Ladies and gentlemen, thank you for standing by and welcome to the Clearwater Analytics' Third Quarter 2022 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speaker 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 third quarter 2022 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.

Expectation of future goals, including business outlook, expectations for future financial 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 statement included in our earnings press release.

Lastly, all metrics discussed on this call are non-GAAP, unless otherwise noted. A reconciliation 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 everyone. We continue to execute effectively and demonstrate momentum with a strong Q3. Revenue grew to $76.6 million in the quarter, which constitutes some 19% year-on-year growth, beating the upper end of our revenue guidance by 2%. As significantly, we showed strong sequential growth of 4% from Q2 to Q3.

We are very happy to announce significant new wins where we are displacing legacy competitors. We are excited to welcome Nationwide Mutual Insurance Company, Altos Labs, Chandler Asset Management, Continental General Insurance Company, FAI Capital Management, The Bank of Nevis Limited, Sonatus and several other clients to our platform.

In addition, we continue to drive international expansion with our first ever win in Australia, where we added Bronte Capital, a Sydney-based global long/short fund manager to power the investment data management, reporting, and portfolio analytics. Market trends quickly.

Others want to be more nimble when it comes to cost and their ability to take advantage of market dislocations by acquiring new books of assets with confidence. Finally, a desire to manage the risk and compliance of the rapidly changing global portfolio drives clients to the Clearwater platform.

Given these drivers, the demand environment for our platform continues to be robust and the positive momentum remains unchanged. Gross margin was a solid 74.8% as increased efficiency helped balance the inflationary wage pressures we are seeing in the market.

Given the strong demand environment, we continue to make investments to build out our operations teams in Europe and Asia and are excited to announce that FWD Group, a leading insurer in Asia is now live on our platform. We run an efficient business, delivering an adjusted EBITDA of $18.8 million, which translates to a 24.6% margin.

This is an increase from $17.1 million in Q3 2021, a quarter in which we were not a public company for a majority of the quarter and did not incur costs associated with being one for that time period.

Our free cash flow generation was $12.8 million in the quarter, which continued the trend of solid conversion of adjusted EBITDA to free cash flow at 68%. As we discussed in the last earnings call, the AUM on our platform was impacted by the rising interest rate environment.

In response, we launched a program to modify a commercial construct, which includes a base plus model and/or pricing increases. We continue to see clients approach these conversations constructively, and are happy to report that as of the end of last week, we have agreed to a new commercial construct with clients representing 49% of ARR.

We expect to finalize similar agreements with clients representing another 30% of ARR by the end of the year. A significant portion of the remaining clients are very new to the platform or are still being onboarded. This program has met our aggressive expectations without disrupting booking momentum, and we are very proud of that achievement.

Coming back to the strength of the core business, our gross revenue retention was 98% for the 15th straight quarter, that continues to be a best-in-class metric. The move to a multiproduct company continues to be a strategic goal.

And we are happy to report that Clearwater LPx, a full-service platform for private funds that automates the aggregation and normalization of unstructured data and provides validated accounting, reporting and analytics at scale has been adopted by a number of clients, including Arkansas Blue Cross Blue Shield and the Pittsburgh Foundation.

Going live with Clearwater LPx solves many of the operational challenges associated with data aggregation, reconciliation, accounting and reporting requirements. With increased adoption, we now sell Prism and Clearwater LPx as separate modules that are priced and sold separately.

In the third quarter, we marked a corporate milestone announcing a first ever acquisition. We agreed to acquire JUMP Technology in France, a software company dedicated to the investment management industry.

JUMP's clients include market leaders, Rothschild & Co Asset Management, Groupama, Groupe VYV, APICIL Asset Management and Moneta Asset Management to name a few.

JUMP's modular approach allows clients to use a specific solution for a particular business need, PMS, OMS, Performance Attribution, NAV, Unit Linked Funds, Reporting or for the entire Front-to-Back value chain. This acquisition is significant for several reasons.

One, we add 70-plus clients in France and the French-speaking markets and our 100 employees in Paris, both of which dramatically enhances our presence in Continental Europe.

Two, a segment of the asset management industry, namely hedge funds, private banks, family offices, insurers and institutional investors, need an integrated end-to-end investment management platform, including a PMS, OMS accounting performance and reporting. We can now service that market.

Three, the modular nature of the JUMP platform allows us to sell and deliver enhanced performance and attribution to our current clients. Four, current clients who use Clearwater, but also have a direct investment desk can now get a robust PMS, OMS solution from Clearwater.

Five, finally, several clients in Europe have extensive unit-linked fund portfolios. We bring a best-in-class solution for that asset class, which can then be integrated via Prism to provide a comprehensive view. We expect this transaction to close in the fourth quarter of 2022.

In Q3, ARR grew to $303.6 million, which was up by more than 18.1% year-over-year. As you can see, even with great booking performance, this growth was tempered because of the decline in the asset value of our existing clients.

Our net revenue retention rate are steady, coming in at 103%, which is only 1% lower than prior quarter despite continued market headwinds. As the commercial changes we have negotiated comes into effect late this year and early next year, we expect the impact of these headwinds to be mitigated and future volatility reduced.

One of our key strengths is our disruptive single instance, multi-tenant SaaS platform, which continues to spark a replacement cycle and encourages clients to add additional books of assets to our platform. New clients continue to choose Clearwater to replace highly fragmented and predominantly manual-driven legacy systems.

In the third quarter, 49 clients went live on the Clearwater platform. Our continued growth and profitability allows us to continue investing in our platform very aggressively.

We will continue to invest in an effort to increase TAM, build market-leading capabilities in managing alternative assets and boost automation and machine learning investments to improve quality and enhance margin. And the JUMP Technology, we bring that product to the U.S.

and broaden the depth and breadth of our product portfolio, offering additional modular components spanning the entire investment management life cycle. A key pillar of our approach is client focus, which is at the heart of everything we do. Not only do we focus on our clients' needs, but we also strive to delight them and earn their trust.

In September, we hosted our Annual User Conference, Clearwater Connect, in Boise that brought together more than 500 current and prospective Clearwater Analytics enthusiasts, eager to explore the future of investment operations.

They learned about Clearwater's award-winning platform and its newest features and capabilities and how these innovative technologies can be applied to significantly boost business productivity and growth opportunities.

During our Inaugural Clients Award program, we named standout leaders that have achieved growth and have taken an innovative approach with investment operations using Clearwater's platform, including Unum, Mutual of Omaha, Venerable, Performa, CNA Insurance, Markel Corporation, Chimera Investment Corporation, Qualcomm, Morgan Stanley, Reliance Standard Life Insurance, Government Portfolio Advisors and JPMorgan Asset Management.

Speaking of awards, we were also recognized as an industry market leader by Captive Review. Clearwater Analytics won the Top Award and the 2022 U.S. Captive Review Awards in the Software Solution category. In addition to our external success, we care deeply about the performance and development of our people.

This year, we are proud to share that we grew our workforce by approximately 20% as we continue to hire around the globe. We are dedicated to making investments in people-related programs that help make Clearwater an engaging, vibrant and rewarding place to work. Overall, we are proud of our continued momentum and our many accomplishments in Q3.

Before returning with a few closing thoughts, I would now like to hand the call over to our Chief Financial Officer, Jim Cox, to provide more details on our third quarter financial performance, as well as updated guidance for our fourth quarter and full year 2022..

Thanks, Sandeep, and thank you all for joining us. It is gratifying to report our Q3 results. Despite the continued downturn in the market prices in both equity and fixed income securities during September, we delivered 19% revenue growth, exceeding our guidance range by $1.6 billion.

These results reflect our continuing focus on execution in a challenging environment. As a testament to the market-leading capabilities of our solution, we were able to partially offset market headwinds with the execution of price increases and a new base plus pricing model.

And presently, we have rolled out these changes to 49% of our annualized recurring revenue runway. We reported $18.8 million in EBITDA, missing our guidance by $200,000, due in part to $700,000 in additional commission expense from our strong bookings and price increases. Moving now to details about our third quarter financial results.

Please note that our results will be discussed on a non-GAAP or adjusted basis, unless otherwise noted.

As of September 30, 2022, annualized recurring revenue or ARR reached $303.6 million, a $46.5 million increase over September 30, 2021, representing an 18.1% increase year-over-year, again due primarily to continued strong new client acquisition and additional assets loading onto our platform from existing clients.

The increase in annualized recurring revenue was partially offset by the decreases in clients' assets on the platform, resulting from decreases in fixed income and equity security prices during the first 9 months of 2022. This resulted in a 5% reduction in the growth of our annualized recurring revenue.

Net revenue retention was 103%, which is a decrease from the 104% on June 30. The new pricing construct has partially offset the ARR decrease, which has resulted from the downturn in both equity and fixed income markets.

Although net revenue retention was impacted by these market changes, gross revenue retention remained consistent at 98% for the 15th consecutive quarter. Gross profit in the quarter was $57.3 million and gross margin came in at 74.8%.

Gross margin continues to be resilient as we continue to execute on operations for new client growth, including our investment in international markets. As a result, we expect gross margin to remain at a similar level in the fourth quarter.

Research and development expenses in the quarter were $19.9 million or 26% of revenue, an increase of $1.9 million from Q2 as we successfully grew our R&D headcount by 39 people in the third quarter.

These additional R&D headcount will augment our initiatives with Prism, additional functionality for alternative investments like Clearwater LPx and incremental international GAAP reporting.

Sales and marketing expenses in the quarter were $10.2 million or 13.3% of revenue, up 30 basis points year-over-year as we hosted Clearwater Connect in-person in September.

General and administrative expenses in the quarter were $8.4 million or 10.9% of revenue, up 70 basis points year-over-year as we continue to annualize the impact of incremental public company costs resulting from our initial public offering last September.

Adjusted EBITDA in the quarter was $18.8 million or 25% of revenue, an increase of $1.8 million over Q3 2021. Below operating expenses on our GAAP income statement, you'll see that we incurred $2.6 million in Tax Receivable Agreement expense in Q3.

These expenses are incurred in lieu of tax expense when we utilize tax deductions, subject to our Tax Receivable Agreement or TRA.

Absent the utilization of past losses and deductions, we will be projected to have taxable income in 2022, primarily because of capitalization of R&D expenses and less stock-based compensation tax deduction and our stock-based compensation expense.

Absent the Up-C structure and Tax Receivable Agreement, income tax expense would have increased by $3.1 million, and the TRA would be zero. So the TRA is effectively reducing these non-operating expenses by about $0.5 million. Now let's turn to the balance sheet and cash flow.

We ended the quarter with $291.5 million of cash, cash equivalents and short-term investments and $51.1 million in total debt, resulting in net cash holdings of approximately $240 million. In connection with the JUMP Technology acquisition, we will be utilizing approximately $75 million in the fourth quarter.

Free cash flow in the third quarter was $12.8 million, reflecting a conversion of EBITDA to free cash flow at 68%. And free cash flow included $1.9 million of capital expenditures. Focusing now on guidance for the fourth quarter of 2022. We expect revenues to be in the range of $79.3 million to $81.3 million this quarter.

This guidance assumes asset prices at September level and approximately $1 million in revenues from the JUMP Technology acquisition. We expect the fourth quarter adjusted EBITDA to be in the range of $22.2 million to $23.2 million, with adjusted EBITDA margin expected to be higher than the third quarter of 2022.

For the full year 2022, we are increasing our revenue guidance, which is now expected to be in the range of $300 million to $302 million, representing approximately 19% to 20% year-over-year growth. We expect adjusted EBITDA to be in the range of $79 million to $80 million. The guidance we provided previously for all other measures remains unchanged.

To summarize, in the third quarter, we continue to win large new logo clients and expand into new geographies and adjacent markets, including our announced pending acquisition of JUMP Technology. In addition, we are very satisfied with our progress transitioning our clients to the new pricing construct.

We look forward to further updating you on our progress on future calls. With that, I'll turn it over to Sandeep to provide some closing thoughts. Sandeep Sahai Thank you, Jim. Overall, we are very happy with Q3, not only because of solid execution within the quarter, but how it sets us up for Q4 and calendar year 2023.

Our continued progress in booking and selling to clients of all sizes across a variety of industries, coupled with the continued success in transitioning our commercial contracting and pricing model, have improved the quality of our business and allowed us to execute with confidence.

Investing in the strategic acquisition of JUMP Technology will allow us to continue to innovate for our clients and prospects increasingly complex needs, while expanding our mission to now being able to serve the full investment management life cycle and eventually revolutionize the world of investing.

With that, let me turn it over to the operator for questions..

[Operator Instructions] The first question for today's call comes from the line of James Faucette from Morgan Stanley..

It's Michael Infante for James. I just wanted to try to get a little bit more color on where the pricing conversation stand.

So I guess if you could, today, what percentage of clients and what percentage of total revenue are live on the new pricing model? And how do you sort of envision that trending throughout the balance of '22?.

Michael, thanks so much. This is Jim. So as Sandeep mentioned, 49% of our annualized recurring run rate is on the new model or in the new commercial construct. And we expect approximately 80% of that to be done by the end of the year. That's all on a kind of revenue basis.

For context, when we announced this program, in Q2, we talked about waves, which was more of a client count view. And so in Q -- if you recall, Michael, we had 3 waves. And we talked about how in Q2, we had communications with 61% of Wave 1. That number has gone up to 81% at the end of Q3.

And then Wave 3, which obviously is our largest and most sophisticated clients, that was only at 10% when we spoke before, and we're up to 39% there. So that's a reasonable proxy for some kind of a blend of the client count, but the overall kind of impacted revenue number is 49% and expect that to continue to grow throughout the end of the year.

It's -- Sandeep, do you want to give a little color?.

Yes. Just one more thing, Michael, is that when we're saying 49% of the clients we have signed a contract with, with the new contractor, it doesn't mean those are fully applicable yet, right? So they are going to be applicable towards the end of the year and the beginning of next year. So yes, I just want to make sure you understood that nuance also..

Got it. That makes a lot of sense. Appreciate that. And then maybe on JUMP, I appreciate you guys hosting the call on the acquisition announcement.

Maybe just quickly on -- aside from the clear geographical diversification benefits, maybe if I just think back a couple of months ago to the IPO process, the PMS and OMS capabilities weren't really front and center, right.

So I guess, how do you sort of think about JUMP allowing you to sort of more meaningfully or more quickly penetrate what could be a relatively difficult asset management environment today?.

Yes. So, thank you for asking that. But let me try and explain how we see it. I think PMS and OMS by itself was not attractive, and frankly, would not be attractive even today. But what happens is that when you look at some insurance clients, they're starting to manage their own book.

So once they manage their own book and they have their accounting with us, then to additionally get PMS, OMS from us becomes a very good add-on and a very good cross-sell, if you will. So that was point one.

The point two was, Michael, that some part of the asset management industry when you think about hedge funds, private banks, family offices, they tend to buy an integrated end-to-end platform, right? And we obviously did not have the front end. So having JUMP allows us to bring that capability not just in Europe but bring it here to the U.S.

So those things made a difference. The other big one, Michael, was around performance. They have a really good performance module, which is often bought separately or in conjunction with the Clearwater platform.

And so while we already do performance, this gives us enhanced performance and is something which we think a number of our current clients would buy. Lastly, they do really good work with unit-linked funds. And as a matter of fact, it is market leading in Europe. And this is a capability we have but very limited capability.

And using JUMP, we can go back with unit-linked funds and sell to our current client base and prospects. So we think it fit really, really nicely, and that's why we work pretty hard, I think to get it done as reasonably quickly as we could..

Got it. Thanks, Sandeep. Thanks, Jim..

Yes, thank you..

The next question today comes from the line of Peter Heckmann from D.A. Davidson. Please go ahead. Your line is now open..

Good afternoon gentlemen. Thanks for taking the questions. Just on JUMP, correct me if I'm wrong, but I think on the deal call, you had given us 2021 revenue and talked a little bit about the growth rates, and now we've got a little bit of shifting FX.

But just ballparking in terms of revenue and margins on an annualized basis for 2023, are you prepared to give that on today's call?.

So I think what we've provided, Peter, was approximately $1 million in Q4. The reason why we gave it so approximately is that we just don't know when exactly we're going to close the transaction in the fourth quarter. We're very confident we will close it in the fourth quarter.

As we look forward, historically, they've had that kind of, call it, roughly $12 million, and they've been growing nicely of run rate on an IFRS basis. And so if we assume that's kind of consistent, you can kind of build to the growth. I think we're reluctant to give specific guidance on JUMP until we actually close the transaction and do that work.

So I think we'll be fulsome in providing you kind of that and being explicit in our 2023 guide as it relates to how much JUMP grow, grow what is our otherwise strong organic growth in 2023..

Okay. And we'll have to follow up on that then.

And in terms of when you talked about a 500 basis point headwind to net revenue retention in the quarter, that was the cumulative effect, right, from the first three quarter -- I mean really the trailing 4 quarters, but the impact of market action?.

That is the cumulative effect of that market action over that period of time. Yes. Now I think we believe that, that impact would have been more significant had we not modified the commercial constructs. And so what you're seeing is the after contract impact -- after contract changes the impact of that market change..

Peter, if I could just add to that, that look, we think that when you just look at what we are delivering this year, this 19% to 20% growth year-on-year, with this 5% headwind, I think if we just do the math, you'll see that the business has been absolutely as robust as you would expect, right? Now that's not a good enough answer.

So what we have done is obviously worked on the client contracts, and so we expect this volatility to be essentially mitigated next year. But below that, below if you get past the 5%, you will see the business itself is performing really, really well. So that's the point we're trying to make..

Okay. That's very clear.

And just lastly, remind me, but I think of the JUMP clients only a small handful were also already Clearwater clients, correct?.

A very, very small handful. You would say that it's the client count was roughly 70 in French and French-speaking geography..

That was what was interesting about that is that you are really going to a geography where we were not represented well at all, and it gives you these 70 clients. So you get immediate presence in the market which it takes a while to build. So that's a JUMP sort of just check so many boxes..

Right. Right. Okay, I appreciate it..

Thank you..

Thanks..

The next question today comes from the line of Rishi Jaluria from RBC. Please go ahead. Your line is now open..

Oh, wonderful. Thank you so much for taking my questions and I appreciate all the incremental color on today's call. First, I wanted to go back to the user conference.

So when we're talking to customers out there, one of the things that they seem to really like about Clearwater was their ability to shape the road map and the fact that you listen to their feedback over time.

So I'd be curious, having hosted this conference after a period of not doing it because of COVID, was there anything that you saw in terms of feedback from customers that really stood out to you either in terms of your current products or kind of future products, features functionality that you'd want to discuss? And then I've got a quick follow-up..

Sure. I think that what was great, Rishi, and by the way, thanks for coming out, and by the way, all of you are welcome at our next client conference. Hopefully, you'll be clients by that as well.

But -- so I think that there was great alignment amongst all of the clients around kind of where the road map is going, what we're doing to see the tangible benefits that folks were seeing was -- to see that kind of come to fruition in a timely way was compelling for them.

But one thing that I think really knocked their socks off, and this is nascent, and we don't even talk about it yet with investors. But it's the opportunity that the $5.9 trillion in assets flowing through our platform provides us to provide insights to our clients even on an anonymized way.

I think we shared that in a few different sessions, some in smaller sessions, some in broader sessions, just a sprinkling of some of the insights once you start applying machine learning and artificial intelligence, it's a really exciting opportunity.

And to hear the reaction from clients about how useful and how they could see how it could work even without us even imagining, and that co-innovation with them on that sort of an opportunity was to me personally really exciting. Sandeep, go ahead..

Yes. One of the things I think we saw a lot of issue was our clients continue to be under pressure. So they continue to be under pressure to manage costs more aggressively to do more. So we got a lot of requests about what else can Clearwater do in adjacent spaces to really improve their operations.

So a lot of interest in our road map, a lot of frankly, just relief that we were going to continue to invest in our platform to make it better and sort of address more of their problems. So really a great conference. We obviously enjoy meeting people.

But just having customers get here and validate what we are doing, and frankly, change some of what we were doing, I think was really, really good..

Great. That's really helpful. And then one for Jim, maybe specifically. So you talked about wanting to get 80% of kind of the revenue base on the new subscription model by the end of the year.

If that kind of happens and you slowly get closer and closer to that 100%, would you consider introducing or highlighting RPO as a more relevant disclosure since it will be more upfront and more contracted rather than on the variable AUM, AUA based pricing model?.

Let me walk you through what the pieces of the new commercial construct are just so that everybody is baselined on that so that folks understand that. So the first piece, right, is a base model, which really reflects, call it, an annual fee, which by the way we would move to that RPO view if we were actually doing that annual billing upfront.

But presently, we continue to build monthly under that, but it's an annual fixed fee based on the full AUM that the client has on their current book of business. So that's step one. So we set kind of a base mark for that. Then secondly, there continues to be that element of a scaling of the fees based on the growth of the clients' business.

Typically, that's through their AUM balances. The third piece is that we've really drawn a box about what core Clearwater is enabling us to sell separate modules discretely. And then lastly, there's a annual increase of that base fee to continue to drive that through.

And so I would say, Rishi, we will -- as we continue to -- and the one more thing I'll say, I apologize, for our new clients, I think the acceptance of this model has been incredibly high. So that's been terrific as well as with our -- going back to our existing clients.

And so as we move to that final step of invoicing that annual base fee annually in advance, that would be when we would pivot to that RPO model..

Got it. That's really helpful. Really appreciate the thorough answer. Thanks so much, Jim and Sandeep..

Thank you. Thanks, Rishi..

The next question today comes from the line of Kamil Mielczarek from William Blair. Please go ahead. Your line is now open..

Hi, everyone. Thanks for taking my question. First on the pricing model, it's nice to see the strong progress there. I just want to follow up on how the Wave 3 is progressing.

Can you provide maybe some more color on how you approach these more complex conversations, how the change is being received by the larger customers? And where are you seeing the most pushback, if any, given the favorable pricing in this market with the existing model?.

So I've got to say -- thank you, Kamil, for the question. I don't think we see real pushback. I think literally almost to a client, the clients have been receptive, they've engaged with us, but it does take longer. I think when you talk about the Wave 3 clients, the numbers involved are obviously higher.

And therefore, there is resistance to getting it done in 5 weeks. It takes a while. So that's how I would characterize it. I don't think we have seen any difference in constructive nature of the conversations. We just haven't. It's just it takes longer.

Maybe, Jim, you might know whether there's a market or something where we see?.

I think the acceptance in corporate and insurance is almost universal. And in asset management, it takes a little more time to kind of walk through that..

Yes. I think that's fair..

That's helpful. It's good to hear.

And if I could just follow up on a question on Europe, can you update us on how demand is trending there? And what countries have you seen the most traction? And have you seen any changes in customer conversations in recent months?.

Yes. So Europe continues to have a really strong pipeline. I think we disclosed that 15% of our revenue now is international. So that's huge from last year, if you remember. So we've been really successful with Europe. We are very bullish on Europe.

Frankly, the acquisition of JUMP in Europe is a little bit testimony to the fact that we think we can grow really quickly. It just takes a while to set up these offices and hire all the people, and that's why the acquisition made so much sense. So, look, we continue to expect to get very strong growth there.

I think year-to-date, we've added 13 new logos in Europe. So we have about 13 new logos there. So, look, all in all, it's going about as well as we think it could have. We're also a little bit excited that we had FWD go live. I mean this is one of the larger insurers in Asia. Also a little bit excited we got our first client in Australia.

And this isn't with a team there, it is with them calling in. And so we really, which we think all of the international business is going quite well..

That's great to hear. I appreciate the color. Thanks again..

Thank you..

The next question today comes from the line of Ella Smith from JPMorgan Chase. Please go ahead. Your line is now open..

Hi. Thanks so much for taking my question. My first question, so your revenue guidance would imply about 19% growth year-over-year.

Would you say this increase is mostly due to new client acquisition versus pricing? And would it be possible that your overall client count is actually north of 19% year-over-year by year-end?.

So we're definitely growing from new client acquisition, and we are also growing from assets -- from clients adding assets to the platform. And so Ella, as we have kind of evolved as a company, we continue to go upmarket. And so as you see, our total client count right, is going up nicely. It is not going up 19%.

But when you start looking at our clients that are larger than $100,000, larger than $250,000, larger than $1 million, which we disclose on an annual basis, you'll see that those are ticking up. And you -- as you start to see the share of clients that are those larger clients, you'll see that operate as well.

That is really the mechanism to drive that 19% growth..

That's very clear. Thank you. And from....

Perhaps, it will be 20%. Perhaps, it will be....

Yes. Yes. Obviously, it's going to....

Yes. We like 20% more than 19%..

Yes. I think you're guiding to between 19% and 20%. So you're not ready to concede the 20% quite yet..

Great. Very clear, thank you. And my second question pertains to the JUMP acquisition. I believe during the call in September, you referred to an IFRS discrepancy due to licensing.

I was wondering if you have any updates about the accounting nuances associated with the acquisition?.

Yes. We're continuing to work through that with them as we move to U.S. GAAP. And obviously, as we kind of bring the JUMP solution into the cloud, consistent with what Clearwater does, that IFRS U.S. GAAP thing diminishes over time, but we're just still working through that as we work through the closing process.

And I think we'll be able to give you a full debrief of that after Q4 once we've closed..

Great. Thank you both very much. I appreciate it..

The next question today comes from the line of Michael Turrin from Wells Fargo. Please go ahead. Your line is now open..

Hey, great. Great. Thanks, appreciate taking the question. I mean the retention rates are -- seem to be stabilizing here, at least the net revenue retention number is close to what you saw last quarter. You're clearly holding strong on gross retention rates yet again.

Is it fair to expect the net revenue retention to mostly stabilize around these levels given just the gap is closing between where the gross number sits? And how does the transition that you're embarking on impact the expected trajectory there, if at all?.

Yes. I think that's a great point. And so I do think that we have -- we have, frankly, I think short of any very impactful macroeconomic event, I think we've seen the bottom.

And I think we would -- when you think of all the additional modules we have and you think of the JUMP acquisition coming to fruition, there's a lot of levers we have to pull to start to move that net revenue retention number north as we kind of move through this problem..

Yes, no, I would absolutely expect all of these contract changes we continue to work on and have worked on to start to have an impact in Q4, towards the latter part of Q4 and the beginning of next quarter. So we absolutely expect that number to improve. And obviously, barring something strange happening in the macroeconomic sphere.

So yes, we're happy to stabilize, but we're not happy with the number. Everything is going to be north of these numbers..

Understood. That makes sense. And just on the guidance, you're taking the top line up a touch on the beat. Obviously, there's a little bit of JUMP assumed in there as well. On the EBITDA, just sort of the fine-tuning versus that number moving up a touch in tandem with the top line.

Is that mostly tied to JUMP as well or are there other impacts for us to just to be mindful of on the EBITDA side?.

Yes, I just want to say on the EBITDA, no, we don't have anything of JUMP in there. Just a JUMP exact day of closing, all that is hard to forecast. But like Jim said, we expect to close in Q4.

So then the question is what's going on with EBITDA? look, the revenue is sort of on plan, and frankly, our ability to manage it is high because we're really investing in people, that's really the bulk of it. So then the question is how quickly do you want to ramp up operations teams out in Asia and Europe, and that is really what this is about.

Where we are with EBITDA in Q3 is about -- we don't want to go any further below this number. So if you look at our Q4 guidance, it is meaningfully higher, and we expect to do better than where we are. And this is what we had said, Michael, last year, that we like this about 25% and not lower.

And we've given it 24.7%, that we expect to come right back to a higher number than that..

Appreciate you asking the follow-on questions for me, Sandeep. Thanks very much..

Jim, what was Q4? Q4 guidance was -- yes, it's almost like 28% is what we're guiding to at the midpoint..

Yes, 27%, 28%. Yes..

27%, 28%. So when we saw the 24.7%, we're like, no, this is not the number we are. We like 25%, and we like north of that..

With Clearwater Connect, we had some nuances with the commissions, and we also had some nuances around the vesting of RSUs and the employee tax costs to that, which caught us out a little bit, but we really understand all that, we have the ability to manage.

We think the investing has been fruitful, responsible, and I think we'll continue to, but we think Q4 will be more profitable quarter from an EBITDA margin perspective..

Michael, we thought you would like the fact that we paid higher commissions in the quarter. But that means our....

That's also a good point. Thanks very much..

Thank you..

[Operator Instructions] The next question today comes from the line of Brian Schwartz from Oppenheimer. Please go ahead. Your line is now open..

Brian, are you....

Brian, your line is -- you may be muted, Brian?.

Can you unmute me? Operator, can you unmute me? Okay..

We can hear now..

Now it's done. Now it's done..

Someone unmuted me in the sky. Sandeep, I wanted to follow up on the kind of the big logos that you won in the quarter. You gave us drivers in your introductory commentary on those wins.

But I was wondering if it's possible to parse that out a little more or rank them in the sense that when these customers are buying the platform for you, is a bigger driver coming from them looking to replace legacy architectures to save money in what is a very tight budget environment that we're heading into versus, say, the other drivers, which are really more about driving automation in the organization to help increase productivity?.

Yes. Thanks, Brian. So we obviously have been very watchful simply because of the news coming out of the economy, just every management team, I think is being more watchful.

So 3 things are driving the funnel right now, right? The first one is people who need efficiency, they need it now, they need it quickly to manage costs better, right? So that is definitely a big segment of the prospect base and the client base, which needs to manage that. So that's one.

Second one, which is really interesting is people are looking at these market dislocations and buying books from other asset owners. So there's lots of acquisitions going on, buying books, getting into new asset classes and people want to do that in a bit of a hurry, and it's impossible to go set up a brand-new architecture system for that.

Coming to Clearwater makes them very nimble. They can buy assets in Germany tomorrow, they can buy assets and mortgages or whatever. So there's definitely a class of people who are pushing on that, and that seems to be the sole reason they are doing that.

And the third thing is it just risk people from audit committees and literally getting calls from audit committees saying, I need to get your risk in order with this rapidly changing and volatile environment. And so that drives it is just better control on a day-to-day management of risk and managing it better and being responsive to the market.

And so one of those 3 is what's driving it. I mean you still have some cases where people are doing large scale financial transformations and that drives it. And sometimes, you will have a currently awarded client go to another company and saying, wow, this is not the way to do it, and they were bringing us along.

So if you think about these 5 elements, I would hazard there's a vast majority of our prospects would fall into one of these..

And then one follow-up for Jim.

Just thinking about the guidance for Q4, is it fair to assume that, that there's still going to be a slight headwind here from the customers that are still on the old pricing plan, we see where AUMs are going? And then, Jim, are you factoring in the macro at all as you contemplated and initiated the Q4 guidance here today?.

Yes. I think we -- when we looked at the Q4 guidance, we understood what the perspective of what the Fed was going to do and it looked like they did exactly what folks expected them to do today and so we did consider that as part of it and as we looked into the guidance..

Thank you for taking my questions..

Thank you. Take care, Brian..

Thank you, Brian..

Thank you. There are no further questions registered at this time. So I'd like to pass the conference back over to Sandeep Sahai for closing remarks. Please go ahead..

Look, I just wanted to thank you all for your continued interest in Clearwater. I think we've had a really good year-to-date performance. I think we've had headwinds, but we really found that we continue to deliver and target a 20% growth rate for the year, that we are very excited about that.

We are very excited also about, I think being able to make all these contractual changes while booking the right amount really throughout the year. And really that was really important for calendar year 2023 is that if we had not done this, we would continue to be subject to the volatility of the market, and we hope to mitigate that quite a bit.

So thank you all. I really appreciate your interest and your time. Thank you..

Thank you all. This concludes today's conference call. Thank you for your participation. You may now disconnect your lines..