Q4 2022 Clearwater Analytics Holdings Inc Earnings Call
$16 6 million.
In this quarter.
And in the last 100 days of 2022.
Two more of the 20 largest insurers in North America chose to move to the Clearwater platform.
That I hope you'll agree is very compelling execution.
Looking back at the year I could not be more proud of our team.
As all of you know like other fintech firms, we faced headwinds throughout the year.
And I believe the urgency.
And effectiveness with which we reacted and executed.
It was very strong.
And we did just address the challenges we faced.
In fact, we made our business stronger and more resilient.
By working with our customers to craft a modified commercial market.
Given what we accomplished in 2022.
We have renewed confidence that our overall plan.
Our commitment to building disruptive technology.
Product strategy.
And our customer centric approach will stand the test of time.
Let's dig a little deeper into the fundamentals of the business.
When we completed our IPO in September 2021, we laid out five pillars to guidance let.
And we continued to build upon them throughout 2022.
Given the view here.
We wanted to provide an update on those pillars, which are largely unchanged.
Pillar number one is consistent reliable and durable growth.
This is the first pillar for very good reason.
We want an ever increasing number of clients to choose our platform and for those who are already on our platform, we want them to grow.
Consistency and predictability in our growth is important.
So our ability to invest in.
In the medium and long term.
Our Q4 revenue was $82 7 million.
And full year revenue was $303 4 million, which represented year over year growth of 24%.
This accomplishment in a turbulent and challenging time is testament.
To the resiliency of our business.
And the ability of the team to navigate challenges as they arise.
With strong bookings in Q4.
Bookings for the year 2022 exceeded the budget, we had laid out in the beginning of the year.
That allows us to look forward to 2023 with confidence in our plants.
And we expect to deliver another year of 19% to 20% growth.
We continue to watch the economy and the market conditions.
And we'll remain vigilant and agile in our response.
More specifically, we will look to our bookings to guide our continued investments.
Pillar number two is a sizable total addressable market.
We have always approached the sizing of the market opportunity.
With a lot of rigor.
Our GPM investments are determined by it.
We have built a detailed view of our Tam by market.
Some markets and geographies and have previously communicated a market opportunity of $10 billion plus and.
In addition to using our own teams so valid validate this on a continuous basis.
We work with leading consulting firms to further validate.
And refine this estimate.
Most importantly.
They help us define areas for Tam expansion.
It is easy to be content with the long runway, we have in our current markets.
But our ongoing investments in R&D.
Is it a service of finding adjacencies that can continue to enhance at them on an ongoing basis.
An example of actions related to this effort is our acquisition of jumped technology.
Not only does it double.
Our European presence it also enhances our Tam by $1 billion by allowing us.
Two Delaware front office systems, including <unk>.
Order in portfolio management to current and new clients.
157, new logos went live on our platform.
In calendar year 2022.
And as proof.
Our ability to capture them.
In addition to the two large insurers we spoke about earlier.
Our new customer wins from Q4 include.
Adventist Health system.
There are many advisors Homestead Advisors Corp.
Media investment management.
Peyton and regional.
Robinson capital management.
And West cap management, just to name a few.
Geographically, we are encouraged with our early continued successes in Asia, and then Q4, we signed a wireless investments in Singapore.
<unk> insurance in pilot and BT assurances MSI AG in Indonesia. These.
These organizations joined a growing group of clients in Asia and Australia.
And the majority of these cases, we continue to replace legacy solutions and trying to get a daily reconcile comprehensive view of the portfolio.
Across asset classes and geographies.
This is where our third pillar Carlson, our competitive next generation platform with deep competitive moats.
Across the industry investment and operations teams.
Face real challenges.
When the Delaware to the businesses, that's just a fact.
They have to deal with multiple systems that are narrowly focused on a given geography.
But given asset plus order business function like risk.
And they have to bring all that together for the business, who want to see a comprehensive view of the assets.
Then there is data quality.
They have to ingest and reconcile and keep track of ever changing regulations and regulatory reporting requirements.
Operations team need to manage all of that.
And deliver on time.
Our single instance, multi tenant architecture is truly the next generation technology.
That has been proven.
Upstream after industry.
The value of the single instance architecture results.
In a constantly updated software platform that keeps pace with changes in accounting and regulations.
Creating the need for costly and time consuming upgrades.
Clients no longer need to watch the tens of thousands of regulatory alerts that come out every year.
It is simply rely on Taylor I was talking to a client recently, who left the competitor join us and ask why.
They said they have been following a regulation and compliance advice for years.
So they came to the conclusion that they would benefit from it being baked into our software.
Multi tenancy is changing the data quality landscape.
Our platform fosters a network effect that allows for the highest data quality.
Instead of each clients, having to ingest and reconcile their own data.
We do it once for everyone.
But we are not content or complacent about our position.
We continue to invest in our product to further deepen our competitive moat.
In 2022.
We invested 25% of revenue in R&D.
And plan to continue this level of investment in 2023 before moderating in.
In subsequent years.
Moving to our fourth pillar expanded product offering.
We believe that the continued and sustained investment in R&D.
Allows us to bring additional products to market.
When we first met us.
Clearwater was predominantly a single product company.
But that has and will continue to evolve.
As we build a best in class commercial model.
Today, we offer multiple adjacent products.
It can be used independently of Clearwater core.
They were a prism continues to get greater market acceptance.
Clearwater jumped Oems Pms for order and portfolio management.
Clearwater jump for the full investment management lifecycle.
And we offer add on modules.
Which can be used alongside <unk>.
They work for.
Clearwater LPX.
The award of LPX clarity.
Clearwater performance plus.
Clearwater unit linked funds.
Let's take them one by one.
Starting with <unk>.
We are proud to announce that in Q4.
Two of our largest clients nationwide and JP Morgan asset management chose to use treated water.
The Clearwater platform combined with Clearwater prism aggregate data and performance of series of calculations.
And data validation.
And generates reports that allowed JP Morgan asset management to comply with the daily regulatory reporting obligations.
We are also excited to share that we have signed our first significant seven figure prison deal in Europe .
Expanding our offering for one of our largest clients.
This client will be able to use prism to generate reporting for the end clients.
Representing over $290 billion in Asia.
AUM.
Next is jump.
As you will recall, we closed the jump acquisition in November of 2022.
In December we sold the jump <unk> platform to Luxembourg based insurance provider cottage luxury.
This key new client win.
Demonstrates that the combination of jump and Clearwater constitutes an attractive offering to the European asset management market.
We look forward to supporting Cardiff lack suite.
With the investment performance regulatory compliance and reporting needs.
We also expect additional customers in our core markets.
To be attracted to our combined product offering.
In addition to jumped standalone offerings, we have integrated Clearwater and jumps development and product teams for defined products.
So that we can offer integrated solutions for unit linked funds and then enhanced.
Feature rich performance module to existing Clearwater clients, which brings us back to adjacent products like Clearwater Lps.
Bill what Lps are product focused on limited partnerships.
Is being well received and gaining traction with both existing clients and.
And net new logos in the market.
We added more than 40 clients to the Clearwater LPX offering in 2022.
As you can tell by its rising popularity. The solution has been selected because it helps organizations dig deep into their private equity investments providing them the visibility they need.
To understand long term returns.
Clearwater LPX clarity.
It takes it one step further to convert unstructured data to structured data to.
To provide our clients front office teams with.
With underlying portfolio exposure and walk throughs.
Including investment and risk analytics.
Prism was our first adjacent product.
It is now starting to deliver meaningful bookings and revenue.
We similarly expect our other expanded product offerings to create increasingly higher impact in 2023 and beyond.
The fifth and final Belo has clear waters client centric approach.
The ultimate value of analytics platform in the value we deliver to clients.
The impact this has on the business and overall client delight.
In Q4, we once again received an NPS score in excess of 60%.
That is simply the best in the industry.
We work hard to ensure that our tech and our global teams are working towards a singular goal.
With client delight.
Truly client satisfaction at the heart of everything that we do.
In Q4 as a testament to this fact Clearwater won numerous awards.
The tech provider of the year Award for Excellence from Insurance Asia News.
The best Reg Tech solution from insurance post.
And the technology firm of the year from insurance asset management.
These honors acknowledged the profound impact here what is having on our clients' investment operations in the U S Europe and.
The Asia Pacific region.
We are happy to report that Clearwater, CMO and CSIRO. Both won awards for the leadership in marketing and HR innovation, respectively.
Now looking forward many of you might ask how we expect macroeconomic conditions to impact our business.
We are not reacting by laying people off.
Rather we are growing in line with our business.
We are not cutting corners in R&D.
Rather we are consistently investing.
We are not afraid to expand geographically or.
Through acquisition.
But rest assured we are watchful of the economy and the markets.
We will be led by bookings.
And not by economic forecasts about what might or might not happen in the coming quarters.
We stand steadfast on our pillars.
Consistent reliable durable growth.
Focus on Tam.
Enhancing our SaaS platform.
Innovating our product offering.
And dedication to clients.
Little has changed in our philosophy approach our culture.
Except that after a rather in 2022.
We have proven our resiliency and therefore have even higher conviction.
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 fourth quarter and full year financial performance as.
As well as updated guidance for our fourth quarter and full year 2023.
Thanks Sandeep.
And thank all of you for joining us it is rewarding to report our Q4 and full year 2022 results.
I plan to spend our time summarizing a few items from our Q4 results.
And then explain the financial impact of the jump acquisition, which closed on November 30.
The tax receivable agreement or TRA expense.
Update you on our continued progress of our transition to the base plus model.
And then conclude by providing color on our 2023 guidance.
Please note that our results will be discussed on a non-GAAP or adjusted basis and include the results of John since the acquisition unless otherwise noted.
Turning to Q4 and 2022 result.
Let me start with the topline and the metrics that drive revenue.
In 2022 were especially proud to have delivered.
<unk>, 0.4% year on year revenue growth in an otherwise challenging market environment.
Q4 revenue was $82 7 million.
Full year 2022 revenue was $303 4 million.
Q4 revenue included $2 7 million of revenue from jump in December .
Which was roughly one $5 million higher than we expected when we provided our Q4 guidance.
Jumps revenue included a perpetual license agreement with Carty Lux fee.
Which closed in December .
We were happy to see that the combination of Clearwater scale and jumped functionality achieved such success.
With a large European client so quickly.
Annualized recurring revenue or IRR at the end of December 2022.
Plus $323 5 million and included.
$6 4 million of <unk> related to the jump acquisition.
The insurance vertical comprises 52% of IRR.
Asset management vertical comprised of 33%.
With corporate Gov.
Government and other entities comprising 15% of IRR on December 31.
2022.
As of December 31, 2022.
The Clearwater platform processes and reports on 6.4 trillion dollars.
In assets daily.
Up from the five nine trillion at the end of 2021.
This increase reflects business growth from new clients and existing clients that more than offset the.
The market declined from lower equity in fixed income prices.
Cost by the significant increases in interest rates throughout 2022.
The bedrock of our business continues to be our client focused approach, which has led to best in class customer satisfaction.
And an industry, leading 98% gross revenue retention for the 16th straight quarter.
In the fourth quarter net revenue retention increased to 106%.
A nice uptick.
From the bottom we predicted in Q3 of.
103%.
The 106% net revenue retention shows the positive impact our commercial model transition has had on our business.
Let me highlight more in relation to our commercial model transition.
As a reminder, we have historically charged our clients see primarily based on the asset say manage on our platform.
Subject to contracted minimums.
A significant majority of the assets on the platform are high grade fixed income assets, which had historically led to very low levels of volatility and predictable revenue streams.
With the significant market volatility in both equity and fixed income in the first half of 2022.
We evaluated our commercial model.
We transitioned our contracting structure to a framework, we now describe at base plant.
Our base plus contract framework includes a base fee for prospective clients existing book of business.
An incremental fee for increases in assets on the platform.
The base plus model includes annual increases in the base fee.
And enables us to charge additional fees for supplemental services or additional products should the client subsequently select to utilize those services.
This base plus structure has the effect of limiting the downside volatility in our asset based fees.
I am happy to share that since July .
100% of our new clients with contracts greater than $500000 in expected annual revenue.
Are using the.
The base plus commercial model.
We also made significant progress with the commercial terms across our existing client portfolio.
In 2022.
Clients, representing 81% of IRR.
Either agreed to modify contracts.
Sure.
Increases in their existing basis point contracts.
This is precisely on target with our goals.
We simply would not be able to make these changes if we did not have exceptional client servicing.
And a market leading solution for these clients.
Going forward, we aim to have a vast majority of new customer contracts on the base plus model.
Additionally, we will continue to engage with the remaining clients to transition them to the base cost model.
Within one small portion of our client base we.
We do plan to maintain an AUM based pricing model.
Our largest asset management clients.
Historically relied on Clearwater to be an enabler of their growth.
For those clients.
NRI growth rates were consistently higher than our reported NRI.
For those clients, we will continue to focus on growing with those clients as their assets grow.
Now, let's turn to profitability.
We reported.
$81 1 million.
EBITA for the full year, 2022, and $24 3 million and EBITDA for Q4.
Which both exceeded the midpoint of our guidance by $1 6 million.
EBITDA margin was 26, 7% for the year, our first full year as a public company.
Q4, EBIT margins were 29, 4%.
As our better revenue performance.
Combined with a more cautious hiring approach resulted in a 60 basis point improvement.
Over that margin from Q4, 2021, which was our first full quarter as a public company.
Gross profit in the quarter was $62 $6 million and gross margin came in at 75 seven.
7%.
Gross margin continues to be resilient.
Even as we continue to execute on building operations for new client growth.
Including our investment in international markets, where we are onboarding clients in Singapore.
Hi, land, Hong Kong, Australia, Japan.
The U K.
And Netherlands to name a few.
Research and development expenses in the quarter were $21 million.
Or 24, 3% of revenue.
An increase of zero point $2 million from Q3.
Sales and marketing expenses in the quarter were $10 4 million or 12, 5% of revenue an increase of.
Zero to $2 million from Q3.
General administrative expenses in the quarter were $7 8 million or nine 4% of revenue a decrease of $600000 from Q3.
These strong results reflect our continuing focus on execution.
And efficiency, while also successfully integrating chunk.
Let's talk about junk.
After closing the jump acquisition on November 30.
We began the process of integrating chunk into Clearwater with the creation of joint teams to merge our development efforts and provide a single solution for a business function.
Like performance or regulatory reporting Sandeep described.
Jump doubles, our European presence with over 100 employees and ramped up our expansion efforts in Europe .
Extending our offerings to our existing clients as well as providing full investment lifecycle of functionality to the investment management industry.
We already have opportunities to enhance the performance reporting for current clients.
And add trade order management to their existing Clearwater solution.
We're also tremendously excited about a number of European prospects, where jump will be the solution for unit linked funds and Clearwater will be the solution for the rest of their investment book because this validates our acquisition hypothesis and shows the Esprit de Corps celebrate.
<unk> by the combined team.
Jonathan has historically been a perpetual license business and recorded their results under ifr at.
U S GAAP.
Throughout 2023 and.
In addition to merging the go to market teams and bringing their products to the cloud.
We also plan to harmonize jumps offering into a recurring revenue model consistent with Clearwater.
At year end jump had $6 4 million an IRR.
Given the joint selling motion the transition to U S GAAP and product integration.
We will generally not report jump assault separately.
As we migrate the jump business to a recurring revenue model we.
We expect the transition will reduce our overall EBITDA margins in the first half of 2023.
And then improve margins as new recurring revenues from Chung layer into the financials.
Since jamba is less than 10% of our overall cost structure. We continue to expect consolidated EBITDA margins to increase in 2023 compared to 2022.
Moving to the tax receivable agreement expense Youll.
Youll see that we incurred $5 9 million in tax receivable.
The agreement expense in Q4 and.
And $11 6 million for the year.
These expenses are incurred in lieu of tax expense.
When we utilized tax deductions.
Subject to our TRA.
Although we reported a GAAP pre tax loss.
We would have had taxable income in 2022, primarily because of the capitalization of R&D expenses and lower stock based compensation tax deductions.
Absent the up sea structure and tax receivable agreement we.
We estimate that the income tax expense.
Increased by $14 million.
The recording of the TRA expense did not impact operating cash flow in 2022.
However, we expect to have to pay the liability related to the 2022 expense in Q4 2023.
Let's turn to the balance sheet and cash flow.
We ended the quarter with $255 6 million in cash cash equivalents and short term investments and $55 million in total debt.
Resulting in net cash holdings of approximately $205 million.
Even with the jump acquisition in Q4, the ending cash cash equivalents and short term investments.
And 2022.
But still a million dollars higher than at the end of 2021.
Free cash flow for the fourth quarter was $16 $6 million, reflecting our conversion of EBITDA.
The free cash flow of 68% and included $1 9 million of capital expenditures.
Now, let's turn to guidance.
For most of 2020 to be hired in advance of our growth.
For 2023.
Plan to more tightly align our head count growth to our new business growth.
Therefore, we expect modest EBITDA margin expansion in 2023.
For the full year 2023, we expect revenue to be in the range of $361 million to $364 million.
<unk>, approximately 19% to 20% year over year growth.
We expect our adjusted EBITDA to be in the range of <unk> $97 million to $98 million, which is 20 basis points better than the 2022 adjusted EBITA margin.
For 2023.
Equity based compensation is expected to be approximately $80 million.
After 2023, we expect equity based compensation to decrease as a percentage of revenue.
Equity based compensation related to the jump acquisition is expected to be approximately $25 million.
Depreciation and amortization expense is expected to be approximately $9 million.
And our full year non-GAAP effective tax rate is expected to be 25%.
We project full year diluted non-GAAP share count to be approximately 255 million shares.
Focusing on guidance for the first quarter of 2023, we expect revenue to be $83 million and adjusted EBITDA to be $20 million in.
In Q1, we expect an adjusted EBITA margin of 24%.
This is impacted by the jump transition to recurring revenue.
Additionally, <unk>.
Annual Merit increases impact the Q1 EBITDA margin.
As in previous years, we expect to expand margins throughout the year in 2023.
Resulting in an expansion of EBITDA margin for the full year.
After a year of strong execution in 2022.
In 2023, we look forward to more of the same.
Winning new logos expanding with existing logos.
Integrating jumped into our further growth plans with that I'll turn it over to sandy to provide some closing thoughts.
Thank you Jim.
We appreciate your interest in Clearwater analytics.
Despite some of the pressures that came with an uncertain market environment.
22 was our strongest year on record and we ended with great momentum capturing impressive client wins across the globe and demonstrating just how resilient. We are as a business. We enter 2023 with renewed confidence in our ability to capture more Tam.
Displace legacy vendors.
To drive R&D and technology innovation.
And deliver greater value and growth opportunities to our clients.
As always we remain relentlessly focused on our clients' long term success.
Supporting them as they benefit from our technologies powerful network effect.
With that let me turn it over to the operator for questions.
Absolutely.
We will now begin the Q&A session, if you'd like to ask a question. Please press star followed by one on your Touchtone keypad.
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Again to ask a question press star one.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
We will pause briefly to allow questions to generate in Q.
The first question is from the line of Rishi <unk> with RBC you May proceed.
Oh wonderful thanks, Dan. Thanks, so much for taking my questions and nice to see continued resilience in the business I want to start by the outlook for next year, I mean really impressive numbers, maybe two two points on that number one can you really help us understand what what is giving you the confidence in <unk>.
What is playing out as acceleration relative to the IRR growth that you just put up in Q4.
And alongside that.
I know Sandeep, you had mentioned youre going to invest depending on based on what you're seeing your bookings and not on macro assumption, but as we think about the guidance that you gave us for 2023 are you kind of assuming that macro stays the same that it improves in the back half of the year any sense would be helpful. And then I've got a quick follow up.
Yeah.
Richard Thank you for the question before I begin I did want to say that we sort of went on for quite a bit they're kind of like 37 minutes, but there was just so much to cover we thought it would be helpful to get that out there. So that we can proactively answer some of that.
Just to your question I do think that when you look at our business.
It was a really good sense of the Iraq.
And then you have.
Net or gross revenue retention of 98.
So the ability to forecast that is actually quite high.
And the second element is bookings have done in the last six months.
When you look at that we have a really good understanding of what revenue will come about from that booking obviously that booking builds up through the year, but we know exactly what the project plans are and how that bookings sort of translates to revenue and Thats why when you hear Jim <unk> talked we always say vehicle.
Bookings guide our investments not revenue.
Because bookings is really for us the forward indicators. So that's how we think about it I did also want to make one other point there is.
Hello, Richard last year was hard, but if you go back to February of last year.
Looking at our revenue guidance from last year, it was $302 million to $304 million last.
Last year with all of the challenges we faced we delivered 303 four.
If you look at the EBITDA guidance, we gave in the beginning of last year. It was 80 to $82 $82 million.
So go back Illiquidity, Delaware 81, one so I do think this model works really well and frankly.
There is we thought we would do better than the numbers, we guided to but all of the headwinds we face we still delivered the guidance. So we feel really strongly about what we can do and our current plans sort of assumes.
That the macroeconomic condition is not going to improve very much but it won't get a whole lot worse like it did last year as last year, we felt the interest rate.
Greece was a dramatic we don't expect dramatic increases, but we do expect continued increases in interest rates. We also assume that inflation is not going to abate and as those happen those will be a nice tailwind to further up it's Jim again.
Great.
<unk>.
I know you said you had a follow up with you on us.
So I started my apologies yeah.
Yes, just a very quick follow up so when I look at the guidance right. Your I appreciate that your guide that to stock based compensation and stripping out jump it looks like actually SBC in dollar terms, it's going to come down as well as a percent of revenue and you got into kind of a low level of that dilution, which I think it was great to see in this sort of environment can you just speak.
Really quickly to what are kind of.
The drivers of that and maybe what you've done internally and philosophically.
Bring that level down to a more normalized level. Thank you.
Yeah, I think that.
The key metric to look at is when you look at the diluted share count year over year, it's flat right that non-GAAP $2 52.
Stayed consistent so there really hasnt been any dilution.
Through that as we think about stock based compensation, we've obviously isolated.
He jumped portion of that that was Avi all considered as part of kind of that business combination, but they need to earn that over time and so that's why it's going through compensation.
For the stock based compensation related to Clearwater and our guide for this year it reflects kind of.
The additional awards in this year that are going to be granted cross and we feel like we're really well set across the organization to get everyone locked.
Locked in.
And really committed to drive for the next.
Extended period of time, and obviously, when you're growing 20%, 20% plus you continue to grow through.
Those numbers that we're trying to keep flat and static and.
And therefore, we would have kind of.
Increasing leverage as a percentage of.
Revenues.
Our stock based comp expense.
Again, we looked at.
We sat down with our compensation consultants and look to see what our all our peers doing and where do we sit and we're incredibly comfortable with where we're landing relative to our peers and given how we performed last year we feel.
Very very good about that tradeoff for shareholders.
Wonderful. Thank you so much guys.
Thank you so on attrition.
Thank you. The next question is from the line of James Faucette with Morgan Stanley You May proceed.
Hi, guys, it's Michael on for James I Appreciate you taking our question.
I appreciate the color you provided on the standard the standalone modules in their relative adoption.
I was hoping you could give us some incremental color on some of the prism. One specifically I know you mentioned J P M as well as another seven figure deal, but is there any directional color you could provide us in terms of the ACB expansion you saw in both of those prism deals.
Hey, Michael Thank you for the question. The Prism was the first product we went out with and so these wins that both JP Morgan and a nationwide are really really significant. So the question is what are the primary use case right. So in the first case.
The situation was there was a client reporting needs, which had to be done on a daily basis.
And they have to bring together data from many spots and bring it altogether merger.
And deliver that on a daily basis on time.
And this is just hard to do when you're trying to do that manually or home routines.
What prism doses brings data from various sources blueprint together in.
<unk> does the calculations and provides that report.
Two the regulatory body on a daily basis. So that is one one way to use prism.
Other one was really about AOR combination.
So you have accounting systems of various kinds some unclear what are some not.
And the question is how do you get a comprehensive view of all of your assets.
And presumably be able to do that.
No I think the interesting thing for US is Michael that initially we were seeing presumably yields of 300 $200000.
And we have now seen deals off of in excess of $1 billion.
And just one in Europe , we just announced we talked about today in the corn, so we feel like.
You have presume, which has become more of a.
Growing product with significant impact on both bookings and.
The rest of the products, which you have talked about them more in the infancy. If you will and so those will take time before they start to deliver in 2003 and in 2000.
23% in 2024.
Great that's really helpful.
Maybe on pricing how should we think about the difference in the economics between the customers who are adopting the base plus model versus those who are now commanding or those who are now adopting a higher take rate I'm, just trying to sort of understand the longer term impact of some of the potential resistance from your wave.
III customers to sort of transition to that new model fully.
Yes, so the way we think about it in the way the numbers are playing out is that the base plus model.
It doesn't necessarily impact our NRI number overall it just takes the volatility out that downside volatility out.
And so as we as we kind of.
The adoption with all of our new clients has been fantastic. When we went reflected and saw that 100%.
Of all of our large contracts in the second half of the year, where on the base plus model. It made us feel terrific about.
Just how this resonates and makes sense to all of our clients.
For for those larger strategic asset managers, who who we are growing.
As I mentioned, they typically had higher NRI right.
Then kind of what we had typically reported and so.
We also have a go to market model with those folks, where we're actively helping them source and grow their businesses and so from that perspective. It just made sense to continue to align with that.
So I would say that to finally get around to answering your question.
Im not sure that the contracting model impacts that NR or that take rate and it's more about the use case to the customers.
And as we drive that so as we think about how do we really aspirational you think about moving net revenue retention too.
$1 15, right, let's just let's just throw that out as kind of an aspirational number.
Yes.
The base plus model doesn't necessarily get us there the base plus model.
We feel like this one or six that we ripped.
As reported in the fourth quarter is really reflective of our current business environment.
And kind of the current business.
To move to that 115 is really about getting more leverage out of.
Adding on additional products and increasing that take rate.
Sandeep just spoke about prism.
And all of the jump modules or the path that will take time that is a multiyear project, but that's clearly a really important.
Goal for the company and most importantly, it's what our clients are asking for and what they want to do more with us and and so we are building the capabilities to be able to do that.
If I can just add to this look I think what happened was saw the largest asset managers the via the allocated Clearwater costs internally to the businesses was driven by AUR and those marks and thats, how they charge the fees right. So there we did have resistance, but.
Over time, if you look at the last two years and four years six years.
That's been the highest MLR business for us those large asset managers.
So we sort of spoke with them what the resistance with that sub segment, yes, there was.
And so we've gone back and said, Okay fine, but we will live with the current model because we feel the MLR would anyway b b b the highest.
So I don't know wanted to provide a detailed slide you understand why Jim said that we've done this with 81% of our clients representing that much but we're not pushing to try to get to 100.
That's great color, Thanks, Sandeep and Jim.
Yeah.
Thank you.
Thank you. The next question is from the line of Ella Smith with Jpmorgan you May proceed.
Hi, Thank you for taking my question I appreciate you breaking down the split between insurance asset managers and corporations that seemed to be pretty much in line for what it's done for the past year.
Moving forward do you see any particular growth for any of the vertical.
For 2023 or beyond that any place you're maybe getting share.
Okay.
I think where it takes time to.
Good to hear your voice I think we're gaining the good news is we're gaining share in all the verticals and so as these percentages change it's just about <unk>.
How relatively quickly we are gaining share in each of those.
Insurance has been and continues to be.
About half of our business and it's a really large and important piece of our business with our investments in both prism and in jump, we see greater opportunity as well in asset management and if you just look at our Tam at the highest level the largest tam is in that asset management segment.
And so if you were to look out to the future.
Multiple years into the future.
You would assume that asset management would continue to kind of increase.
On the margin as far as a percentage of overall IRR Sunday.
I think you may see some change in a quarter or two because you've got a large deal like the announced two very large insurers as you do.
More of these insurers who are in the top 20, and so you may see that bubble up and down but we don't not expect to win in every segment. We expect to win in every segment, we expect to win in the REIT market would you expect to women.
Traditionally we haven't won them and we expect to continue to look like.
Every industry and then if you look at the Tam there is runway in each one of them. So there really isn't a need to say hey, we're not going to push in that segment why not right and so we have teams, which are dedicated to a specific industry and to our specific sites. So for example, when you say insurance.
As a team dedicated to large insurers does a team dedicated small insurers and the team dedicated on various foreign insurers. So we have broken up.
Marketing into the segments and sub segments and each one has a dedicated team going up.
Great. That's very helpful. Thank you and then one other question for me.
Digging a little deeper into your 20% revenue guidance for 2023 do you have any thoughts about how much of that would come from new logos versus higher pricing.
So the vast majority would come from.
Yeah.
Adding new business those could be both new logos as well as additional products and services to existing clients.
Relative to the price increase absolutely sub two just to give you a sense a little bit I think.
More than 90%, we don't have an exact number but I can tell you more than 90% of the revenue would be from current clients, who we have either fully on boarded or onboarding. So these are deals which have been won.
Don't want to put a number on it but I do know it will be in excess of 90 is at 90% to 93, I don't know exactly who you're happy to sort of get back to you, but it is that order of magnitude.
Great. Thank you so much appreciate it.
Thank you.
Yeah.
Thank you. The next question is from the lineup Gabriela Borges with Goldman Sachs. You May proceed.
Good afternoon, and congrats on the quarter Sandy I want to follow up on your comments that you've made in the past.
Business enablement will close and it's not clear what it really allows us.
Okay.
Give us a little color on what you're seeing in terms of willingness to invest in.
The current plan when it can be tied to a final quick one.
Okay is that allow you to maybe tap into more of a bunch. It alright patent walgreens that projects that alleviated and accounting tool. Thank you.
Yes. Thank you Gabriel for the question I really think.
It's a really important question about why.
Asset managers, who are under some pressure you would agree on on cost would sort of go out and sign up for Clearwater.
And my.
What I'd like to tell you that almost always.
It is because it is seen as a growth enabler.
Clearwater Schoeps clients get deals because the reporting.
And the analytics that can provide us there.
There are many software products, which do that reporting well for a given asset class. Many I think there are many which provided for a given geography and I think what clients sort of continue to grow with us as well.
We actually gave me a little bit go into business with them, we will go to joint pitches with asset management clients when.
When they bid on a book of business with a potential client.
And so when you start to be seen as an enabler of growth.
I think that that changes will be or there is a client.
Probably not appropriate to name, but who really launched a number of rfps.
When they did the analysis of why the most of the Rfps.
They found that.
Other asset managers, just had superior reporting.
Online distributor analytics, they had one aggregated reporting.
An accounting function and.
So I've always thought that if you go back to 2022 and look at why we won.
It is because of that.
Even the.
The Big prison deal, we announced in Europe , which was in excess of seven figures.
If you listened to what I was talking about was they're reporting to decline.
That's why their margins. So they are $200 billion of assets that used to take days and days to get these reports ready incentive the clients and they come to Clearwater, and we should be able to generate that in a matter of hours.
It should be available online. So again, if you think of the proposition like you said not as an accounting software, but as an enabler of growth that's why actually we get traction.
That makes sense.
And across the patients.
During our call.
No im client revenue.
Sure.
Uh huh.
The assumption.
Bookings in the pipeline that you're seeing today.
The jump from <unk>, just a little bit on the moving pieces that I've done with that.
Yeah, Yeah, I think it's the onboarding of the assets from our Q3 and Q4 bookings flowing in to our revenue line item right. So first we win the business and we onboard the business and as those assets are being on boarded they grow and it takes obviously some time.
On board.
Yeah.
The major element of.
Of the growth.
Throughout 2023.
Some impact as well.
From the transition to term for John but.
Relatively speaking, it's $6 4 million in <unk>.
So.
Again, if I could add to that the booking in the second half of 2023 will likely have very little impact on 2023 revenue.
What really impacts <unk> revenue is booking in the second half of 'twenty two.
Q1, and Q2 of 2023.
It does matter of course, it does matter, but a very vast majority would be based on the last two quarters of bookings.
The pipeline in this quarter, though.
See what matter the most.
Thank you.
Thank you. Thank you bill.
Thank you. The next question is from the line of David <unk> with Wells Fargo. You May proceed.
Great Alright, thanks, very much for taking my question I'll keep it to one just given the time here. So we obviously understand that you just completed the acquisition of jump, but you're in a good financial net cash position as you've mentioned Sandeep I think you said at the beginning of the course at some point in your prepared remarks that you are not afraid to make more acquisitions.
So that suggests you are on the offense can you elaborate on what you're seeing out there as it relates to private market valuations.
And your appetite to invest I believe on the jump acquisition call. You mentioned that you screened over 300 companies and your due diligence process. So would love to just hear more on the due diligence process youre going through thank you.
Yes. Thank you David Thank you for that question. So look at it it's going to be.
Jumped by Todd was.
We're really excited about jump I think what we can do not just for <unk>, but for the employees of jumped themselves.
And being able to take the brand and what they are developed so take it around the world I think it's so exciting.
So for our current clients are current funds need those modules. So we're very excited about what jumped jumped can bring to us, but I wrote down what is what matters.
I think Jim was telling me the bar is going to be really really high because you have a good clean business grows nicely nicely profitable. So should do some industry that now right. So it's a pretty like here's the bond is going to continue to be high. So then what are we really looking for one is.
If it helps us expand geographically.
For example, in the case jump it doesn't it right, but if we found something that should help us.
Expand geographically or in the market.
This could be.
Something that does.
So things like that so that is one the second one would be something that makes our platform more comprehensive.
So if there were.
Functionality, which clients wanted which we don't do well enough or deeply enough women Memphis, probably long term, but deeply enough.
Then that would be another area, where I feel like we would look at look at acquisitions.
The third thing is.
Were helpful in bringing more value to our current clients. So for example, some formal analytics would be really helpful. So really it's more about.
Adding value to current clients who are unhappy.
We do all of us will acknowledge that.
Investment accounting isn't working for many many many clients around the world. So we can shift in that process of them coming on to Clearwater.
I think that would be really interesting. So we obviously just to jump it is growing nicely would love to see them.
To deliver some results and.
The early signs the Cardiff was great happened in December and.
Frankly, it's brilliant.
They got that done.
But we do expect that we'll continue to look aggressively for acquisition.
<unk>.
And that's what I would say I don't think that were going to do one to three or something like that but if we found the right. When you do it well we will not wait.
I appreciate that level of detail. Thank you.
Thank you David.
Thank you. The next question is from the line of Camille Martha rack with William Blair You May proceed.
Great. Thanks for taking my question.
I wanted to follow up on some of the commentary you made around the modules, but I understand.
And that it will take time to see the full impact spring portfolio of upsell modules, but looking at the product today, how should we think about the ASP difference for an average core plus customer who buys just the core Clearwater platform versus someone who buy the full suite and there's about a 20%, 30% upsell and given the strong R&D investments house.
Net absorption and grow over the next one three years.
Sure. This is Jim let me, let me take that.
So I think it's important to think about when you're on the core Clearwater platform Youre doing all of the accounting for all of these and let's just take Lts as an example, okay.
The <unk>, we're doing the accounting for those LP for you already and that's being charged.
As part of your base fee and as all of that grows let's say that you say, okay I want to step through and do Lps and add more kind of visibility into that functionality, a little bit more broader and more robust than just the accounting and reporting functionality.
And or LPX clarity I want to understand the underlines in this we would then charge an incremental amount per LP for those on that and obviously it depends on the functionality Sandeep spoke about how how prism and in that instance was a seven figure deal.
No.
<unk> could be.
A few thousand dollars per LP.
As an example.
Of the variability between nodes.
So it just depends on the specific circumstances of decline.
This will be the biggest valuable it just in the LP processing. It really is always in the you can get a comprehensive view with the Lps and the mortgages in the Delaware and equities and fixed income products and Thats, where the real value comes from I don't think we do accounting any.
Right.
Yes, we are trying to improve the look through so you can see a portfolio better but the value of tier one it really comes from that whole comprehensive ability.
That's very helpful. Thanks again.
Yeah.
Thank you Lou.
Thank you. The next question is from the line of Brian Schwartz with Oppenheimer. You May proceed.
Hi, Thanks for taking my question and congratulations on the quarter.
Sandeep just wanted to ask if you could comment on the trends you are seeing with the top of the funnel and also the pace of conversions that you saw in Q4 versus prior quarters. Thank you.
Okay.
Yes, Brian Thank you for that question.
I think we were.
Being a little.
We said always that we will follow a bookings, but not economic forecast because we just have got bitten by these forecasts every time, we hear the forecast we think the world is going to fall apart, but Q4 was great we were.
Surprised as Jim said, we became a little cautious in hiring because we started to believe to forecast a little bit and we did really really well. So so we have now decided internally to say no. We just going to follow a booking.
Bookings.
Much better for us it is a leading indicator. So do we see the funnel really continuing to grow absolutely do we continue to see very large clients wanting to come onto clearer to absolutely do we continue to see smaller clients.
We don't see.
We just don't see the softness quite yet and if we do.
And our bookings sort of.
Even come down just a little bit we will we will reevaluate, but right now we just don't see it when we're looking at O'brien believe me with every report I see on Wall Street Journal I'm always looking for signs of it.
But I think there is enough pain in the market there that people want to continue to look at something electric Tijuana.
Thank you for the color.
Thank you thank you Brian .
Thank you.
To ask a question you can dial star one.
The next question is from the line of <unk>, Kim with loop capital markets. You May proceed.
Okay great.
I'll make it quick.
First of all congrats on getting to that 80% target mix for the customers on base plus in just two quarters, which is amazing.
We expect that mix to change much going forward just one I'm just curious on what you are.
If you have any specific target for 2023.
So our for all of our new clients. The other metric that was really terrific was 100%.
Those clients that signed up for larger contracts.
We're on the base plus model going forward. So as we continue to add customers. The base plus model is the de facto way that we add those customers and so obviously as we add customers over time.
That will gradually pick up.
Okay great.
Wafer inspection.
Sure so looking at this.
Okay.
Maybe I could just squeeze in one more.
Okay.
Sandeep you mentioned a lot about the momentum you're seeing in Asia can you just kind of give you share us like what's going on there in terms of go to market.
And the momentum that you're.
Getting in the Asian market.
I must admit I seem to speak too much about it I think I speak about it because we get surprised by it right. So we don't have we have a big office in.
Europe , we have made a lot of investments in Europe , Southern Europe goes they're like Okay. This is what we expected I think Asia, we still have very limited footprint and.
We get surprised when we win there, but what we have today just to be clear as we now have an operating team that we have a sales team we have a pre sales team. We have so we now have a full organization there, but when you think about the problems in Asia.
I think they are more acute.
Every country has its own gap.
Every country has its own regulatory reporting needs.
And that's not the case, if you've got an American client if north American plant gets one it's all U S. GAAP is quite simple the regulatory needs understood, but when you go to Asia.
Thailand is different from Vietnam, which is different from China, which is different from India, which is different from a few countries. So.
And due to a level, we believe that the.
The need for a solution like ours should be much stronger in Asia and that's why we are somewhat more excited than than the size of our business.
Yes.
Okay, great. Thank you so much and congrats on a solid quarter.
Thank you. Thank you.
Thank you.
That concludes the Q&A session I'd like to turn the call back over to the team for concluding remarks.
Look I just wanted to thank everybody for your interest in our company. We are trying to build something special here and we always appreciate your engagement. So thank you all and solid as ran over just a little bit. Thank you.
Goodbye.
This concludes today's conference call. Thank you for joining you may now disconnect.