. Hi, Jim. Thanks so much for taking my questions. Nice to see continued strength in the business. I wanted to start by going a little bit deeper into Clearwater GPT. No doubt the press release sounds I think pretty impressive. But can you talk a little bit about, some of the use cases that you anticipate seeing from Clearwater GPT? And maybe more importantly, how does that tie into your broader generative AI strategy? Because it feels like there's a really big opportunity for you to be a verticalizer, of some of these LOMs and really help customers and -- given the data and the relationships, you have in ways that they can't do themselves. So, I would love to drill a little bit into both of those and I've got a quick follow-up.

Yes. Thank you, Rishi. So look we believe Gen AI is transformative and disruptive. You can also understand that for our kind of business, we think it can have very significant and mostly positive impact on our business. We obviously, launched Clearwater GPT. And so let's just talk about some examples. And I think, you can basically put them into two different buckets. One is, which enhances revenue. So things, which can help grow our revenue. And the second one is, the ones which can improve efficiency of our operations. So let's talk about operations just, first. Obviously, efficiency is important because that drives gross margin. So whenever we have talked to yourselves, we have said look there's 75% and there's a path to 80%. And the question is, is there much more room there and we think ChatGPT allows us to think about meaningfully better operating results. Now what exactly are we talking about? As you know, we get many data feeds every morning, some 2,800 data feeds and they have to be reconciled, they have to be aggregated and normalized. Now could a significant portion be done using something like Gen AI, we think so. We think it will have a meaningful impact in what we have to do ourselves versus what the machine can do. So we think that can be majorly disruptive. The second one is, we spend a lot of our energy on client servicing and onboarding. And again, both those could change very meaningfully, if ChatGPT can be successfully deployed. So both those ideas, we have sort of teams of dedicated people, with dedicated leadership working on those and we expect to have some -- be able to report some progress in the coming months. The other side of it, obviously, is revenue-oriented. What can help us drive revenue? And they're two big areas. One is, just customer interaction. Natural language interaction completely changes the value you can derive from a platform. That's one area. But the second one and the most exciting one is the insights you can draw. Because ChatGPT allows us to look at a very large volume of data and frankly historically going back to 10 years of work we have been doing what insights can we draw, which clients can use to either improve yields or improve the other functions I think is super interesting and exciting. So again those are two areas where we have invested dedicated teams and dedicated leadership to get after it. We already -- so I just want to caution one more thing Rishi. We're, obviously, using machine learning already. This is just a very different order of magnitude of what impact this could have. So we're really excited about it. We have dedicated R&D teams and product teams working on it and have been working for a period of time. And so it's just that we're not yet ready if you will to qualify and say look this has a chance to make something else. We want us to go on for another three, four months and then we'll be in a better position I think to come back to all of you and say, look here's where we think we can go with GenAI.

Wonderful. Thanks Sandeep. That’s a very thorough answer and really helpful. Maybe just continuing on GenAI and thinking about other potential use cases. How do you think about the ability to use GenAI to make it easier for asset managers out there to migrate from their legacy solutions and on to Clearwater right because that's a long process? Obviously there's a lot of data complexity involved in that. But given what we've seen a lot of companies in this space using generative add to make migration from legacy to next-gen faster it feels like that's a big opportunity for you as well. So how are you thinking about that? Thanks.

Thank you, Rishi. But, yeah, absolutely. I do think it can completely change how we think about onboarding. And as you know onboarding is the hard part. And once you have done the transformation then of course Clearwater gives you the full functionality you could want and the agility and the analytics. And so we feel like GenAI could transform how we onboard it. To take an example let's say we move a client to onboard them from a competitive legacy platform, while we probably have done 30, 40 of those transformation onboarding exercises from that same legacy platform. You point GenAI to that and the next onboarding you're doing and it can do it meaningfully faster, right? Because it has learned from all those 30 onboarding exercises you've done. So we do think that's transformative. We do think it changes the risk profile of the onboarding exercise and really time to value meaningfully. So look we think it is actually perhaps the biggest use case when it comes to on the efficiency side of it, not on the revenue side but just on the efficiency side.

Wonderful. Thank you so much.

Thanks Rishi.

Our next question is from James Faucette with Morgan Stanley. Your line is now open.

Hi guys. It's Michael Infante on for James. Thanks for taking our question. I just wanted to circle back on NRR. Obviously, really impressive to see the sequential and year-over-year improvement there. I think migrating to this level we anticipated to take a little bit longer, so great to see that. Jim, is it possible to decompose that improvement between last year's pricing initiatives versus incremental attach of new products? And does the recent improvement accelerate your confidence in getting to that NRR level of 115 over time? Does that pull that forward?

Yeah. Thanks Michael. Thanks. So the revenue acceleration from 2019 to 2022 can almost be correlated to NRR moving from 106 to 109. And we do believe that is sustainable as we look into the near future. So you're right Michael why is it growing? It's been, obviously, a primary strategic initiative of the company over the last 12 months to really build in the commercial model, build in the base plus pricing, have the default price increases flowing through, adding these incremental modules of LPx, MLx, Prism. And that sophistication just continues. We were happy to see that the improvements in NRR were across all of the market verticals that we focus into and that improvement really comes into those existing customers and really see the 12 months of effort across all of those pieces bridging the gap from the 106 to the 109.

So, Michael I would just add that this is pretty deliberate. It's not something we say, hey let's do something we got something. No. We think that these four things you can run that Jim walked you through. And if you continue to improve in each of these you can, sort of, get better sequentially. And so do we think the 109 number is now a new normal for us? We think so. Does that improve the path to 115? Absolutely. Compared to when we had this first discussion Michael we were at 103, but better at 106 which we said was sustainable and we are up at 109 which we think is sustainable. And so we think it is -- it makes the 115 more in sight. It doesn't mean we're going to get the next quarter or in the next two quarters. But how we get there and the elements we're going to use to get there are defined now. We know. And it's just that in many of those you are still in the second or third innings of a game. And the multiproduct strategy for example we talk about LPx, we talk about MLx, we talk about Prism. Those are still second third innings and you just have to let it mature. And as they mature, it should continue to push that number up. So we feel really good about the path we're on here.

Thank you. Appreciate that. Maybe just pivoting to JUMP specifically, I saw the commentary in the release surrounding the pairing of JUMP in the front office with Clearwater in the back office. How powerful is that cross-sell motion? And is there a particular client type or client size that that pairing would be most applicable for?

Yeah. Thank you. Look at JUMP, we all get quite excited about just the partnership with them and Paris is just exceptional. So let's talk about specifics. One is JUMP's ability to compete in the French market against larger players much, much better. Clearly, clearly they're winning more deals in the French market because they are a part of this larger organization. Second, ability to sell front to back in North America for small asset managers and midsized asset managers. Absolutely. And this is something Michael it's clear what I would not have been able to do. But now we have the OMS and the PMS and the portfolio management system and the accounting and all of that so just end-to-end market which we could not compete in earlier works and therefore increases DAM very meaningfully. The third one which is the one you pointed to is perhaps the most exciting which is can I take the JUMP front-office modules and pair it with the Clearwater platform. Either for new prospects, which is the one we were talking about or to go back to all of our asset owner clients who already have the Clearwater platform and then provide the front office modules to them. So again, we've had success there. That's exciting. And finally, JUMP brings capabilities in a unit-linked fund out in Europe and we've been successful with that also all of this in the first half. So look we think it is really good progress. We again think unfortunately that they're still in -- it's in the early innings there's still the second third innings of what we could do with JUMP. Yes, I think it is.

Thank you both.

Thank you. Thanks, Michael.

Our next question is from Jackson Ader with MoffettNathanson. Your line is now open.

Great. Thanks for taking our questions. So the first one actually why don't we stick with the kind of the AI line of questioning. I think it's pretty clear that the architecture and infrastructure being cloud-based versus maybe some other competitors that are not lent itself already to the use of AI and machine learning within your own products that kind of created an advantage. But is there any reason why -- and Sandeep you said it yourself this generative AI is a different thing and it's kind of customer-facing. And is there any reason why you think that you might have a similar advantage over your competitors when it becomes more about customer facing and maybe layering a GPT on top of something that you already have?

Yeah. So Jackson, thank you for the question. Look I think it's super valid question, because it certainly opens up opportunities, frankly which I did not think was there about a year back. So look the core of all of these AI technologies is the quality of data you have and the accessibility to that data, right? If you don't have the data in one nice structured way, it makes it much harder, right? So should that meaningfully improve our ability to do a reconciliation, ability to do onboarding client services? Yes. I think those are obviously there. But what you're asking about is, can you think about new client facing applications. And I would just say that the answer is a very resounding yes because it is specific to our clients' data. So let me just try and define that a little bit more. Look if we generically talk about returns, that's interesting to a certain degree. But what we can do is we can talk about returns specific to a client's portfolio. So we can generate insights with specific reference to what our client's portfolio looks like and what they did yesterday and what they did last week and what they did last month. And based on that client's specific portfolio, we can come up with ideas and recommendations about what they should do and shouldn't do. Now this is a line of thinking we were – we did not have about a year back. But this does allow that. And that's why I think it is exciting on two different levels. And so I tried to distinguish between look revenue growing value adding to the front office is a different game versus efficiency oriented, which is a different game. I mean I'm not saying one is more exciting than the other. Both are very significant for us. And our commitment and dedicated leadership behind all four of these initiatives is already there.

Okay. By switching gears to maybe we're getting past the first kind of major waves of the base plus anniversaries here. And I'm just curious just general feedback like how are customers feeling about pricing increases maybe versus what they would have realized with AUM drift and then similarly, how you guys view just basically how this first year of renewals or anniversaries are going relative to last year?

So I think Jim can comment on the numbers here, but I should tell you it's a non-event now. Almost all our new contracts doesn't depend on what the size of the industry, they're on the new commercial model. There is – frankly I don't think I've heard resistance to that over the last 90, 120 days. I don't think I've heard of one. And so it's now just the way we do business. I haven't heard of push back from clients. I haven't heard back or heard anything to the contrary. I don't know Jim, would you add some to those.

Now I think remember Jack, when we went through this process right we wanted to simulate the experience that our clients were always getting right through this kind of normal growth, right? We weren't – we aren't – we were trying to make this a win-win. And so I think that that as we anniversary these and continue through this process this is – it's obviously, a much more automated process this year than it was when we were kind of going through that last year and kind of making this evolutionary change. But the – I think we – Sandeep always says to me "Jim why didn't you do this sooner you idiot."

No.

No. He doesn't say that. I'm just – I'm giving him a hug. I think what we've learned is it has worked the way we had hoped it would work. And I think the outcomes have been good.

Okay. All right. That’s great. Thank you.

Thank you, Jackson.

Our next question is from Dylan Becker with William Blair. Your line is now open.

Hey, gentlemen. Appreciate the questions, and I apologize for repeating anything jumped on late here. But I guess starting with Jim maybe or Sandeep, as well I guess, but nice net dollar retention number there cross-sell seems like JUMP's kind of starting to gain traction in a number of the – I guess how much of that too is a function of some of the recent kind of sales segmentation that shift to hunter farmers? And really some of that domain expertise that's prioritizing again kind of the particular customer needs in each of those particular industry verticals.

Look I would just say thanks for the question here about the impact of JUMP on our revenue is very muted right? Because you obviously go sell these deals they take a while to onboard and then they come out and they start to get ARR, right? So I think the results on the revenue beat is very muted. And would that improve over the next few quarters? Yes, absolutely. But I don't think you should look at the Q2 results and ascribe much of that to the cross-sell showing up in the revenue line or in the profitability line. I think all of the commentary about JUMP about the deals we have won but doesn't necessarily convert to revenue that quickly. Sorry Jim, go ahead you can add to it...

I think that we – so Sandeep has mentioned we're a bit in the early innings with respect to LPx Prism in these areas. And I think we're also in the early innings as we think about evolving the go-to-market engine that we have. I think we're – obviously these results reflect something we should continue to do. And so we will continue to lean in to being more thinking about these sales opportunities or sales channels discretely and further segmenting. The thing we've learned time and again, is as we focus and segment the results become better.

Got it. Okay. That’s super helpful. And then maybe to just quickly touching on kind of the competitive landscape. You did have a competitor internationally that was acquired. I wonder if you've seen any opportunity situations kind of arise off of that any displacement kind of commentary as you are kind of looking to kind of build out your own kind of global footprint here? Thanks.

Yes, these are tricky things to comment on. But I would just say that on the margin we feel the competitive environment has – in Europe has improved very meaningfully for us. And so I would just say that and that reflects a little bit in the pipeline build we have seen in H1. And so we are really happy with the transaction that was announced.

Fair enough. Okay. Thank you guys.

Yes. Overall, we continue to see -- we think, we have a really strong competitive position. And there's things that we have between the multi-tenancy, the single security master. That allows everyone to be the most up to date the network effect. No one else has that. And we think that leaning into those helps.

Thank you.

Our next question is from Gabriela Borges with Goldman Sachs. Your line is now open.

Hi. This is Kelly [ph] on for Gabriela. Congrats on the quarter and really strong numbers. First one from me, Sandeep, really enjoyed that Forbes article you wrote on Gen AI could the impact you're expecting to see in fintech. You talked a bit in that about the data accuracy issues with generative AI. I am just curious like what your team is doing to address those issues at Clearwater.

Yes. So thank you for the question about that. We obviously deal with investment accounting and we can't just e can't just be right, 95% of the time. We have to be right almost all the time. And as you know our Chief Client Officer, Subi Sethi, she has very large background in quality. And she approaches all of these things with trying to be right the first time. And so for a while though, I believe that the Gen AI applications we talk about will be with the human in the loop, right. So we don't expect quite yet to let Gen AI respond to customer clients or actually perform a transaction. But recall that when you think about what the individual does, they take a lot of time to research, something came up with alternatives and come up with then a potential solution and we expect Gen AI to just produce alternative one and alternative two. And at that time the human in the loop could go and pick alternative one and that helps train the model of course. So we think it is still human in the loop, because of the data accuracy concerns. I think there could come a time where for a certain class of problems and class of questions, you could have the model respond directly. But we do think right now in our thinking it isn't about a 100% improvement in efficiency. If we can get 70%, if we can hit 50% that would be great, right. And so we think more about that kind of approach rather than we're just going to eliminate all function -- all human interaction.

Yes. That makes sense. Thank you. And then second one for me is just how are bookings trended in the first half of the year just relative to 2022. You talked a lot about the visibility you've got in the business from bookings can you very forward-looking. It would be great any insights in the past six months? And then any differences you're seeing in North America versus international?

Sure. We don't see any change in the overall competitive environment. As I think Sandeep just mentioned on the margin, the competitive environment in Europe has improved. And so -- and I think that that helps. The pipeline has grown aggressively over the last six months. And we're really excited by the number of deals in the pipeline, especially those deals what we would call our additional product deals offering there. I think we're seeing dividends from announcing the Aviva go-live and we're seeing a benefit in Europe potentially there. And really in the first half when we look back on it I think, we feel the same way we've always thought it was nicely balanced between back the base the new logos. And last year we closed two mega insurers. This year I think we expect to do similar or even better in that environment. So I think we feel really good about our opportunities there.

Yes. And that ray it just reflects that obviously, there is -- our rays reflect the fact that we think we are in a good position. But I did want to just point out that our pipeline has surprised us. That's the growth of the pipeline. And I do think that people have a lot of work to do with legacy systems and that movement I'm hoping continues to accelerate towards companies, which can provide leading with technology and we think ours does.

Great. Thank you, and congrats again.

Thank you so much.

I think that's -- are there more questions?

Our next question is from Michael Turrin with Wells Fargo. Your line is now open.

Hey, it's David Unger filling in for Michael Turrin. Thanks for squeezing me in. Just one for me. Guys, I know the JUMP acquisition wasn't too long ago, but just curious your appetite to add additional products or go deeper in a particular geo, you've made some comments tonight on Europe. So, the appetite to do an acquisition that's perhaps harder to build organically. Thanks.

Yeah. Thank you for the question. Look, I think absolutely there's appetite to do more. And if I can quickly just tell you how we think about it. We think of JUMP as having provided a good proof point. There's lots of work to be left -- left to be done and there's a number of things we have to do but it does provide a really good proof point that there is a value to our Net Promoter Score. And it's quite simple. The value is that clients want to do more with you. So there is something we have to develop which will take too long, pivoting and doing an acquisition to bring that capability sounds like a good way to go. So I'll just make one more point here that, what has not changed. What has not changed is, we have a pretty high bar for doing an acquisition. It must expand -- help us expand geographically. It must help us expand functionality. And then what has changed? So after JUMP, what has changed is three things. One is, we have a much sharper focus on understanding the current customer pain points beyond investment accounting, but sort of adjacent to investment accounting. So that's one thing. Second thing is our ability to cross-sell, the products from a potential acquisition is a massive and clear imperative, because that also helps as you can imagine the NRR, right? And the third one is, we really feel we are ready to lead globally. And so acquisitions that can help us lead in a market by us being able to provide end-to-end functionality using a platform, I think are very interesting now would have been less interesting three years back, when we might have been somewhat more tentative about trying to lead an entire industry in a certain function. So yeah, those are the -- it's very similar to before, but it does reflect a little change in attitude about what we can do.

Always appreciate the detail, Sandeep. Thank you.

Thank you so much.

Our next question is from Brian Schwartz with Oppenheimer. Your line is now open.

Hi, Sandeep and Jim. Thank you for taking my question. Just one question here very high level. Sandeep, just how you're thinking about the macro environment heading in second half of the year? It looks like the business did well in Q1. It looks like the business did even better here Q2 you gave us same size since all the exciting initiatives and what's going on internally on sales efficiency in the pipeline. But how about just what you're seeing in terms of cycles, and just buying patterns from the end market. Has your view about the macro environment in the second half has that changed at all since last time we spoke three months ago? Thank you.

Thank you so much for that question. Look I think our thinking is that if you had talked to us in January or some time like that we were worried about the environment becoming worse. At this point, our sense is it's not going to become much worse. We also don't expect much improvement right now. So in our planning, we're assuming it just sort of status quo. There may be a little bit of movement up and down. But it is different from how we felt three months back when we felt -- we were reasonably worried about how the economy may play out. So we feel a lot more confident about that. It's also true that we have the new commercial model sort of helps us mitigate some of the risks. So that also increases the level of confidence we have in our planning. And so that's how we think. We just don't see much improvement. The only other point I would make is, that when you think about AUM, just across the board we feel like the markets have been quite stable. And so we feel -- look, at this point we feel pretty good about where the market is. But our forecast and our guidance and all that doesn't include any improvement in the economic conditions. We just don't see that yet.

Thank you all.

Thank you so much. Yeah. Thank you.

Our next question is from Yun Kim with Loop Capital. Your line is now open.

Hi. Great. Thank you. Congrats on another solid quarter. One question for me as well, can you just talk about how the mix of asset types is changing between, I guess fixed income, equities, alternative, investments? And how has that mix changed providing any pricing uplift? Thanks.

Yeah. So broadly, the mix is staying consistent. But like, let me give you one little nugget. We talked about MLx and how we're teasing on that. So that's kind of to help with mortgages. Just for context as we were sizing that opportunity and looking at the assets on the platform we have north of $500 billion in mortgage-related assets on our platform today. So, that's just kind of like one little sliver. As you see more and more of these types of alternative assets, mortgages, derivatives and those sorts of things and structured products broadly. We continue to see kind of that trend with fixed income and structured products to flow through. And that's why we're doing LPx and MLx and moving down that path to provide additional alternative asset coverage for clients beyond the investment accounting for those assets.

Yeah. And I would just try to say that, if you just look at the overall platform.

Thank you.

I think we're at time or a little over.

Are there any other questions please.

There are no more questions. So I'll pass the call back over to the management.

Okay good. So look, I just want to thank you all for your interest in our company and the continued interest frankly. And I also like to do a plug for our Investor Day, which is coming up on September 6th -- September 7th, pardon me, and I hope to see many of you there. Thank you again.

Good bye.