Q2 2022 Clearwater Analytics Holdings Inc Earnings Call
As we have discussed in the past.
The first pillar is consistent durable growth.
Clearwater has successfully achieved consistent growth over several years.
And while the headline number.
Do not fully reflected the underlying core business continues to grow at the same steady clip.
Our platform is now used across several industries and across a broad range of geographies in turn allowing us to have greater resilience and adding new clients and sustained bookings every quarter.
The second pillar.
Is a high quality business and financial model.
That is designed to expand.
Our recurring revenue model and high gross retention provides stability and predictability to our business.
Our non-GAAP gross margin continues to be at approximately 75%.
Which reflects the fact that wage inflation across the world.
Is being balanced by increased efficiencies of our business.
This allows us to continue to make investments in our product, while generating reasonable EBITDA margins and free cash flow.
Third.
Clearwater has a disruptive SaaS based technology platform with deep competitive moats.
A single instance, multi tenant platform.
News to learn.
With each new client.
Driving greater network effect and increase efficiency for both our clients and for Clearwater Beach.
Continue to win.
Net new clients that choose to move from our more legacy competitors in this quarter alone 45, new clients went live on the Clearwater platform.
Our sustained investment in R&D.
Allows us to continue to enhance our platform.
We are determined to serve our customers with what we believe is the most powerful.
Investment accounting platform on the market.
As an example of continued innovation.
Clearwater expanded its capabilities around alternatives.
With new and significant capabilities for limited partnership assets.
This truly next generation solution provides automated data aggregation validation reconciliation and reporting for private funds.
The fourth pillar of our strategy is our multiple drivers for continued future growth.
We are focused on the $10 billion market opportunity that we can address.
While continuing to execute in our core markets of insurance.
Asset management corporations and the public sector.
We are growing our business in Europe , and Asia and we.
We're happy to announce that we added MSI G.
Multinational insurer based in Asia.
Additionally, we are building momentum in adjacent markets like Greece and pensions.
Including adding the public employee retirement system of Idaho.
Longer term opportunities include delivering insights for current and future clients of our platform.
From a growing data set of more than five nine trillion.
Of assets, which are processed on our platform.
Fifth and final pillar is client focus.
Which is embedded in the DNA of our culture.
There is no doubt.
That in person and face to face engagement with clients makes a world of difference.
That is why as an organization we have made a concerted effort.
To engage with our customers and prospects meeting many of our clients in person over the last quarter.
Clearwater continues to be recognized across the marketplace.
As an industry leader.
With recent accolades, including.
I S. A solution provider of the year Award.
And the FTF News award for best client reporting solution for the second consecutive year.
Speaking of our global team we care deeply.
Although the performance and development of our people.
This year, we are proud to have grown our workforce by over 12%.
As we continue to hire around the globe.
We continue to make investments in people related programs.
That helped make clearwater and engaging exciting and rewarding place to work.
Overall, we are very proud of our many accomplishments in Q2.
Looking ahead we.
We are excited to host our annual in person user conference.
Connect taking place on September 14th and 15th.
At our headquarters in Boise, Idaho.
Clearwater connect will be an immersive learning experience.
Designed to educate and inspire.
Hundreds of financial leaders in attendance.
And deliver opportunities for growth.
And connection between Clearwater.
Our customers and our partners.
Before returning with a few closing thoughts.
I'd now like to hand, the call over to our Chief Financial Officer, Jim Cox.
To provide more details on our second quarter financial performance.
As well as updated guidance for our third quarter and full year 2022.
Thanks, Sandeep and thank you all for joining us today.
In light of the significant downturn in the market prices in both equities and fixed income securities. During Q2, we are proud to deliver 21% revenue growth with revenue coming in at the higher end of our guidance range at $73 $4 million.
We achieved these results because of our continued ability to win new clients and successfully onboard them.
For example in the second quarter 45, new clients went live on our platform.
We are also proud of our solid 26% adjusted EBITA margin and our strong operating cash flow of $18 3 million in Q2.
Moving now to details about our second quarter financial results.
Please note that our results will be discussed on a non-GAAP or adjusted basis, unless otherwise noted.
As of June 32022 <unk>.
Annualized recurring revenue or <unk>.
$294 million.
At $45 $3 million increase over June 32021, and represent an 18, 5% increase year over year.
Again, due primarily to continued strong new client acquisition.
Our growth was negatively impacted by decreases within our clients' portfolio as evidenced by our lower net revenue retention on June 30.
Net revenue retention was 104%, which is a decline from the 107% on March 31.
The drop in both equity markets and fixed income security prices in Q2 created a 3% headwind to NRI in June .
That headwind is in addition to the headwinds we discussed in Q1.
As Sandeep said in his remarks.
For the past five years. This AUM pricing has been mutually beneficial to both us and our clients.
However.
After our experience in the first half of the year.
We're well underway about our new contract terms to limit AUM exposure going forward.
There are two prongs to our approach for new clients, we are providing fixed fees for their current AUM with a variable component for any incremental AUM.
For our largest existing clients, we are working with them to modify their existing contracts to a fixed fee plus incremental AUM construct we are pleased with our early results from these discussions.
Although net revenue retention was impacted by these market changes gross revenue retention remained consistent at 98%.
Gross profit in the quarter was $55 6 million and gross margin came in at 75, 7%.
Gross margin continues to be strong even as we invest to further establish our presence in international markets.
As we have expanded in Edinburgh annoyed at the.
The strength of the U S dollar in Q2 marginally less than the dollar cost of these investments.
With our new client growth, we plan to continue to invest as a result, we expect gross margin to remain at a similar level in the third quarter.
Research and development expenses in the quarter were $18 million or 24, 5% of revenue an increase of $1 2 million from Q1 as we successfully grew our R&D head count by over 50 people in the second quarter, we see a lot of opportunity and these team members.
We will increase our speed to market with prism additional functionality for alternative investments.
Incremental international GAAP reporting and enhancements to our offerings to asset managers.
And marketing expenses in the quarter were $9 8 million or 13, 3% of revenue up 110 basis points year over year.
We expect increased investment in this area in Q3, as we rollout planned marketing programs, including our in person Clearwater connect conference in September .
General and administrative expenses in the quarter were $8 7 million or 11, 9% of revenue up 20 basis points year over year as we continue to annualize the impact of incremental public company costs, resulting from our IPO last September .
Looking ahead, we expect the general and administrative expenses will remain at a similar level for the remainder of the year.
Adjusted EBITDA in the quarter was $19 1 million or 26% of revenue I'll touch on our overall adjusted EBITDA expectations in the third quarter later in my written remarks.
Below operating expenses on our GAAP income statement, you will see that we incurred $3 1 million in tax receivable agreement expense in Q2.
These expenses are incurred in lieu of tax expense when we utilized tax deductions subject to our tax receivable agreement or TRA.
Absent the utilization of past losses, and deductions, we would be projecting to have taxable income in 2022, primarily because of one the capitalization of R&D expenses under internal revenue code section 174.
And to.
Less stock based compensation deduction.
Then our stock based compensation expense.
Absent the up sea structure and tax receivable agreement.
Income tax expense would have increased by $3 6 million and the TRA expense would be zero.
So the TRA is effectively reducing these non operating expenses by $500000.
Now, let's turn to the balance sheet and cash flow we ended the quarter with.
$281 6 million in cash cash equivalents and short term investments.
And.
$51 7 million and total debt, resulting in net cash holdings of approximately $230 million.
Free cash flow for the second quarter was $16 5 million, reflecting conversion of EBITDA to free cash flow of 87% pre.
Free cash flow also included $1 7 million of capital expenditures.
Focusing on guidance for the third quarter of 2022.
We expect revenue to be in the range of $74 5 million to $75 million this quarter.
This guidance reflects the headwind to growth from AUM decreases and assumes asset price levels as of June .
We expect third quarter adjusted EBITDA to be in the range of 19 million to $19 $5 million with adjusted EBITDA margin expected to be roughly flat to the second quarter of 2022.
For the full year 2022, we are lowering our full year revenue guidance, which is now expected to be in the range of 298 million to 300 million.
Resenting, 19% year over year growth at the midpoint.
We expect our adjusted EBITDA for the year to be in the range of 79 million to $81 million.
The guidance, we provided previously for all other measures remains unchanged.
To summarize in the second quarter, our business and our AUM pricing model was not impervious to the dramatic asset price decreases throughout the quarter.
However, the resilience of the business is strong and the following remains true.
One.
We are a next generation displacement caliber solution for investment accounting.
We continue to win new clients and make them successful at an ever increasing pace.
Three we will continue to invest to extend our market leading position and four we are actively working to mitigate the variability to our business, resulting from dramatic decreases and we look forward to further updating you on our progress on future calls with that I'll turn it over to Sandeep to.
Did some closing thoughts.
Thank you Jim.
As you just heard from Jim we had a solid Q2.
And we are incredibly proud of the grit and determination our teams continue to show.
We are excited about driving the changes to our commercial model.
And we believe this will lead to what we want to deliver.
Consistent steady growth.
Using a disruptive technology platform with high quality profitability and cash generation.
All with clear room to expand.
We thank you for your ongoing interest and confidence in Clearwater.
With that let me turn it over to the operator for questions.
We will now begin the question and answer session.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
The primary reason at all you would like to address that question. Please press star followed by Tim.
Again to ask a question press Star one as a reminder, if you are using a speakerphone. Please remember to pick up your handset before asking your question. We will pause here briefly ask questions are registered.
The first question comes from Peter Heckmann with D. A Davidson your line is open.
Good afternoon, everyone. Thanks for taking the question.
Okay, and I just wanted to see.
If there was a way or how are you thinking about as you alter existing clients, especially larger clients onto a more of a fixed recurring subscription fee.
How do you anticipate kind of the net changes.
Both in the short term and intermediate term should we expect.
Maybe drags just a bid on.
Revenue growth.
In most periods it was a gentle tailwind.
Yes, Peter. Thank you. This is sandeep so absolutely right I think when you think about the past five years. It has been a gentle tailwind in the 2% to 3% range.
Now what we have done is after we saw this impact over the first six months.
Broke up all of our clients into three sections in three waves, if you'd call. It <unk> two <unk> three with one being the more the smaller clients. If you will in the <unk> some of the larger and more complex relationships and we went out and frankly just spoke with many many of them many of them.
And explain what was going on and why you felt.
This new construct.
He has a better relationship for the longer term between both the client and us and to give you a sense of our progress 61% of <unk> has been completed obviously delayed three or longer negotiation more complicated somewhat and they're 10% are completed we expect.
To finish this exercise over the next two quarters. So our expectation is that over the next two quarters, we will realign these contracts in frankly in partnership with the clients.
Okay.
Helpful.
Yes.
Just just with all of the macro.
Economic news and uncertainty about.
Economic growth and maybe some of the global uncertainties out there did you see it didn't sound like it with a record second quarter bookings number but.
Do you see any slowdown in new procurements or decision cycles.
Yes, I don't see I think Peter what has changed about our businesses.
Earlier everything has to work for us to hit our our booking numbers and now we are frankly across many geographies and many many industries. So this quarter for example in the first half we definitely toward Europe was slower right, but then the businesses in asset management here in the U S was better so I think it's balanced.
And if you think about Q2 it was really good compared to what we saw in Q2 of last year and we continue to see a good pipeline. We continue to see conversion, but there are some pockets I think which are slower than we would have expected in the beginning of the year.
Okay.
On my line.
Sandeep you cut out for almost the entire answer but maybe you can just check with the operator and see if you need to repeat that otherwise I'll get back in the queue.
Operator could you operator could you harriss.
Yes, I can hear you all loud and clear.
So Peter I can just repeat that really quickly.
What I think we were saying was that.
What has changed in our business over the last two years is that we have many different industries, we applied for <unk> and frankly, many different geographies.
And.
So really what's going on is that we don't need all of them to do to meet our bookings goals in.
In the first half of the year, we definitely toward Europe was slower than we had expected in the beginning of the year, but even with that Q2 was an outstanding quarter from a booking point of view.
Pipeline continues to be really strong we continue to see good conversion, we do expect Europe to set up.
To sum up a little bit and become a little faster but.
Yes, so overall the booking numbers are great.
In Q2, and the demand environment continues to be.
Sean.
Thank you.
Our next question comes from Michael <unk> with Wells Fargo. Please proceed.
Hi, Thanks for the question. This is Michael Berg on for Michael turn here I have a quick question going back to the revising of the pricing model.
Contract duration or just the renewal timeline changed at all I know you guys have the monthly I guess, we'll call. It renewal cycle based on how can we think about.
Some of those pieces of the pricing and contracting model.
Yes. So this is sandeep Michael Thank you for that question Michael approach has not changed at all but I do want to say that when we go to the larger clients, sometimes they will want a meaningfully longer term right. Obviously, there we are mission critical and sometimes they are desirous.
Of getting a longer term contract multiyear contract and in those cases, we will we will do it. So I don't think our approach has changed but as you have gone down and talk to clients about this this new model I do think we have seen more of that and we are continuing to be.
Thank you.
Responsive to it we obviously one price increases every year and just again, just what is normal best practice and I'm trying to do anything different but I do think philosophically, we have changed around wanting a fixed fee and.
More after that.
Got it that makes plenty of sense and one quick follow up how should we think about the mix of fixed versus.
Variable by the time you guys are.
Don converting all your customers to this new pricing model is it going to be it sounds like the vast majority of at least the first will be fixed but as we go forward in time.
And the AUM grows.
Will that will the variable piece become meaningful ever.
Yes. So this is we don't have a number for you yet but exactly the sentiment we think a vast majority of our revenue will become fixed with changes every year because of AUM growth or new modules or new servicing. So yes, we expect it to be much much less volatile based on quarterly.
And movements and things of that ilk.
Jimmy or items, yes.
Yes, I think thats.
To think about it is the way to think about it is it's 100%.
On all new clients going forward and then the metrics Sandeep shared.
Look at kind of our existing clients and obviously that takes longer to flow through.
To Pete's question was would there be some sort of a headwind because we have that normal tailwind from AUM expansion. Obviously as we go into these discussions we talked about kind of an annual price increase and thinking about that going forward.
And setting a strategy.
And we think its neutral on that.
Matt.
On a kind of historically.
Yes.
Got it got it thank you very much.
Thank you.
Thank you.
The next question comes from Brian Schwartz with Oppenheimer. Your line is open.
Yes, hi, thanks for taking my questions. This afternoon I have two.
One follow up on on the record <unk> bookings is it possible to provide more color on the segment performance between the insurance the core Brad.
Asset management that you saw in the quarter.
Sure I think in in in the second quarter the.
The insurance segment was particularly distinguished.
And in the first quarter the asset management segment was particularly distinguished as well, but so we're seeing a nice mix across kind of those two main segments.
Brian if I could add here so we did see.
And there was some significant large which we spoke about as well.
But earlier names so it isn't like we're just winning smaller clients or something of that no. We've had subsidiary which was a significant win we have so we did win.
<unk> high quality wins, we also won an.
<unk> in Asia, which continues to surprise us a little bit that we are winning this early in a cycle. There. So I think it was insurance was strong obviously like 15 times.
Thank you and then the one follow up question I had on the.
Revised pricing model, Jim does the invoicing change and the revised model can you share how youre planning to invoice now that youre going to go to annual contracts.
So I think we're sticking with.
Monthly except for the very small clients, where we would pivot to annual in advance but in general you should think of it as the same invoicing model that we've had.
Thank you.
Thank you.
The next question comes from Rich Valera with RBC.
Please proceed.
Alright, I think Thats me this is Richard Deloria from RBC.
Thanks for taking my questions.
Two for you first I wanted to go back to maybe the changes in the pricing model.
That youre discussing I guess number one what has been initial feedback as you've talked to new customers with that as well as I'm sure you've had early conversations with existing customers generally what that's looked like and maybe alongside that.
When we think about your historical AUM growth rate like it was up nearly 30%.
2000, and 2021 now it's obviously on the other side, it's down about 10% year over year relative to last year, but typically if we think about that 30% number how much of the growth in AUR has been from new net new assets coming on versus just the return in the assets and then I've got a follow up.
Yes, the vast majority of that 30% growth is net new assets in the fund flows into our asset management clients as well as adding new clients right and the assets that those new clients are bringing on that's the vast majority we've historically talked about the AUR expansion being.
That that tailwind of 2% to 3%.
Got it okay.
Helpful and just in terms of feedback question.
Yes, I don't want to say that for new clients as we roll this out.
Really we've had very little resistance to that obviously when you go back to the largest clients current clients and you want to redo the contract that is a more that's a longer conversation that isn't that you could walk into these large institutions and just say, let's have a new contract and you get it tomorrow. It doesn't work like that as you can imagine so and thats.
Why we have laid out a plan, where we will get this done over the next two quarters, but I do think it's been very cooperative.
It makes sense right I think this is how <unk>.
Clients will also wanted and so we haven't faced resistance.
At all I would say, but it does take time I don't want to make it think that everything is going to get done in the next month or two it does take time.
Okay, Great that's helpful and then.
Quick follow up.
I look at your SBC right. It does feel a little high at at a shade over 20% of revenue dilution.
Hard to normalize given the recent IPO.
A little high.
Lastly, given you have a lot of employees out in Boise and talking about overseas expansion in Edinburgh.
Where you don't have people, who are quite hungry for options and <unk> like they are in the Bay area.
Maybe can you help us understand.
Philosophically, how youre thinking about stock comp and maybe how we should be thinking about stock comp and dilution over time. Thank you.
Sure sure. Thanks.
So I think.
Just to remind you stock comp is.
Was impacted somewhat by the modifications and the work we did in conjunction with going public. So we're working through kind of a little bit of that that bump.
<unk>.
And so as we look to the future we see stock based compensation as a percentage of revenue going down over time.
Having said that right I think when we spend time with our compensation consultant and we look at our peers, where we are in the middle of our peers perhaps.
In your data a little bit higher depending on the peer group that you are looking at.
But I think that our dilution goal is consistent with what we've said in the past.
And very consistent with our peers and as this business scales at 20% plus over time.
That that SBC number obviously would naturally tapered.
Taper down.
But I do think that's important to point out that we arent tend to do anything strange.
We have a set of peer group similar size somewhat similar profitability and the compensation committee looks at that whole group and we try and come up with a median number which is which.
Which we think is fair and that we expect that to be our approach, but like Jim said as you get.
These onetime unnatural things from IPO and all of that it should continue to trend down as the revenue grows.
Alright got it. Thank you very helpful guys.
Thank you.
Thank you.
The next question comes from Neil Mehta.
Michael Rake with William Blair. Your line is open.
Hey, Thank you for taking my questions.
Another one on the pricing can you maybe provide some more detail on how you're incentivizing existing customers to transition to the new model, especially the wave three that may have more leverage and given your high gross retention in the recent inflation. We've seen do you see potential to maybe raise asps as you make this change or should we expect the average effective.
Customer spend relatively.
Relatively flat relative to the prior model.
Yes. Thank you can we use the term.
I know, we should have done perhaps a better job of explaining this look.
It could just be very blunt, it's good for our clients and it's good for us.
It doesn't do anyone any good.
<unk>.
The fees continues to go down while this inflation at the rest of it is just not helpful. At all.
Our ability to invest in R&D.
Hopeful and ability to.
Do good things from the operating point of view.
That's exactly the conversation we have with our clients. So we go to them and say.
In January of fees was whatever it was.
And what can't happen is that that continues to trend down.
And costs go up.
It's not good for the business. So I don't think we think of it as <unk> III clients have more leverage I think we have equal leverage we are trying to do the right thing for our clients and provide a high quality business.
The high quality service and so I've got to tell you that.
Clients are being <unk>.
Very partnership oriented in it.
If I can.
There was a budgeted for it in that way I mean, obviously no one budgeted a decline starting of the year and said you know my technology fees are going to go down. So I would say that there is also room to make this work and so and that's how we view it we view it as trying to come up with a number which is which is.
Which is indicative of the work we provide and that's exactly the nature of conversation we have it isn't about hey, we want to do a price increase.
How we approach it.
That makes sense.
Yes, that's very helpful. I appreciate all the color you provided on here.
If I could just follow up on the free cash flow, it's nice to see the uptick in the quarter.
How should we think about the pace of free cash flow margin expansion longer term is that just primarily driven by scale or are there other catalyst that we should watch out for in coming years.
I think when you look back historically, there was a lot of noise in the in the year, we went public on our on our free cash flow numbers and.
And various transactions that went through with that.
We think about it is is we're kind of targeting throughout the year.
About 70%.
Our EBITDA converting to free cash flow, obviously, we were much higher than that in Q2 and and so we'll continue to monitor that but as you think about certain seasonal ebbs and flows throughout the four quarters of the year I think targeting that and so.
So as you think about okay, what's our revenue growth, what's our what's our EBIT margin growth and then and then how do we think about the free cash flow conversion of that.
Okay. That's helpful. Thanks again.
Thank you.
Next question comes from James Faucette with Morgan Stanley . Your line is open.
Thank you very much and thanks for all the questions.
I want to go back to the <unk>.
Joseph.
Pricing model and I know a lot of the focus has been on customer receptivity et cetera, and thats understandable, but.
How should we think about.
That change impacting your long term growth algorithm, if you don't.
It seems like this would compromise the ability to get kind of a natural 2% to 3% tailwind from a unit.
Accretion that you historically have got.
Yes, James Thank you for the question, but we don't think that James So if you just walk through the logic of it. What we are seeing is there is a fixed fee for the current portfolio.
As your portfolio grows the fees will go up right in somewhat not exactly in propulsion, but with some on some.
Ability to grow that.
Second thing that we're thinking about is the module so as to not charge separately for we will be able to charge for that so that is the second leg of that and again there is no resistance from clients. If you say you want to use this module you should pay us differentially for it. So we see that the third thing is when you have a fixed fee, it's a little bit easier to say.
Okay. This should be a price increase every year, which is consistent with inflation of 4% or some number like that and you will recall that we used to.
We reasonably defensive about that in the past because it was going up and down with AUM right, but when you have a fixed fee. If I came to you and said look there is inflation of 5% and 7% and we want to increase your rates by 4% or 5% whatever that number is I don't think LTE resistance. So what I think what you will get is very similar.
Tailwind, but you will get much better predictability, one and secondly on sub getting asked this question every time.
Have you or frankly any of our investors. The one question is hey is this going to go up this quarter down this quarter. So we literally get past that and I feel and the last point I'll make is that from January the downdraft, Jim talked about which was a 3% decline this quarter, a 2% decline in the quarter before that.
We hope to.
We hope to cover.
Some significant portion of that.
This exercise.
Understood and then I guess as a as.
The metric to kind of measure customer engagement and <unk>.
As a way to forecast.
Business a lot of us rely on <unk> and obviously those have come down over the last couple of quarters, but I'm wondering how should we think about like where the floor is on that metric and how to price these pricing dynamics.
Fit into that and.
I guess the real question is how quickly do you think we can return to the historical levels of 111, 112%.
Especially given the relative.
The contribution between the price changes for some uplift.
Yeah.
Great question James.
So I think.
104, we were obviously not.
Not happy with that number but there are things to be happy about within that number.
First of all it's growing right that means really same store sales with those existing clients is up 4% year over year.
And when you look at the components that make up that change.
The entirety of the change from Q1 to Q2.
What was this AUM headwind of 3% down from 107 to 104 that that was really just.
AUM changes there all of our Upsells all of our churn all of our kind of our net upsells all of that.
Hi.
Very much in line.
Where could it go I think.
Obviously, when you think about Annualizing right. This is the same store sales metrics. So when you look to annualize kind of September 30.
<unk>.
2021 in September 32022.
The markets were up from June to September of last year.
So.
We're hopeful that the markets will be up and in this half and that we see obviously positive impact.
Hi.
From these commercial contract changes, but I think that if you just look at the math there is a natural headwind to that.
Next quarter.
But Jim if I can just add this is suddenly but I think this is exactly what we don't want.
We should be discussing for example, our core business and what we are winning and the strength of that competitively, but correctly and I'm not.
Correctly, we discuss spend a lot of time on NR and once you're finished with this exercise, which we expect to get done by the end of the year, then I feel that will be a much stabler number and we can talk about it as somewhat unit directionally because it will not be that impacted by the markets right and then we would be able to say and as Jim said for.
Example, churn this quarter was down so churn was better onboarding clients faster and so when you think about the business itself. The business has done really well and correctly, but we are talking about a 2% decline in 5% decline, which is too so I'm not faulting it but what we're hoping is this.
So size of.
Changing how we.
Commercially work with us with our clients will provide us with the ability to focus all of our energies on.
Doing the right things for the business.
That's great color. Thank you gentlemen.
Thank you. Thank you James.
Yeah.
Thank you.
The next question comes from Gabrielle aboard gorgeous with Goldman Sachs. Please proceed.
Hi, good afternoon. Thanks for taking my questions I wanted to ask about this concept is tightened to value wherein the feedback weekend Clearwater is this a significant ROI from being an.
Implemented.
And so I left off he sandeep how are you seeing sales cycles trend. How are you seeing implementation cycles trend are there any incremental things you can do in your control attack shorten the time to value for your confidence.
Thank you really appreciate it.
I do think that's one of the biggest thing we sell is how long does it take to recover and investment in Clearwater, obviously it depends on the business, but we think it is export sometimes as full months. So if you make an investment we feel the return is the other way on that is really a four month cycle, but I do think that.
We haven't seen a lot of change in sales cycles.
It does it sounds like we are.
Isn't that RFP driven as you can imagine it is us instigating the rfps very often so we haven't seen a change in.
At least in the United States and that I did point out I think in Europe , we did definitely saw.
Elongated sales cycles in the first half of the year, we still did booking very well because the U S sort of outperformed what we thought we would Asia outperformed a little bit. So I don't I don't think that at a broad level, we see that one other point I would point out is that competitively I think the market has improved for us.
We obviously compete with a number of vendors.
When you think about.
The difficulty of doing accounting.
And the intricacies of doing accounting at this level, we have definitely found a little softening in the competitive environment. So that's something you're sort of happy about and frankly looking to push.
That's helpful. Thank you and the follow up is for Jim a little bit of color on the pockets of slowdown youre going to turn a little bit of a pricing transition that business at least as an analyst feels a little harder to predict in the near term we'd love to hear is there any change in your approach to guidance as it relates to DRAM.
Some of these factors in the second half, particularly around the pipeline of fever logos and maybe the cadence of the pricing transition.
So I think what I and thanks, Gabriella I think as we are.
As we evaluated the second half guidance, we took as a baseline the AUM levels that we had as of.
June , which obviously had come down throughout that period that would be.
We've made.
I changed John .
<unk>.
Yes.
I would say that we continue to be their pipelines look good we feel very bullish about that we feel good about our teams ability to onboard and.
None none of those aspects have changed.
Had that the Onboarding time, the amount of time taken has definitely improved so we track something called <unk>.
Bnb metric, which is our book not billed metric and that's doing really well. So I think as people have come back into offices.
Everything isn't only through zoom and I think that is definitely improved so again.
Core business I think continues to do really well and as you know.
Isn't so much you can do about.
<unk> declined except to turn the contracts and Thats, what we are doing we've had enough of waiting and being.
Being affected by this.
The market is taking it up and taking it down even though the three and 5% it matters and we spend energy watching that and doing something but not doing nothing about it and thats why we stopped we said, let's go out do the contracts, that's why I talk to our clients and make the changes and we are well on our way to do that.
Thank you for the color.
Thank you.
The next question comes from Noah Herman.
J P. Morgan your line is open.
Hi, Thanks, taking the question I appreciate it can you maybe.
Operator.
What's changed in the environment.
Okay.
So again.
How should we also think about the seasonality of revenue and bookings both near term and long term given the new pricing model. Thanks.
Sure I think I think just to repeat the question you broke up just a little bit for us maybe not for everyone else.
I think I think you're asking about the relative competitive environment do you want to do you want to start with I think we feel.
Incrementally better about that and then the seasonality.
Bookings and revenue, let me take let me take revenue really quick obviously with such a high recurring revenue. We we kind of continue to see that flowing through bookings has a tendency to.
Has natural.
Cadences around around the timing of business and we would expect to see bookings continued to accelerate throughout the end of the year, that's just kind of the seasonality.
Sometimes I feel that shouldn't say that but what is going to be something that helps us because clients want to see the portfolio is more often.
<unk> defined the the price of owning legacy technologies goes up.
Because you can get the data and trying to get with the speed at which you would like so.
So I do feel if we look at.
Legal and general Utica suddenly.
Those really excited to welcome them onto our platform.
Away from legacy technologies, and have a higher ability to respond and so I think it does help us, but I don't think.
We have seen anything whilst two different weather in Q1 or Q2 compared to past years I do think with data.
Section of Europe that you pointed out, but interestingly right to talk about the demand environment, we had a client event.
In Europe , where we had over 100 clients.
So there is interest there is demand there obviously things are a little more complicated in Europe right now but.
The tailwind of our differentiated product and.
Relative competitive abilities I think Jim is right I think the pipeline, especially for Europe right now is.
Really really good for each two so yes, I would just do that.
Just as a bit of a timing change though.
Great. Thank you so much.
Thank you Paul.
Thank you.
Our next question comes from John Kim with loop capital.
Mark Thank you Jim.
Okay. Thanks, Hey, Tom Jim obviously, a lot of questions on pricing change.
Theoretically thank you.
Could be a lot of near term uncertainty.
The business and obviously the revenue flow.
Can give us a little bit more insight into.
How you are able to get to your top line guidance specifically.
You really didn't expand the top line guidance range remains at only about $2 million range for the year does that imply that though.
I think model change is fairly predictable from your perspective.
Just trying to understand if the pricing model change could introduce additional variability.
Topline, but your guidance suggests otherwise.
Yes, I think that.
Obviously, we are introducing.
This pricing model change to minimize the variability within our.
Revenue and really focus on those core underlying drivers.
And I think we continue to feel obviously this is a very <unk>.
Terrible predictable strong business and our guidance.
Flex our confidence in it.
If I can just add some detail look I think the current contracts are still there. Its just that we don't want to see a 1% 2% movement.
And so we're going to clients and trying to change the contract for it but they don't change.
Our revenue expectation except for the better.
In the second half of the question is how quickly we can get that done.
That is what I think it is but it sounds like we are going and saying Hey, let's talk about something completely new and we're doing that work today. So I don't I don't think it introduces uncertainty I think what we're trying to do is reduce volatility.
But I don't think.
It changes what we do for them on a day to day basis, and how they use our platform.
Today basis, nothing nothing changes in that rate.
Okay that helps a lot.
And then just a quickly changing the topic of away from the.
Pricing model change if you can.
Talk about Sandeep on the progress you're making in Europe in regard to new customer acquisitions, Dara and you've kind of said things were good but at the same time.
The sales cycle lengthening for its half of the year can you just talk about the overall business in Europe and.
Any change to the investment levels that youre, making into that region.
Yes, Thank you again.
In Europe as you know we have set up a full infrastructure. So this isn't just let's go sell in Europe , we have a really strong team and Scott.
Scotland in Edinburgh, we have a team out of London.
Came out of in France in Paris, and then Frankfurt, Germany.
We also have a full marketing effort there product management effort. There. So I don't want everyone to just sort of understand that this is a concerted effort into Europe , Europe did really well last year, but I do think in sort of.
Third fourth fifth month of the first half of this year things became the sales cycles became elongated but I do think as we speak right now two things happened was we did do a client event there Richard <unk>, Jim spoke with them literally 100 clients showed up for it. So the interest was really high.
The engagement was really high and as a result of that the pipeline. We have right now in Europe is really really strong, but whether it's Troy, yes, it was and.
So that's how we think about it I don't think anything changed in the proposition, but I do think that.
It slowed down just a little bit at that time.
Yes.
Okay, great. Thank you so much.
Okay.
Thank you.
I will now pass it back to the management team for any closing remarks.
I just wanted to say thank you all.
For your continued confidence and I think we are building something special and we appreciate your attention to us. Thank you very much.
Thanks.
Okay.
Yeah.
This concludes the Clearwater analytics second quarter earnings Conference call. Thank you for your participation you may now disconnect your line.