CWAN - NYSE

Ladies and gentlemen, thank you for standing by, and welcome to the Clearwater Analytics Second Quarter 2025 Financial Results Call. [Operator Instructions] And now I'd like to welcome Michael Chen, Senior Vice President, Head of Corporate Development, to begin the conference.

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 Enfusion, 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 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 are 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 our 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 stand-alone profitability in quarter 2 of 2024. Think about that for a moment. We integrated Enfusion, 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 Enfusion whose gross margin was approximately 10% lower than us. And the math was really straightforward. If you assumed approximately 69% gross margin for Enfusion, 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 bps improvement in the Enfusion business at the end of the first 12 months, at which point we will then expect it 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 2.5 years. What I find exciting is that we still have several impactful levers 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 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, Enfusion and Beacon, were already market leaders in the industries they're focused on, our ability to jointly deliver this vision expeditiously is meaningfully higher. We began by working jointly across all 3 organizations, Clearwater, Enfusion 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 move decisively to reorganize the business around what's best for our clients. We integrated the GTM teams and restructured the business to serve 4 markets; insurance, asset managers, hedge funds and asset owners. We then took the product and engineering teams from all 3 organizations and combine them to build integrated capabilities that can be taken to these vertical markets. And finally, the enabling functions were integrated on day 1. 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 1 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 life cycle, 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, 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. When we solve the 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 Enfusion 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 stand-alone 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 bidirectional 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, Sandeep. 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 2 newly acquired businesses. Given that both businesses were quite new to us, for our guidance, we have kept the 9 days of April revenue of the Enfusion 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 Enfusion. This past quarter, Enfusion 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 Enfusion historically had a materially lower gross margin profile than Clearwater's. We previously communicated we expect around 400 basis points of gross margin improvement from the Enfusion business. And we are 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 are 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, remains 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 Enfusion will enable us to achieve our company target of 115% on a consolidated basis over time. Turning to GAAP results. We recorded a GAAP 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-GAAP 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 4x 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 million 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 million 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 million 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 million 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 3 at the New York Stock Exchange. With that, I will pass it back to Sandeep for some closing remarks.

Thank you, Jim. The response from our clients, partners and employees has been incredibly exciting, and I could not be more pleased with our quarter. We remain committed to executing in the 3 phases we had defined. In Phase 1, we want every team to execute as well as they did before the combination, just incrementally better. In Phase 2, we should start in earnest shortly, we will increase our focus on cross-sell and launch products and offerings to fuel that. We will also start a review of the commercial model, both for individual components and platforms and for the integrated companies. In Phase 3, we will bring the integrated platform to market as the key offering. Work has already begun, but as we have said earlier, this will be a multiyear effort. Meanwhile, clients will benefit from a natively integrated, but componentized front-to-back solution. We have accomplished a lot in a relatively short period of time. And I want to thank our team for the hard work and dedication they have shown. None of this would have been possible without the unwavering commitment of the leadership team. Thank you. People across the industry are excited about what we are building and we have been successful in attracting several senior leaders to Clearwater. I'm confident they will help our growth in the years to come. Thank you, and we look forward to answering any questions you may have.

[Operator Instructions] Our first question today comes from Michael Infante with Morgan Stanley.

Jim, I just wanted to start on the organic ARR and maybe how you're thinking about the full year core ARR growth and maybe how that informs your confidence level of your ability to grow above 20% into next year. I think by my math, that $513 million figure is effectively in line with the last couple of quarters. So you need to see some acceleration in the back half of the year? Just any commentary there in terms of the drivers would be helpful.

Yes. Thanks, Michael. This is Jim. So agree with you that we expect to see that acceleration in the second half of the year. I think when you look at kind of -- not to talk about ARR, but to talk about revenue, kind of the sequential revenue growth in Q1 was pretty de minimis. We had an incredible Q4 2024, and it stepped up to 3% when you look at kind of our expectations for the organic business to be roughly around 20%, you would expect that revenue -- that sequential revenue growth in Q3 and Q4 obviously be faster than the 3% in this quarter. So feeling good about that. As you recall, ARR is a point-in-time metric, and it's influenced by not only the booking of business, but also the timing of the onboarding of business. And so you can have some variability in that, but we feel really confident about what was stellar Q2, a very busy, but a very successful Q2.

Helpful. Maybe Sandeep, just on the Bloomberg partnership, I know you guys are obviously really excited about the Enfusion asset and the cross-sell capabilities inherent there, but can you just talk about your thoughts on having additional optionality with Bloomberg, particularly for your strategic asset management clients? Like how will it look functionally in relation to the integration of the Enfusion platform from a technology perspective? And I guess I was just a little bit surprised to hear that you already have like several active deals in the pipeline. So maybe whether or not you think it could be an acceleration driver late this year and into 2026?

Yes, absolutely, Michael. So first thing, I think we talk about asset management is a really broad field. So you obviously have hedge funds and you have small asset managers and you have medium-sized asset managers, and you have these really large asset managers. So I think that segmentation matters. So, JUMP could do really well with a certain size of asset managers in Europe. Likewise, Enfusion can do really well with small and medium-sized and some larger asset managers. The second thing, Michael, is that we are an open platform. So we do interact with upwards of 20 different front-office systems. But when it comes to the large asset managers, I think it's hard to argue that Bloomberg has a very, very strong position in that market. And so our expectation is when we get to these large global complicated asset managers, we would partner with Bloomberg and provide the middle office and the back office and provide a front-to-back solution. Now we have had those opportunities in the past and it simply wasn't going to be able to provide the full front to back. And therefore, there was a whole string of opportunities we could get after pretty quickly. And I suspect the same thing was true on the Bloomberg side is that if clients wanted a full front to back, they would have had to go find a partner to do the rest of it. So again, I think it's a really strong partnership. It addresses a specific portion of the market. We are still very enthusiastic about what Enfusion can do and build. But when it comes to these very large multi-country asset managers, which are huge, I think that is still a long time coming, I think.

Our next question comes from Peter Heckmann with D.A. Davidson.

I just wanted to follow up on the ARR. I think you said $513 million for Clearwater. And so just kind of disaggregating the remainder, what would you say, approximately maybe $220 million to $225 million for Enfusion and then the $45 million for Beacon. Is that directionally correct?

That's directionally correct.

Okay. And in terms of, I guess, investments that you're thinking about making -- I guess, which parts of the Enfusion business you expect to focus your investments as you tackle the market on a combined basis?

Yes. Peter, it's Sandeep here. So look, we are obviously very focused on reaccelerating the business at Enfusion. I just want to start by saying the platform is outstanding. When you talk to clients who use Enfusion, I mean, they consider it to be a disruptive and outstanding platform. So really what are we doing to help improve that? One is hedge funds and asset managers are similar, but they are different markets. And so the first thing we did was we took the product team and the engineering team and set up dedicated teams for hedge funds and dedicated teams for asset managers, that was step 1. We took all the effort Clearwater was making in those markets and merged it with these teams. So they obviously have a much higher capacity. So that was the step 1. Step 2 was setting up a sales team in much the same way. We want individual salespeople focused entirely on hedge funds and others focused on asset managers. Also, we empowered this team and we enabled this team. And I think that has already made a difference. I think like Jim said, they had an outstanding Q2. I do think the third thing is that we are able to introduce significantly enhanced capabilities, which can be used by hedge funds like Risk, capability to deliver in Europe, client reporting. So just being able to bring those additional pieces makes their offering more comprehensive. So I do think there are some short-term things, which I just talked about. Then there are somewhat longer things, which is how do you get the back-to-base motion more efficient? How do you get the commercial model to be more efficient. But those are still more to the coming. But I do feel that our first job was -- is, over the next 2 years, get their revenue growth back to 20%. And we think we have a really good, clear line of sight. But what we're not trying to do is do something jerky. We want to do it the right thing, build the product have a dedicated engineering organization, have a dedicated sales team and get growth which is sustainable for the years to come. I don't know, Jim, do you want to add anything to that?

The next question comes from Yun Kim with Loop Capital Markets.

Sandeep, I know you talked about the cross-selling opportunity that will be a multiyear journey, but is there any near-term opportunity to cross-sell into each other's customer base. I mean does that -- before you even start -- does that require an integrated platform to be delivered first?

Yes. So I think that the largest and most immediate cross-sell opportunity comes from risk. I think Jim spoke about it just so immediately applicable to all the hedge fund clients our company has, all the asset managers our company has or the insurance clients our company has. So I feel like that is sort of very immediate. But the more exciting ones are the ones which are more front to back. So when you look at -- I think we put out a press release on VKB, which is Germany's largest public insurer, and they have chosen us to replace an integrated front-to-back platform. Now that is nothing Clearwater could have delivered or Enfusion could have delivered or Beacon could have delivered. But our ability to bring all 3 platforms and get that very significant win, I think is sort of a proof point and a testimony to what the joint company can do. So I feel really good about our ability to cross-sell, but I also feel good about this front-to-back capability, which is both very incremental to what we were doing earlier.

Okay. Great. And Jim, obviously, you won't be earnings conference call on Clearwater without talking about NRR. How should we think about the combined NRR trend post-acquisition, do you expect the Enfusion NRR to be somewhat variable in the near term? How much visibility do you have in that? And I mean, how should we expect that Enfusion NRR to trend, especially off of commentary that you had a record booking there?

Yes. So we had, obviously, the core NRR stayed very consistent. But as a consolidated business, we've described it as -- that we calculated it at 110. So if you recall, a couple of years ago, when we started on this journey of talking about NRR 115%, we were about at that same spot. And so I think we're on a similar journey with all of -- across all of the businesses. What are the elements of that journey? One is really considering the commercial structures that we have in place and thinking about the durability and reliability of those commercial arrangements. And we've done that at Clearwater, and we plan to do that across the entire portfolio. The second big element that we talked about with NRR 115% a couple of years ago, was doing more for our clients, and adding additional products to drive more growth. Obviously, today, across the combined business that we are today, we have a lot more irons in the fire than we did 2 years ago, when we were able to make this journey to 115%. And so we feel a lot of confidence about the cross-sell that you just talked about, being able to drive to that growth. It's frankly -- the music is the same music. The lyrics are a little different, but I think it's going to be a great song.

Our next question comes from Alexei Gogolev with JPMorgan.

Congrats with great results. Jim, maybe it would be helpful for everyone if you were to provide some more guidance that you did during previous quarter, organic versus nonorganic, for both 3Q and maybe for full year?

Yes. I think we're looking at it as a consolidated number, but let me take you through -- we're not going to give you the specific details for that, but let me give you kind of how we thought about the guide, if that's all right, Alexei. So really, we've always consistently said, we think Clearwater grows about 20% year-over-year, and that's what we've focused on historically and consistently. So we think about those pieces. Secondly, when you think about Enfusion, it was at about a 13% growth rate, at the time of acquisition. So if you think about that, you think about that as kind of a 3% sequential quarter-over-quarter growth rate. And then Beacon, look, it's an incredible business. It's a large deal business, and so it can be a little bit lumpy, but we also think of that as a 20% growing business, and you kind of put those pieces together and that gets you into that kind of range for kind of the full year view, Alexei. I think I'll remind you, right, as a core business, we had a 25% growth in the second half of 2024. So that's a little bit of a tough comp on that. But we're really focused on core Clearwater growing around that 20% for the full year.

And Jim, in light of that last comment about the high base of last year. Can you repeat what you said just earlier today answering the question about the acceleration of growth that you anticipate in the second half of the year. Was that in relation to ARR or revenue growth?

Yes. As we look at revenue and you just look at sequential revenue growth throughout the year, Alexei, you can see our sequential revenue growth from Q4 of 2024 to Q1, it was de minimis, right? And we accelerated that to, I believe, sequentially, it's about 3%. And obviously, as you -- from Q1 to Q2. As you look to Q3, and then from Q3 -- from Q2 to Q3 and then Q3 to Q4, you see that, that sequential revenue growth rate continues to reaccelerate. Otherwise, right, you couldn't get to a 20% year-over-year growth rate. If you -- it's just mathematics, like you do accelerate sequentially on a quarter-over-quarter basis.

I think Alexei, we don't [indiscernible]. Yes, I was just going to add one thing that when you talk about revenue that already -- you have to consider the booking that's already happened, the ARR growth that's already happened because the bookings in Q3 and Q4 have impact on ARR, but not really that much impact on the revenue. So we obviously have confidence that there is acceleration on a Q-on-Q basis.

Thank you, Sandeep. And just a quick question for you. I think you've highlighted that no negative surprises now that you had time to look over the assets that you acquired, integration is going well. I think one of the comments that was made by Jim just now that with the synergies announced, the focus will now be on growth. Can you maybe elaborate a bit more like what sort of investments may be required? How will that impact margin expansion opportunity near term?

Yes. So I just wanted to stress that. I don't think there is any change to the margin expansion opportunity. I think we talked about R&D investments and what we feel happens is that we take all of the people who are working on asset management and move them over to this other team, which is building products for those 2 markets. So I don't think there's necessarily a massive increase in R&D. I don't think there's a massive increase in sales. I do think operations will continue to drive gross margin expansion. And so I feel that at the company level, we will obviously have more details at the Investor Day. But at a company level, the opportunity to expand margin in the second half or really into next year, I think, don't change very much. Now Alexei, as you know, you've seen enough companies like ours, we have a really strong leadership team, which has operated such a song before, just to borrow from Jim, which I found super interesting, is that 3.5 years back when we met and we talked about this company going public, we were in this situation. And so we know what to do with the commercial model. We know what to drive -- how to drive the margin expansion. We know how to drive efficiency in R&D. So we feel like we've seen this movie before. It's a little bit different, but not that different at all. And going into these acquisition that was a hypothesis and when we went into the detail, we found, yes, this is almost true. So we feel really good and confident. I do want to make one last point is we did not want to find $20 million of synergy on quarter 1. We wanted to find it over the first year. But we did what was right for the business, what is right for the clients. It just so happened that in doing the right things, we were able to get $20 million in synergy. And so that's how we think about it. We think the market opportunity is there. We have done like Jim said, we have found a synergy, found margin expansion. So it's all about the growth, and that's where we are fully focused on.

Our next question comes from Michael Turrin with Wells Fargo.

I'll just ask a bit of a multi-parter upfront. If I'm hearing what you're saying correctly, Jim, it sounds like the inorganic portion of the business came in a bit better than you're expecting. I'm curious from a guidance mentality, if you still kind of hold the same pattern given it's early and just observing those businesses? Or if that causes you to nudge any assumptions forward a bit. And from a higher level, I'm just curious if there are any lessons you've learned from the prior pricing model transition that the company went through that you may be able to apply to bringing Enfusion to market and maybe adjusting the pricing model or some of the strategy there as well. So first is kind of more in the near what's happening question, and the second is just kind of high level how you're thinking about the strategy of the pricing model going forward?

Thanks. So really, the overperformance in the acquired business is -- recall, let me just go back, right? We last announced earnings on April 30. We closed the Beacon transaction on April 30, and we had closed the Enfusion transaction on April 21. And so they were both very new. So what we did vis-a-vis Q2 was we just kept those 9 days of Enfusion revenue from April 22 to the 30, we kind of just kept them to the side, just in case, there was a surprise, and there wasn't. And so that's what that overperformance. And you see that then flow into the increase in the full year guide. And so that's that element. The other piece is, has there been a change in the philosophy about the guidance? I think we continue to feel more confident about it, but it is still very early days. And I'm pretty old, and so I still get surprised. And so I think we've used a consistent methodology that we used this year that we've used -- sorry, this quarter that we've used in prior quarters in trying to think through that. On the pricing model and the changes around that, I think that -- so patterns that I think we've seen in the past that we will continue to see is -- that I think there is alignment across the entire organization about evaluating this and thinking about what are the right scalers? How do we think about aligning best? So I think there's a lot of alignment within the organization that remains consistent. And the second thing -- there's really 3 things. One is within the organization, that's one. The second thing is that we learned last time is we try things, and it's interesting what I think is a good idea. What clients like is really what matters and aligning around clients to that. And third, I would say that our early conversations with clients is -- there is an alignment around delivering more value for them. Sandeep, anything to add?

Yes. I would just add that you have to think of it as a commercial model change and not as a pricing model change. It isn't just about price. If it was price, you could go ahead and say, okay, we are increasing price 5%, whatever. But it is about how do you create solutions, how do you create packages with customers value? Then how do you think about annual price increase. So I think the one thing we did learn last time was do it deliberately, do it right, then it's very easy to execute and clients will buy it. But if you go in randomly with a sledgehammer, I don't think that's the right way to do it. If you want sustained improvement in the commercial model. So we're approaching it the same way. Is there any of the commercial model changes already? None. We don't even expect that in Q3. So we'll do it deliberately, we'll do it well and then really have impact on it next year, and another 6 months after that into '27, and you would see the full impact of it.

The next question comes from Dylan Becker with William Blair.

Maybe Sandeep kind of sticking on that thread around the commercial model angle. Obviously, you guys did something similar a handful of years back now and you did it fairly swiftly as well. I know we're kind of just talking in the ideation phase here, but I'm sure you guys have done some thorough diligence on the matter. Wondering, yes, it sounds like customers are receptive to it, but kind of the early feedback you're seeing in hearing and maybe some of the learnings of that prior swift change that gives you kind of conviction in the success of that potential shift over time?

Yes. Thank you for the question. Look, last time we took 4, 5 months to design it correctly. And then we went and implemented it. But because it was designed well, I think we could execute very quickly. And we expect to do the same thing. But before we get there, we want to make client servicing excellent, so that's sort of a pillar of this. We want to make the platform performance excellent, and that's a pillar of it and use that time, the same 5, 6 months, while you're trying to make these 2 excellent to design the entire commercial model, take it to market on the back of meaningfully better client servicing, meaningfully better performance of the platform, and then everything becomes a little bit easier. So again, we want to do this deliberately, do it right, and so kind of do it very quickly. I don't know, Jim, will you add?

Very accurate. That's -- when we talk about commercial alignment, what we've learned is people are very -- they love the solution. People are interested in doing more. And -- and so aligning around those proof points and doing that is obviously, it's a win-win.

Perfect. Okay. That's very helpful. And maybe Sandeep as well sticking with you on the VKB opportunity, encouraged to see kind of that buy-in around this unified vision, given how early we are kind of in the implementation phase. I wonder if you could give us some additional color on kind of how that agreement came to be? It sounds like that's helping fuel already incremental kind of pipeline activity as well, but how you're thinking about that as potentially kind of being a lighthouse example, not just in the German insurer market, which I think is fairly large, but also more broadly across the rest of the business here?

Yes. I would just start by noting that the German insurance market is massive, someone says half the size of the U.S., just the Germanic world itself. So it is significant in that sense, number one. Number two, it's hard to just replace accounting. Just given the competitive posture in not just Germany, but across Europe. If you're going to do it, you've got to replace the entire solution front to back. And I think once we went back to clients with hey, we can bring all 3 of these, and that can deliver a next-generation cloud software, which you never have to upgrade again. Yes, I think it's struck a nerve. And we could not be vowed, please I got to tell you, that's why we did a press release. We were very pleased. It's a lot of work. I don't want to pretend like these 3 products will just automatically work together. But is it -- will it be a massive proof point in that market? I absolutely believe that. So very enthusiastic and very, very happy with this early win, if you will.

Next, we have Patrick Moley with Piper Sandler.

A lot of detailed questions asked, so I'll ask maybe a bigger picture question, but there's been a lot of talk recently about tokenization of real-world assets. You have the Chairman of the SEC talking about wanting to push this country towards moving more assets -- real-world assets onto the blockchain. So just curious how you think about tokenization and the impact that it could have on your business? And then maybe what it could mean for the moat that your single security master gives you in the event that we do see real-world assets being put on the very publicly available blockchain?

So look, firstly, I think this trend will continue, right? So that is number one. Number two, just the investment in all kinds of alternative assets is simply going to continue. Third, the investments around the world is going to continue. Fourth, the volatility, just given where we are in the world today is going to continue to increase. So I absolutely believe that, that plays into our hand of being able to give you a comprehensive global view of your portfolio. Now will this happen very quickly? Do we expect 20% of real estate assets via our tokenization, I think that takes time. Are we going to try and lead that? Absolutely. Because if you're trying to create a token-based solution, who has it in one place is what you're going to ask. Which provider today has the highest number of AUM on a single instance platform. Where would you go to try and set this up. And I think we have an ringside view on not just tokenization there, but across private credit and private debt. And so we feel we're in a really good position for exactly the same reason we integrate position on generative AI because all of our data, all, is in one logical database. Everything we have done in terms of reconciliation for the last 15 years is all on that same logical database. And therefore, our ability to learn from it I think is sky high versus other platforms where every client has their own database and their own security master. So I do think that all of these trends should help the modern technology players, and we believe we are disruptively the most modern player.

Our next question comes from Brian Schwartz with Oppenheimer.

This is Camden Levy sitting in for Brian Schwartz. Sandeep, one for you. You've already seen success achieving productivity savings via generative AI. But are you working on prioritizing AI for revenue monetization to give the business another growth driver? And then I have a follow-up for Jim.

Yes. So we are very passionate about generative AI. We think it changes everything about our business, of our clients' business and how they do business, how they do research, how they execute trades, how to find new ideas of investments, we think it changes all of that. I do think the easiest place for people like ourselves is in driving meaningful efficiency improvement, which is what you've seen. You've seen us really be better at efficiency when it comes to generative AI. The transformation into revenue production or generating real growth on the revenue side is slower I think many, many clients are talking and discussing and seeing POCs, but I think the movement to actual revenue growth is a little bit lighter. Now if we go to our sales team, they will tell you, if we can do operations much faster that helps the sales process and therefore, the pipeline moves faster. So in that sense, is it accelerating revenue growth? Maybe yes, but I think real generative AI-led products, I still think are in the coming. Now do we feel you'll see something in '26? I think so. Do you think you'll see something in '25 in the second half? We have very much hope you will start to see clients adopt generative AI as a core technology. So look, we are very bullish on it. We feel whatever we invest, we get the money back in the current year and then it endures because you are getting margin improvement, guess what? The margin improvement then comes for every year out in the future. So we are big, big believers in it. We feel we have a massive competitive advantage because of single security master. So yes, we're going to continue to push. But I just got to tell you, we think it will change the world.

Perfect. And then just one question for Jim. Last quarter, lower customer AUMs was a headwind on the comparable. Did that headwind reverse and turn into a tailwind for NRR on the core business in the quarter? And then how are you thinking about that moving forward? Is that layered into your expectations and guidance for the rest of the year?

Yes, sure. It's very quickly. It was neutral quarter-over-quarter, and we expect it to be neutral.

Our next question comes from Maura Hager with Goldman Sachs.

This is Maura on for Gabriela. Just one from me. With alternatives now making up a larger portion of customers' portfolios. Do you feel you're where you need to be post the Beacon and Bistro acquisition and just given the strategic partnership with Blackstone, how are you thinking about the development in this asset class for customers? .

Yes, thank you for the question. Look, I was hoping somebody would ask the question. It is our largest area of investment by far. I think that you can do accounting for it, but having the partnership with Blackstone and being able to bring Bistro to our client base I think it's a little bit game changing. But I do think being able to visualize it is not enough. I think what really turns the dial here is Beacon. Being able to give you near real-time cross-asset class risk exposure on the trade your thinking of doing, I think it's game changing. I mean people go look at risk for equity separately from fixed income and separately for every individual alternative asset class. And then they try [indiscernible] to figure out what's really happening and the ability to combine what Clearwater does with the Bistro visualization, but also the Beacon real-time, near real-time risk, cash flow generation, I think, is -- will really help the industry as it invests more and more into these opaque asset classes. So very excited about it, a lot of investment going in it and huge interest from a client base just across the client base on this offering here.

We have no further questions. So I'll hand back to management for closing comments.

Thanks, everyone, for your interest in CWAN. Look, we're really excited about our prospects and excited to share more about our longer-term strategy, our targets and lay out some of these milestones related to these acquisitions at our Investor Day on September 3, at 1 p.m. Eastern at the New York Stock Exchange. If you'd like to register to attend in person, reach out to the good folks at investors clearwateranalytics.com. And note, the swag has already been ordered if you're looking for a new T-shirt or sweatshirt. Cheers. Thanks, everybody.