Q3 2024 Clearwater Analytics Holdings Inc Earnings Call
Okay.
Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to the clear water analytics third quarter 2024 financial results Conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session and now I would like to welcome Joon Park head of Investor Relations.
and the
Ladies and gentlemen, thank you for standing by and welcome to the Clearwater Analytics 3rd Quarter 2020-4 financial results conference call. At this time, all participants are in a listen-only mode.
Speaker Change: <unk> to begin the conference.
Speaker Change: And welcome everyone to Clearwater analytics third quarter 2024 financial results Conference call.
Joining me on the call today as usual are Sandeep to high Chief Executive Officer, and Jim Cox Chief Financial Officer.
Speaker Change: In addition, <unk>, our Chief client Officer, we're also joined the call introducing herself to investors.
Speaker Change: After their remarks, we will open the call to a question and answer session.
Speaker Change: I would like to remind all participants that during this conference call any forward looking statements are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Speaker Change: Expressions of future goals intentions and expectations.
Speaker Change: <unk> in relation to business outlook, future financial and product performance and similar items, including without limitation.
Speaker Change: Expressions using the terminology may will can expect and belief and expressions, which reflect something other than historical facts are intended to identify forward looking statements.
Speaker Change: Forward looking statements involve a number of risks and uncertainties, including those discussed in the risk factors section of our filings with the SEC.
Speaker Change: Actual results may differ materially from any forward looking statements. The company undertakes no obligation to revise or update any forward looking statements in order to reflect events that may arise. After this conference call, except as required by law.
Speaker Change: More information please refer to the cautionary statement included in our earnings press release.
Speaker Change: Lastly, all metrics discussed on this call are presented on a non-GAAP or adjusted basis, unless otherwise noted.
Speaker Change: A reconciliation to GAAP results can be found in the earnings press release that we have posted to our Investor Relations website.
Speaker Change: With that I'll turn the call over to our Chief Executive Officer Sandeep side.
Sandeep: Thank you June.
Sandeep Side: Im pleased to report that Q3, 2024 was a truly outstanding quarter for our company.
Sandeep: We continue to make solid progress on the growth initiatives, we've been working on and it's very rewarding to deliver these financial results.
Sandeep: Revenue for the quarter was $115 $8 million.
Sandeep: 22, 4% year on year increase.
Sandeep: Our annualized recurring revenue.
Sandeep: <unk> grew by 26, 1% year on year to $456 9 million.
Sandeep: As I'm sure you'll agree these are really strong growth numbers.
Sandeep: Since the acquisition of the Volcker assets is so new.
Sandeep: We can measure this impact separately this quarter.
Sandeep: Excluding the impact of <unk>.
Sandeep: <unk> grew 24% year over year.
Sandeep: The backbone of our growth story.
Sandeep: Is a best in class gross revenue retention.
Sandeep: For the last 22 out of the 23 quarters.
Sandeep: <unk> has been 98% or higher.
Sandeep: And for the last three quarters, we have recorded a 99% gross revenue retention.
Speaker Change: That is extraordinary.
Speaker Change: Next is the upside from a AUM growth.
Sandeep: After a long and sustained period.
Sandeep: AUM expansion.
Sandeep: <unk> provided a gentle tailwind to <unk> growth.
Sandeep: It turned into a real headwind in 2022.
Sandeep: You may recall the extensive work we did on the restructuring of our client contracts.
Sandeep: We've worked very hard to limit our downside.
Sandeep: Ensuring that we shared in the upside with our clients.
Sandeep: It is very rewarding to see that effort bear fruit in this quarter.
Sandeep: And provide a gentle tailwind to our growth.
Sandeep: New logos have long been a driver of growth.
Sandeep: And we continue to see significant runway.
Sandeep: In each of the markets we serve.
Sandeep: The North American insurance asset management and asset all new markets.
Sandeep: Continue to be important levers for growth.
Sandeep: Increasingly though we see the international markets as an emerging engine for growth.
Sandeep: And I'm very encouraged to report.
Sandeep: That we see continued and sustained expansion.
Sandeep: In both bookings and pipeline.
Sandeep: To support our growth in Europe and Asia.
Sandeep: We have been very fortunate to add exceptional talent.
Sandeep: To our leadership ranks.
Sandeep: With four strategic hires.
Sandeep: They include Adrian dealer garage as head of sales in France, Belgium and Luxemburg.
Sandeep: Alessandra Pone as head of sales in the UK and Ireland Amina chosen as the new head of global delivery for <unk>.
Sandeep: EMEA.
Sandeep: And Jose <unk> head of partnerships and alliances for EMEA.
Sandeep: We also opened a new office in Hong Kong.
Sandeep: Further reinforcing our commitment to that region.
Sandeep: Selling within our current client base is the next big lever of growth.
Sandeep: We've done several things to ensure sustained ear our expansion within those markets number one maintain.
Sandeep: We maintained a very high level of client satisfaction with our success is evidenced by our NPS.
Sandeep: Which is meaningfully higher than 60%.
Sandeep: Number two we set up dedicated sales and relationship teams that focus exclusively on those key clients and.
Sandeep: And number three.
Sandeep: A majority of our new product innovations are directed at these key relationships.
Sandeep: As a result of this we have seen our revenue from current clients continue to expand.
Sandeep: Overall, we feel really good about the disruptive power of our platform the competitive position, we have in our industry and therefore.
Sandeep: Our ability to grow.
Sandeep: Talking with our platform.
Sandeep: Let's also discuss our approach to leveraging Jimmy I.
Sandeep: For both efficiency and growth.
Sandeep: We believe that Clearwater is at the forefront.
Sandeep: Of using <unk>.
Sandeep: As you all know generally VA models.
Sandeep: Only as good as.
Sandeep: As the data on which they are trained.
Sandeep: Our single instance, multi tenant platform provides us with an outstanding and comprehensive.
Sandeep: Investment management dataset and.
Sandeep: And that can help power our journey I work.
Sandeep: Our technology teams are already integrating this critical technology to transform internal workflows training.
Sandeep: Training them on the best in class reconciliation data, we alone have access to.
Sandeep: And providing our clients with the ability to interact conversationally with the data in real time.
Sandeep: And finally, the next growth level I'd like to talk about is inorganic growth through strategic partnerships and M&A.
Sandeep: To complement our organic efforts.
Sandeep: While our programs in these areas are still in the early days.
Sandeep: We are already starting to see benefits.
Sandeep: Our recent alliance with Snowflake exemplifies this effort.
Sandeep: Insurance firms asset managers and asset owners.
Sandeep: Cannot seamlessly access all the investment data together.
Sandeep: Pink equities fixed income real estate private equity loans and private debt.
Sandeep: Allowing them to capitalize on new opportunities to grow the business.
Sandeep: We could not have achieved these exceptional results without continued operational rigor.
Sandeep: And our strong commitment to continuous improvement.
Sandeep: Our ability to invest.
Sandeep: In these growth initiatives.
Sandeep: While simultaneously.
Sandeep: Improving gross margins.
Sandeep: Is driven in large part by the steady incremental margin expansion.
Sandeep: That our operations teams have delivered.
Speaker Change: And to discuss our operations I would like to introduce you to our chief client Officer <unk> safety.
Speaker Change: So we need to operations teams globally and is responsible for onboarding and ongoing customer service.
Speaker Change: Not only does our team do a great job delivering on a daily basis.
Speaker Change: But they also true partners for our clients growth.
Speaker Change: With over 25 years of experience leading operations teams.
Sandeep: For both large and mid size organizations around the world.
Sandeep: So we have been instrumental in scaling our business and processes across the company.
Sandeep: With somebody at the helm.
Sandeep: We have deepened client relationships.
Sandeep: Improved service delivery.
Sandeep: And enhanced our platform's.
Sandeep: Capabilities.
Speaker Change: With that I'll hand, the call to <unk> to talk about operations and how her team contributes to this powerful engine that drives Clearwater forward. Thank.
Speaker Change: Thank you Sandeep Hello, everyone, it's genuinely a pleasure to be here with you today.
Sandeep: As we take a look back at our quarter three performance I'm excited to share that <unk> business model continues to shine brightly as a beacon of operational excellence.
Sandeep: Serving clients across five continents, I'm more than 1400 relationships demonstrate our commitment to delivering exceptional performance.
Sandeep: Every day, we dive into complexities of managing Chileans are classic from fixed income to mortgage loans, David credits and Daddy radius.
Sandeep: It is a challenging but rewarding space.
Sandeep: We leverage advanced technology to reconcile data in real time and provide insights that help our clients thrive.
Sandeep: Hence our goal was to create an operating model that work seamlessly Dane and day out.
Sandeep: Using technology, not just to perform but throughout the fall.
Speaker Change: Before we go further I would like to take a moment to welcome for leading organizations, who can walk out.
Speaker Change: Mining us of the trust our clients place in our comprehensive solutions.
Speaker Change: First the American Endowment foundation recognize the power of our platform to consolidate intricate reporting across tens of thousands of donor advised fund accounts, providing comprehensive insight to both the foundation and their end clients.
Sandeep: Their decision.
Sandeep: Select Clearwater demonstrates our commitment to precision efficiency and a transformative approach to data management, bringing their operations to a new level of excellence.
Sandeep: Second the American Civil Liberties Union.
Sandeep: Forward looking decision in choosing Clearwater does simplify its investment management processes.
Sandeep: Incorporating clearwater LPX. Thank you waterfall full fund the ACLU is on a path to modernization transitioning away from multiple legacy system to a singular expansive clearwater solution.
Sandeep: This strategic move signifies the ACLU his commitment to leveraging advanced technology to enhance farm stewardship, particularly for private fund management.
Sandeep: Hug the allow me that county employees retirement Association, a theater shocked selected <unk> to achieve greater transparency into <unk> financial data.
Sandeep: Does initiative to adopt our automated reconciliation platform reflects their focus on data integrity and scalable future as they expanded alternatives portfolio.
Sandeep: Along with the understanding of the value proposition and efficiencies that Clearwater really deliver.
Sandeep: Last but not the least Lux Nordic wealth management is an asset and wealth management from inland timber that switch from legacy Clearwater to leverage our platforms advanced order management portfolio management reporting integrated client by Potently and comprehensive asset class coverage.
Sandeep: Clearwater perfectly aligns with nuts, Nordics wealth management focus and goals of elevating its market position and enriching its distinctive offering.
Sandeep: I also wanted to celebrate some incredible milestones that reflect our operational philosophy.
Sandeep: Employee Reassurance Corporation.
Sandeep: We recently on boarded E E C or G aerospace company onto our platform.
Sandeep: I wanted to express my heartfelt gratitude to both teams for their hard work and collaboration.
Sandeep: It is this kind of partnership that we truly value and I'm eager to see how they benefit from our best in class solution.
Sandeep: A large U S insurer I'm pleased to announce that a large U S. Insurer is now live on our investment accounting platform.
Sandeep: This transition has transform their operations, replacing cumbersome manual processes with streamlined workflows.
Sandeep: There are already feeling the positive impact from enhancing analytics to lower cost.
Speaker Change: Our European Global financial phone.
Sandeep: And under six months be welcomed and neither Europe and global financial services leader to our platform to provide effective risk and compliance oversight for their wealth management business.
Sandeep: This achievement empowers them to enhance client service and boost productivity and I couldnt be prouder of all fighting for making it happen so swiftly transfer.
Sandeep: This thing to our guiding principles when I took on my role at Clearwater four years ago, I knew we needed to sharpen our focus on the principles that drive us forward I.
Sandeep: I would like to discuss the very DNA of our organization, which has been instrumental in propelling us forward.
Sandeep: First and foremost our global capacity it ensures that we deliver effectively for our clients no matter the client's location.
Sandeep: To best illustrate this let's discuss data ingestion and normalization.
Sandeep: As you can imagine data comes to us from thousands of sources globally at all hours of the day bye.
Sandeep: By having centers in Noida, Edinburgh, and Boise, we effectively run a 24 hour operations when one beans hands off to the other seamlessly.
Sandeep: And the client gets reconciled portfolio within hours of phosphorus eating the data. This would have been incredibly hard without these three centers. However clients. The other thing is usually yoga and that allows customers to get responses to their questions locally in near real time.
Speaker Change: Let's discuss leadership.
Sandeep: The company has become global it was very important to build a leadership team that increased client proximity and included industry veterans, who could be trusted relationships.
Sandeep: I'm happy to report that our leaders have deep industry expertise and experience in managing large client relationships.
Sandeep: Domain expertise is another area, we have focused very heavily on it.
Sandeep: Our teams are dedicated to understanding and addressing each client's unique neat upskill, that's both art and science, given the complexities of asset classes B D but.
Sandeep: For example, our mortgage loan Reconciler, we'll know exactly how many commands it takes to provide an accurate figure in the portfolio and similarly for derivatives.
Sandeep: We've established systematic ways to monitor and measure number of command on clear water system with the ability to drill down and take action in real time.
Sandeep: I fear delivery model aligns our delivery did the unique size and complexity of each client demonstrating our commitment to be spoke services.
Sandeep: And last but not the least continuous improvement. This is bad we truly excel and something which I'm very passionate about for.
Sandeep: For example, we used to resolve a client in quality within six hours and using a continuous improvement mindset that has been cut down to two hours.
Sandeep: They with Jenny I will resolve inquiries in meals. He got his time.
Sandeep: This leap forward means a client is just a click away from creating an account or understanding intricate calculations like booking all while receiving relevant timely insight without quick flagstone.
Sandeep: We have made tremendous advances in the integrated use a journey I across our platform and I'm happy to report that an increasing number of adding quite a volume has been deflected using jennie I.
Sandeep: It has also made our team members incredibly effective and productive.
Sandeep: These five principles on just awarded to Us there.
Sandeep: They are the heartbeat of our operations and shine tool in an exceptional outcome.
Sandeep: Our operational best practices empower our client with daily transparency and simplified processes translating into an impressive 99% gross revenue retention Drake.
Sandeep: Something we are incredibly proud off.
Sandeep: Leaders in accuracies are cornerstones of our service.
Sandeep: <unk> auto reconciliation for over 90% of transactions, but up to the minute data at their fingertips, our clients can make investment decision with utmost confidence.
Sandeep: Now changing gears, we not only deliver every day, but we also anticipate what's on the horizon to give you a sense of our forward looking mindset consider how we are gearing up for 2025 regulatory changes from M. A C.
Sandeep: With egg substantiated guidance changes twenty-seven reporting changes and the introduction of 24, new data elements. These changes are massive while others are just getting started Clearwater was the first to market with these updates showcasing our commitment to innovation and leadership in the <unk>.
Sandeep: Sure.
Sandeep: And demonstrating how our technology adapt and remain invaluable.
Sandeep: We adopted a tailored approach for approximately 600 insurance client successfully automating born classification and data gathering.
Sandeep: I walk empowered insurers to swiftly identify and reclassify bonds bind offering customizable report that enhanced transparency and efficiency.
Sandeep: Our proactive approach rooted in deep industry expertise cements, our role as a trusted partner.
Sandeep: Continuously delivering tremendous value to both our clients and our shareholders.
Sandeep: Let me take you through a recent example of how our clients closely work with us to deliver on value.
Sandeep: In quarter, three we launched our commercial paper issuance to.
Sandeep: Making our first foray into the tech side of the corporate balance sheet.
Sandeep: Historically commercial paper has been issued and managed entirely manually relying on faxes telephone calls and emails to execute.
Sandeep: Commercial paper issuance to replace if these outdated mangled methods with a suite of sophisticated models that allow institutional investors to gain a real time panoramic view of their C. P issuance program.
Sandeep: Last but not the least we believe.
Sandeep: What gets measured gets done.
Sandeep: Every day, our operations teams track key metrics, including auto reconciliation right. The number of beta models and securities. The number of commands the frequency of client inquiries and resolution rate among many others.
Sandeep: We share these insights with our clients every day, ensuring that as informed as V. R.
Sandeep: A remarkable 60, plus net promoter score reflects our dedication to meeting and exceeding our client's expectations.
Sandeep: I would also like to talk about the importance of community and exchange of knowledge as demonstrated by our recently awarded connect EBIT.
Sandeep: Okay, Jim brought together nearly 600 operations and finance experts from around the world.
Sandeep: <unk> face to face was a highlight for our team and truly underscored our commitment to reshaping the industry. Together. We also celebrated our excellence award winners and launched our inaugural women in finance net booking breakfast, creating a space for connection and empowerment and our community.
Sandeep: And now some closing thoughts as we continue to navigate a changing financial landscape. Please known tier one a focus on operational excellence remains steadfast.
Sandeep: Here to support client growth and confidently tackle the challenges and opportunities ahead together now.
Speaker Change: Now I'll hand, the call over to Jim <unk>.
Speaker Change: Dive deeper into our financial results. Thank you for your time.
Jim Cox: Thanks, <unk> welcome to the call and thank you on behalf of all of our shareholders for your leadership in delivering these tremendous results.
Speaker Change: I'd like to quickly discuss our Q3 results provide Q4 guidance and then spend the majority of my time sharing our perspective on the proposal, we will be providing to shareholders to terminate our tax receivable agreement or what we call the TRA agreement.
Speaker Change: Our third quarter results were outstanding and continued to build upon the impressive momentum from the first half of 2024.
Speaker Change: Our key metrics were exceptional across the board in Q3 with multiple record highs.
Speaker Change: We comfortably outperformed our revenue and adjusted EBITDA guidance in Q3, with a beat of $2 $3 million over the midpoint of our revenue guidance and an equivalent to $3 million beat over EBITDA guidance for the quarter.
Speaker Change: These results underscore the profitable economics, driving Clearwater strong performance and the efficacy.
Speaker Change: Our growth initiatives.
Speaker Change: The strong EBITDA in part generated record high free cash flow of $48 $1 million in Q3.
Speaker Change: This represents an increase of 55, 6% from last year's Q3.
Speaker Change: In addition to the strong EBITDA positive working capital changes in the quarter also helped free cash flow.
Speaker Change: As our.
Speaker Change: Days sales outstanding decreased to 80 days.
Speaker Change: From 89 days in Q3 of last year.
Speaker Change: We ended Q3 with $336 $7 million in cash cash equivalents and investments and total debt was $46 $6 million, thereby resulting in net cash holdings of approximately $290 million.
Speaker Change: This strong cash generation puts us in prime position to make strategic investments or reward our shareholders.
Speaker Change: We increased our net revenue retention rate to 114. This quarter. This is a monumental accomplishment and frankly surprised us.
Speaker Change: It represents a notable increase from the 110 in net revenue retention, we recorded last quarter.
Speaker Change: This meaningful increase is a reflection of our continued progress in growing with our clients as approximately nine points of the contribution to NR 102014 related to the onboarding of additional assets and cross selling new products to existing clients.
Speaker Change: Additionally, we believe the interest rate environment from the fed rate cut in September.
Speaker Change: Led to an incremental increase in AUR.
Speaker Change: AUM on the platform of approximately 2% over the gentle tailwind we had observed in the June quarter.
Speaker Change: Finally, we achieved solid GAAP net income of $4 8 million in Q3 versus a GAAP net loss of $2 3 million in.
Speaker Change: In Q3 2023.
Speaker Change: The GAAP net income was driven in part by lower year over year equity based compensation expense.
Speaker Change: We heard from investors that the level of equity compensation and then achieving GAAP income was important so it is rewarding to achieve profitability on both a GAAP basis as well as non-GAAP basis throughout the first nine months of 2024 for the full year 2024, we have a.
Speaker Change: Again raised our revenue guidance to $445.5 million, representing an improved year over year growth rate of approximately 21%. This full year guidance incorporated both the outperformance in revenue in the third quarter and our view on Q4.
Speaker Change: Sure.
Speaker Change: For the fourth quarter of 2024.
Speaker Change: We expect revenue to be at least $120 2 million, representing a year over year growth rate of approximately 21%. This guidance does not assume any incremental market based AUM.
Speaker Change: Expansion in the fourth quarter.
Speaker Change: For the full year 2024, we have also raised adjusted EBITDA guidance to $142 5 million, an increase of $2 $5 million from our prior guidance. This.
Speaker Change: This provides adjusted EBITA margin of approximately 32% for the full year and a powerful 35% increase in EBITDA year over year.
Speaker Change: For the fourth quarter of 2024, we expect adjusted EBITDA to be $38 $5 million, representing an EBITDA margin of again approximately 32%.
Speaker Change: Today.
Speaker Change: Along with these stellar third quarter results. We are announcing that we have filed an 8-K and related proxy statement related to the tax receivable agreement between the company and our pre IPO shareholders.
Speaker Change: In the proxy statement, we are asking our unaffiliated stockholders to vote on a proposal to terminate the tax receivable agreement by paying an aggregate of <unk>.
Speaker Change: $72 $5 million to the TRA counterparties and certain pre IPO members of management.
Speaker Change: We'll only terminate the agreement if a majority of the company's unaffiliated stockholders a group that excludes all parties to the TRA and all TRA bonus holders, who we referred to as TRA participants as well as all named executive officers.
Speaker Change: And those of our directors, who are affiliated with the TRA participants vote to approve the termination set another way we will not terminate the TRA.
Speaker Change: Unless a majority of the company's unaffiliated stockholders vote to approve the termination.
Sandeep: The proxy statement has additional details and we will encourage you to review it but I'd like to underscore why the board and management believe the termination of the TRA is in the best interest of all shareholders.
Sandeep: Let me start with some background in connection with our IPO. The company entered into a TRA, which provides for the payment by our public holding company to the TRA participants of 85% of the amount of any tax benefits that the company realizes or in some cases.
Sandeep: Deemed to realize as a result of certain tax attributes.
Sandeep: One of those attributes is any increase in the tax basis of the net assets of <unk>.
Sandeep: <unk> holdings, which is our less and wholly owned subsidiary.
Sandeep: That result from exchanges of Ceylon holding units that TRA participants make for shares of class a common stock and our public holding company.
Sandeep: In 2022, we recorded TRA expense of $11 $6 million.
Sandeep: In 2023, we recorded TRA expense of $14 $4 million through.
Sandeep: Through the first nine months of 2024, we have recorded $11 $5 million of TRA expense and expect the full year Trs <unk> expense to be approximately $17 million absent any settlement.
Sandeep: We have not yet paid to the TRA participants the TRA expense owed to them for 2023 or year to date in 2024.
Sandeep: And as of September 32024, we have liabilities of $28 8 million recorded on our balance sheet related to the TRA liabilities incurred in the past.
Sandeep: While the amount and timing of future TRA payment obligations is inherently uncertain and is dependent upon.
Sandeep: The amount and timing of future taxable income and our share price among other things.
Sandeep: We estimate the potential some future TRA liability from past exchanges.
Sandeep: And hypothetical future exchanges as of September 32024 to be $614 million.
Sandeep: Of which $417 million relates to historical exchanges and $197 million is related to future exchanges at the companys share price.
Sandeep: As if exchanged on September 32024.
Sandeep: In contrast, if termination of the TRA is approved by a majority of the company's unaffiliated stockholders. The company will settle all TRA liabilities, the unpaid $28 $8 million on the books as of September 30.
Sandeep: And all future estimated TRA obligations for a total of $72 $5 million.
Sandeep: We believe this transaction will have a number of benefits for the company first it will generate significant savings compared to the cumulative expenses. We expect we will incur over the life of the TRA.
Sandeep: Second once terminated the company will not have to utilize cash to fund ongoing TRA obligations.
Sandeep: This will positively impact the company's future operating cash flow and potentially the companys valuation to the extent the company is valued based on cash flows.
Sandeep: Finally, terminating the TRA will eliminate the need to record a large liability when or if the company were to release the valuation allowance. We currently maintain on our deferred tax asset balances.
Sandeep: By eliminating the potential to record the liability. We believe the company has greater ability to complete strategic transactions and provide shareholders greater certainty about the company's future financial performance.
Sandeep: The payments made to TRA participants are not conditioned upon those TRA participants continuing to hold any ownership interest in <unk> holdings or in the public company.
Sandeep: Given the company's current strong cash position.
Sandeep: And the fact that certain of the TRA participants remains significant shareholders and hence are aligned with the interest of other shareholders, which may change in the future. We believe now is the right time to terminate the tax receivable agreement.
Sandeep: For example.
Sandeep: At the beginning of 2023, there were over 177 million class C and class B shares outstanding of the Companys common stock, which were held exclusively by TRA participants.
Sandeep: That number reduced to approximately $115 million class C and class B shares outstanding at the end of 2023 and today.
Sandeep: There are less than 75 million class C and class B shares outstanding.
Sandeep: For these reasons, we believe it is a good and shareholder friendly use of resources to execute this TRA termination at this time.
Sandeep: We hope you agree.
Sandeep: And we are all very happy that we are putting the ultimate decision whether to proceed or not to you.
Sandeep: Our shareholders.
Speaker Change: With that I'll turn it over to Sandeep to provide some closing thoughts.
Sandeep Side: Thank you Jim.
Sandeep Side: We are very pleased with the Q3 results and inspired to caviar business momentum forward.
Sandeep Side: As we have noted a key metrics were exceptional across the board with multiple record highs.
Sandeep Side: We are excited about the continued strides we are making across the business.
Sandeep Side: And remain steadfast in our mission to deliver the world's leading investment management platform for the Investor.
Speaker Change: Excuse me everyone is gosh sneakers.
Speaker Change: Yeah.
Sandeep Side: So are we ready for questions.
Sandeep Side: Great.
Speaker Change: Alright, everyone. We will now begin the question and answer session. If you'd like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by two 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 a question, we'll pause here briefly.
Sandeep Side: Our questions are registered.
Speaker Change: Our first question comes from the line of Brian Schwartz with Oppenheimer.
Speaker Change: Your line is now open.
Speaker Change: Yes.
Speaker Change: Yeah, Hi, Thanks for taking my questions and congratulations on these results Sandeep, just trying to dive into the bookings strength.
Speaker Change: That you're showing here this quarter did any did you have any outsize mega deals or did any markets have an outsized impact or was the bookings strength.
Speaker Change: Broad based across your core end markets.
Speaker Change: Thank you, Brian So you know and getting ready for this call unless I admit we looked for that we look for Joe.
Sandeep Side: Geography, and trying to think of it international grow faster than the U S domestic business grow faster or did we get a lot of deals from current products.
Sandeep Side: New products.
Sandeep Side: IPD, what we found was it was very very broad based so there wasn't at all a situation where there was one deal or two deals it was across industrial usage was across geographies.
Sandeep Side: Our new products continue to bring momentum to booking I think we had said in quarter. One if I remember correctly that a quarter of our booking was from these new product innovations and that is almost exactly that number even though.
Sandeep Side: So again it was new logos it was back to base sales and nothing really stands out, which I would note, which I would point to.
Speaker Change: Thank you and the follow up question I have for Jim.
Sandeep Side: NR result that you're reporting here is pretty close.
Sandeep Side: Your goal for 2026, so how shall we think about that 115%.
Sandeep Side: How hard is that ceiling or could that ceiling potentially be a thought.
Sandeep Side: And.
Sandeep Side: There is potential bad.
Sandeep Side: To the base motion.
Sandeep Side: Could perform even better than what we were previously thinking with that goal that you gave us. Thanks again for taking my questions. Thanks, Brian.
Sandeep Side: So.
Sandeep Side: I think that that's.
Sandeep Side: I think we continue to believe that in our $1 15. In 2026 is is there is a very achievable goal I think we're obviously buoyed by these results.
Sandeep Side: In particular, the fact that 9% of that kind of 14% was from new products and increased wallet share.
Speaker Change: Uh huh.
Sandeep Side: From clients on our platform.
Sandeep Side: That was 3% higher than last quarter, but remember a lot of these new products are.
Sandeep Side: Mature not mature they are maturing.
Sandeep Side: Fully mature and so to think about our ability to perform.
Sandeep Side: With respect to those consistently quarter after quarter after quarter.
Sandeep Side: I think that we.
Sandeep Side: Wed like to see more.
Sandeep Side: More consistency before we know Theres a straight line I think that we are we all laugh as soon as we get close to achieving any of these metrics that we laid out last September we start thinking do we need to move to the next step and I think we'll stay focused on delivering $1 15 consistently reliably.
Sandeep Side: Terribly.
Sandeep Side: What we're really focused on is that durable reliable growth.
Sandeep Side: And focus on achieving that.
Sandeep Side: Next.
Sandeep Side: Okay.
Sandeep Side: Next question please.
Speaker Change: Thank you for your questions Brian. Our next question comes from the line of Andrew Schmidt with Citi.
Speaker Change: Your line is now open.
Andrew Schmidt: Hi, Sandeep, Jim Soobee. Thanks, so much for having me on the call here.
Sandeep Side: I wanted to go back to <unk>, obviously, a great result, this quarter.
Sandeep Side: And you mentioned onboarding of additional assets. It sounds like that was a nice surprise relative to expectations could you just talk about what drove those wallet share wins and to what extent that.
Speaker Change: Obviously still a lot of opportunity to gain wallet share to what extent that momentum can continue thank you very much.
Speaker Change: Yeah. So so wallet share really comes in two.
Sandeep Side: Two ways traditionally number one is with our large asset management clients as they grow we grow with them in fact, that's one of our large value props.
Sandeep Side: When we think about selling to their business, how can you grow and expand your business. That's one area. Another area can be through M&A and those sorts of transactions and those those were helpful as well as.
Sandeep Side: Cross selling the new products that we have including LPX ml, Lex and those variety of products.
Speaker Change: One other thing just to give a little more color to folks.
Speaker Change: In Q2, we had said hey, we see a gentle tailwind a small tailwind in from AUM that which would be that activity that we actually aren't selling necessarily for but we see growth in those clients that can be difficult to isolate the market impact of that.
Speaker Change: But we were able to kind of do some work and and we feel very confident that in September we saw a 2% increase in that relative to what we saw in the June period. So I think that also helped on the NR or $1 15, just to be transparent with folks.
Speaker Change: Well I would just add that obviously, we are spending a real amount of money on new product and innovation.
Speaker Change: And 40% of all of that new product innovation goes into current clients.
Speaker Change: That is a back to sales motion and that obviously helps the cost and like Jim said these on mature so we couldnt be reliant down reliable.
Speaker Change: Growth levers, but we absolutely expect that will happen in due course, and which is why we've always said that.
Speaker Change: Quarter. One 2026 was when you are trying to achieve a 115 reliably.
Speaker Change: Got it. Thank you so much for that and then I know Jan AI. The quick modules were a big focus of Clearwater connect.
Speaker Change: It sounds like there's a little more clarity on how you want to monetize those it seems like that could be a big opportunity. When we think about 2025 cross sells versus 2024 could you just talk about the opportunity there.
Speaker Change: Any additional details on how you plan to monetize monetize AI functionality would be helpful. Thanks, So much.
Speaker Change: Thank you Andrew on that question of the two parts of this one is doesn't make our.
Speaker Change: That form and our operations much more efficient on that we have lots and lots of proof points and that things will be in her remarks was talking about deflection. So a client wants to ask a question and they have a Jimmy I.
Speaker Change: The tool on their on their platform and they ask the question Asker tool, sometimes they are happy with the answer and sometimes theyre not.
Speaker Change: But if they are happy with the answer the question that comes to us.
Speaker Change: And therefore, we don't have to go out and invest People's time to respond to that question.
Speaker Change: So on the efficiency side I think there are many use cases, and so we and the team have done a good job of of using it to drive gross margin. The same thing happens in data and reconciliation.
Speaker Change: Is that can that Jimmy I too will give us ideas about how to reconcile and if that is correct and we accept it and that saves a lot of time.
Speaker Change: On the other side, which is revenue growth right. So that is the one we have talked about a little bit and.
Speaker Change: One of the big areas, where we are trying to use this his insights insights on our product and I think.
Speaker Change: In Clearwater connect we talked about that and frankly was one of the most attended sessions because of the level of interest at this time, we launched a product and when did we launched in September September nine so.
Speaker Change: We launched it in September and we.
Speaker Change: We have a little bit more than 10 clients, who are bringing customers now.
Speaker Change: Now this is only for the corporate market, Andrew and we expect that to take that out to the insurance clients at a later point of time. So we are excited about it but if you ask me hey is it giving you 5% of growth.
Speaker Change: Not there at all if you ask me Hey is it contributing meaningfully to gross margin. Yes. It already is now both those levels are not like Oh. This is the end of our journey I can do I think is very very early.
Speaker Change: In terms of being able to drive revenue or frankly, even improve margins. So we are big fans of it we continue to make a real amount of investment in it and but we see benefit of that literally every quarter.
Speaker Change: Got it thanks, so much sandeep. Thank you thanks Andrew.
Speaker Change: Thank you for your questions.
Speaker Change: Our next question comes from the line of Yung, Kim with loop capital markets.
Speaker Change: Your line is now open.
Yung Kim: Okay, great. Thank you congrats on another solid quarter Jin I'm, just going to continue the theme on the NR aren't here.
Yung Kim: Obviously, you saw 9% uptick or contribution from the new products and asset types and whatnot how.
Speaker Change: How much of that of that 9% was driven by new product for us it's simple.
Speaker Change: Simply new asset types and more asset volume.
Speaker Change: We're I guess, we're trying to figure out how sustainable this strong.
Speaker Change: Strong uptick it's going forward.
Speaker Change: Do you think that if you can give us a like a at a high level at least what you were expecting around DNR to trend in the near term.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: So I think.
Speaker Change: The question of what's the trend, obviously and our one 2014 was a very strong trend.
Speaker Change: And sequentially strong.
Speaker Change: I think I mentioned, there were a couple of points from the.
Speaker Change: One tailwind in September from that from that rate change, but I think that if we live.
Speaker Change: In this in this range for the next quarter to two I think that we're comfortable in this range.
Speaker Change:
Speaker Change: Give or take one or two points.
Speaker Change: The only point I would add is that okay.
Speaker Change: Historically never ever looked at the interest rate or the impact of that we've always never.
Speaker Change: <unk> talked about or discussed it or built it into our models. So I think.
Speaker Change: Even if you stay around this range over the next two or three quarters I feel good.
Speaker Change: But as our products continue to do more and more that will make us feel more more satisfied about the about the trend.
Speaker Change: Having said all of that great. Thank you for that answer yeah, we should be happy about the one person really happy with the unfortunate.
Speaker Change: Yeah.
Speaker Change: Yeah.
Yung Kim: Yes, definitely alright, thanks for that answer Sandeep. If you could just talk about the mix between asset managers and insurance companies.
Yung Kim: Is that mix skewing towards one or the other and if it is is that changing your go to market.
Yung Kim: And.
Yung Kim: The overall go to market around.
Speaker Change: Adoption around your newer products. Thanks.
Speaker Change: Yes. So you know we were just looking at the data and there really is in within 1%.
Speaker Change: Of the earlier distributions so no real change I think the question was asked earlier about this really high quality of our growth, which industry does it come for was there one or two deals which made the difference.
Speaker Change: And it's just been really broad based.
Speaker Change: And even on geography, we try to see if there's something on the geography side, which contributed unnaturally to it I'm not true so that movement of within insurance and asset managers and asset owners literally within a percent of what it was in your back right.
Speaker Change: Right.
Speaker Change: Thanks.
Speaker Change: Okay, great. Thank you so much. Thank you. Thank you for your questions.
Speaker Change: Our next question comes from the line of Ross.
Ross: <unk> <unk> with RBC capital markets.
Ross: Your line is now open.
Speaker Change: Wonderful thanks, everyone for taking my question nice to see some pretty solid numbers across the board here.
Speaker Change: Maybe first start.
Speaker Change: And a better understanding Jim you called out the impact of <unk>.
Speaker Change: From the coming interest rate cut if we think about maybe the potential for future interest rate cuts.
Ross: I know historically, it's obviously been a tailwind.
Ross: So overall AOR growth AUR growth under the new pricing model that subscription plus model, how should we be thinking about the sensitivity and youll have to give an exact number but conceptually right 50 bps, Colorado that Scott what sort of tailwind would that have an IRR over kind of <unk>.
Speaker Change: <unk> of the.
Ross: Contract, maybe help us understand that sensitivity and I've got a quick follow up.
Speaker Change: I think I'd summarize so I can't give you the exact.
Speaker Change: Specifics, but just for those of US who haven't who haven't been as familiar with the story forever. When we first went public we were 100% AUM and we went up and down after 2022, we pivoted to what we call the base plus model limiting our downside and also modifying to some extent the upside so it's a little bit of a new model for us.
Speaker Change: And then what I've always said in the past as it also depends on the interest rate change impact.
Speaker Change: Also depends very much on the duration and how our clients portfolios are changing and as a result of our insights tool, we're able to see that at least on the corporate side throughout this summer our clients moved from shorter duration into much longer duration and so you have to look at the long end of the yield curve.
Speaker Change: I'll contrast that by saying back in 2022 under the old model when there were roughly 500 basis points of <unk>.
Speaker Change: <unk>.
Speaker Change: Interest rates went up by that amount that became a headwind.
Speaker Change: About 500 basis points. So we think directionally, it's far less than that but that was a very significant move where the entire rate curve pivoted. So look I think it's a tailwind.
Speaker Change: Obviously, we're happy with our interest.
Speaker Change: Interest rate cuts because they did a tailwind it's it hasn't been that meaningful we focus on the underlying growth drivers were of winning new clients doing more for our clients and driving that and that drives a durable reliable 20 plus percent growth algorithm for us.
Speaker Change: But look we're happy about it and it's a bit of a tailwind and we think under our new contract structures.
Speaker Change: The positive impact of that is.
Speaker Change: Somewhat less than the.
Speaker Change: Then what we saw back in 2022.
Speaker Change: We are not giving you a straight answer with numbers, because let's say the <unk>.
Speaker Change: Interest rate goes down by 50 basis points.
Speaker Change: That doesn't translate into anything except that what does it do for bonds.
Speaker Change: Does that take the price up by X percent, what does it do for bank loans, what does it do for Delaware what are the so you have to look at all the asset classes and see what the impact on the price of that security or asset class for US and then what are the distributional platform and therefore effectively how much does <unk>, but to the other part of your question we would.
Speaker Change: Capture most of it.
Speaker Change: So when you think about the contract structure. It would went up let's say about 1% we would capture most of it right, but how much exactly the impact of a 50 basis point cut is on all of these asset class pricing, that's just hard to hard to sort of play out.
Speaker Change: All right no understood. That's helpful framework to kind of think about and then.
Speaker Change: Your prepared remarks.
Speaker Change: Talk about.
Speaker Change: Wanting to preserve flexibility for both partnerships and M&A, obviously M&A has been pretty successful, especially over the past couple of years with chopping real assurance and a few others I want to ask a little bit about partnerships now.
Speaker Change: We're really excited to see that snowflake partnership.
Speaker Change: Past week theme is really exciting just kind of going forward, especially your leverage more gen AI and analytical capabilities. How do you think about your ability to work with other vendors and how partnerships similar to what you have with snowflake and ultimately just add more value for your clients.
Speaker Change: Yeah. So I'll answer one part of it may be so they can talk about snowflake more specifically, but look we were one of the big reasons of wanting to go to AWS was that it.
Speaker Change: As long as you have it on our platform, which many people can use and access then you can open up the platform.
Speaker Change: As you might know from before we are very committed to an open architecture.
Speaker Change: <unk> closed architectures do not drive the market and we feel an open architecture, where you can work with other.
Speaker Change: Other technologies.
Speaker Change: The industry is the powerful way to think about it and that applies to automatic Glenn systems portfolio management system risk management systems.
Speaker Change: And so a lot of energy in 2025 would go into really establishing deep relationships, who can help us grow.
Speaker Change: But we want to be part of that ecosystem, we don't want everything end to end necessarily to.
Speaker Change: To be on Clearwater, but if a client wanted that they would have that option.
Speaker Change: We will be able to provide jumped we will be able to provide will share their own risk technologies, and obviously, our accounting accounting platform. So we could you just talk a little bit about snowflake and what that does for clients certainly.
Speaker Change: Snowflake partnership is concerned.
Speaker Change: Ratio enables our clients to kind of access Clearwater data to the entire snowflake Nick.
Speaker Change: Which means that in case, if our client is looking for a single pane of a reporting solution in a single pane of glass you know they can run this by you know.
Speaker Change: The data showed that and our partnership enables us to kind of the point rich and deep was alluding to on the open architecture and create a one common view about how the portfolio is looking like what is the risk clothing lifestyle is the performance looking like.
Speaker Change: So that has that we believe will give us an update for our clients and solid you know different reporting solution than different thinner glass for for our clients, which honestly speaking our clients everyday ask us why that's the biggest pain point Needless to say Snowflake is also a great client for us so that partnership.
Speaker Change: It's both ways, so I'm very happy to say that.
Speaker Change: Yes.
Speaker Change: That to me.
Speaker Change: Thank you Rishi.
Speaker Change: Well thank you so much.
Speaker Change: Yeah.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from the line of Michael <unk> with Morgan Stanley.
Speaker Change: Your line is now open.
Michael <unk>: Hey, guys. Thanks for taking my question.
Speaker Change: Apologize for beating a dead horse here on the interest rate dynamic I just want to make sure I understand the two point benefit relative to the 50 basis point fed funds kind of like why why conceptually it wasn't so strong like I would imagine.
Speaker Change: A cohort of your insurance clients arent able to pivot their books as aggressively towards the front end of the curve, whereas.
Speaker Change: The asset management and corporate clients are so maybe just any high level views on why the AUM impact was so pronounced.
Speaker Change: Yes, I think the thing you got to think about is.
Speaker Change: Don Index too much on the 50 basis points of index on what did that do to the price of municipal bonds. What is that due to the price of corporate bonds, what does that do to bank loans, and so youre going to think about the price of assets.
Speaker Change: And asset pricing moves because of the interest rate, but also sometimes with the expectation of a change of the interest rates. So all of that combines to give you a change in the price of the asset.
Speaker Change: And is that a surprise goes up by 2%, let's say, we would capture much of that as growth in IRR because.
Speaker Change: Billing to them is based on obviously, we limit the downside, but the upside is shared so it did go up by a certain percent we would capture that so theres no.
Speaker Change: There isn't a mathematical way to calculate the one or the other what it does is increases the price of assets and that reflects in the AUM and that reflects on the IRR.
Speaker Change: I don't know, Michael if that's clear or not but we're happy to sort of obviously also trying to provide more clarification.
Michael: No that's helpful and maybe just a quick follow up on.
Speaker Change: On the implied <unk> revenue outlook.
Speaker Change: Any sort of puts and takes just in terms of why the guide to the slightly slower growth rate in fourth quarter. It looks like the prior year comp is a little bit easier than what you faced in <unk> and obviously, the overall demand environment and the new product strength is is it really starting to kick into high gear here. So just any high level commentary there would be helped.
Speaker Change: Yes, Michael I think that this is Jim if you if you look at our history.
Michael: Of what we do.
Michael: We think it's very important for us to do.
Speaker Change: Deliver on.
Speaker Change: What we guide and that's been our history and I think we we feel that way in fact, I said at least.
Speaker Change: The revenue number for Q4.
Speaker Change: For the guide there so I think I think we feel confident but.
Speaker Change: I think after such great results in Q3, I think we feel comfortable with where we sit in la.
Speaker Change: Looking at Q4, and we'll talk about 2025 after we report Q4.
Speaker Change: I just want to add.
Speaker Change: Thanks, Tim.
Speaker Change: To put that as we see any weakness or see any softness of control. We just feel at this point.
Speaker Change: Good guide.
Speaker Change: Thank you both.
Speaker Change: Okay.
Speaker Change: Thank you for your questions.
Speaker Change: Our next question comes from the line of Peter Heckmann with D. A Davidson.
Speaker Change: Your line is now open.
Peter Heckmann: Hey, good afternoon, most of my questions have been answered, but I was wondering if you could comment a little bit about the.
Speaker Change: The longer term road map.
Speaker Change: And the functionality that you are looking to either build or acquire as you increasingly targeted that four basis points.
Speaker Change: In investment management.
Speaker Change: <unk> spend.
Speaker Change: Yes, Thank you Peter.
Speaker Change: This is <unk>.
Speaker Change: Zane level, because we are sitting here building out the planning for 2025.
Speaker Change: I just have to sort of firstly say that I don't think directionally very much is changing.
Speaker Change: Are you going to see us continue to make a real amount of investments and alternatives. Yes, we are.
Speaker Change: Are you going to see us continue to build out a jump offering to provide a high quality order management system and a portfolio management system. Yes. We will do you expect to see US continue to do more work on the risk and compliance space. Yes, we will we obviously about virtual for that unless you're going to continue to build that yes. We will so I do think a lot of it.
Speaker Change: It is about being able to provide clients and into N solution should they wanted.
Speaker Change: But I think it was really important for us to be thinking about ourselves as an open architecture.
Speaker Change: Historically companies that have tried to both close systems don't work.
Speaker Change: What succeeds overtime is really what our open system. So again opening up our platform to allow partnerships with multiple order management systems multiple risk systems multiple regulatory reporting systems, all while having one data clean and one security Master is what we are building.
Speaker Change: So we're building a little bit more for the international markets Yes.
Speaker Change: As more nascent than here are we building move asset owners, yes, we are and so but those are just two weeks I think based on what we think what the market, but in the GTS.
Speaker Change: Think little will change, we will obviously invest more resources as we continue to grow we'll invest.
Speaker Change: Some more money in R&D do we continue to expect to invest 60% of all R&D dollars on growth, Yes, we will all be happy with the innovation. We are actually now we're happy but we are quite satisfied with where we are and we expect all these new innovations to mature more through all of 2025 and get us.
Speaker Change: To a much more durable position, but the review of 2000 2600, Jim would you add anything to that perfect.
Speaker Change: Yes.
Speaker Change: Okay. That's all I have for this evening have a great day.
Speaker Change: Good day thank.
Speaker Change: Thank you Lee.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from the line of Aleksey <unk> with J P. Morgan.
Speaker Change: Your line is now open.
Speaker Change: Thank you, Hi, Sandeep gyms, who b.
Speaker Change: Also congrats with very strong results, Jim I had a follow up question on the guide.
Speaker Change: It sounds like you're suggesting that <unk> guys maybe I'm.
Speaker Change: Conservative.
Speaker Change: And it does imply on EBITDA margin.
Speaker Change: Youre looking for lower the margin in <unk> versus <unk>.
Speaker Change: So I was wondering if there is anything that you.
Speaker Change: Late in the fourth quarter, and maybe some elevated expense.
Speaker Change: And in addition to that are you still committed to deliver 200 gig so I think I am.
Speaker Change: Margin expansion next year.
Speaker Change: Let me start with that last thing Alexia, 100%, we're committed to delivering.
Speaker Change: At least 200 basis points of margin expansion next year on wherever we end here.
Speaker Change: In 2024, now let's talk about Q4.
Speaker Change: Last quarter, we talked about investing a bit in.
Speaker Change: In the second half of this year to fortify our growth rate.
Speaker Change: Not only in 2024 and 2025, but to make the investments now.
Speaker Change: While already delivering on the 200 basis point improvement in 2024 exceeding that in 2024 and using some of that expansion and the efficiency that <unk> and her team has driven.
Speaker Change: To make incremental investments that are going to fortify that growth in the future Sandeep mentioned four names in his <unk>.
Speaker Change: Prepared remarks.
Speaker Change: Just on the international go to market side, we continue to see that we're adding more folks on the go to market side.
Speaker Change: Including in Q3, we added Florida, our Chief marketing Officer and.
Speaker Change: But I would also say that we are looking for.
Speaker Change: Adding multiple people in the go to market and product side in that expertise.
Speaker Change: I think we're very happy with how we've built up a partnership program and that's enabling us to do some of the.
Speaker Change: Things that Cindy talked about and so we're looking at Q4 as an opportunity.
Speaker Change: To build to that I would say also the revenue be in.
Speaker Change: In Q3 flowed straight through to the EBIT to be in Q3, and when you normalize for those youll see that that the.
Speaker Change: The guide there was 32% and so so I think we feel.
Speaker Change: Look it's a privilege to have optionality to think about investing for the long term.
Speaker Change: And that's how we've approached the fourth quarter.
Speaker Change: Okay.
Speaker Change: Great.
Speaker Change: And then second question either to send repurchase Sui.
Speaker Change: This northlake integration.
Speaker Change: That you recently announced could you elaborate a bit more on potential financial impact.
Speaker Change: Impact.
Speaker Change: Do you think you could see and you leverage on Opex from this integration, perhaps maybe lower R&D expense.
Sandeep Side: Yes. This is sandeep look eventually absolutely I think right now we deliver filed so if you want my savings. So we do want to just take the space.
Speaker Change: I think that this is will be a there are two.
Speaker Change: Places are probably Directionally, where we would have.
Speaker Change: They would be we would see a positive impact number one being how when the new data sources or new platforms or new technologies come in how do you integrate there. So that was a little bit of a setup effort, which was required to be able for us to kind of make sure that the data flows so that over a period of.
Speaker Change: We see are going down and having a positive impact the second being on the cycle times of Onboarding as we kind of onboard new assets and as the Onboarding books and as we onboard the new data sources.
Speaker Change: That itself has a cycle time of its own and thereby impact revenue recognition. So I anticipate as we continue to strengthen this partnership and the one level goes that you will see a nice uptake.
Speaker Change: Sure.
Speaker Change: In the implementations and Onboarding cycle times, and thereby revenue.
Speaker Change: Now, let's see I think I would just say that look I think we did it first and foremost.
Speaker Change: Client delight, one tends to be really happy about it secondarily, we're going to save us money yes.
Speaker Change: I think what Jim said is true on both counts I think he said that we're committed to doing 200 basis point improvement next year on EBITDA, but also we are committed to improving gross margin 50 basis points I mean come into doing that too. So affiliate helps on gross margin, but really the reason for doing it was our clients are going to be a meaningfully.
Speaker Change: Happier when disruptive assets and doing Onboarding.
Speaker Change: Oh clear. Thank you. Thank you.
Speaker Change: Thank you for your questions.
Speaker Change: Our next question comes from the line of Gabriela Borges with Goldman Sachs. Your line is now open.
Gabriela Borges: Hey, good evening, Thanks for taking my question.
Gabriela Borges: On the pension I wanted to ask you a little bit about your 2025 planning process.
Speaker Change: I'm thinking back to Investor day, and the targets you've put out there right now all the progress that you've highlighted in the prepared remarks, not just this quarter, but over the last handful of clients.
Speaker Change: I think the easy answer here on what are your priorities in 2025 as Geoff Martha.
Speaker Change: Maybe one or two priorities that are incrementally to the task given all the progress that you've made over the last year. Thank you.
Speaker Change: Thank you Kevin look I think that's a really good observation I do feel.
Speaker Change: Very differently from the Investor day about our operations. It works very well and this will not be just seeing as we look at the gross margin for this year is 110 basis points ahead versus we had talked 50 basis points ahead, which talked about EBITDA being 200 basis points ahead. In this 290 basis points ahead, so I feel a lot.
Speaker Change: More confident about our ability to continue to scale and that I think gives us a bit of a license to be more ambitious about who clearwater could be and so what you think.
Speaker Change: Thank Jim also reference that a little bit and said look we have $290 million of that cash and that gives us optionality. So I think what has changed in our thinking is in 2025 and beyond that.
Speaker Change: How do we pivot to take a more.
Speaker Change: Aggressive position, if you will in the market.
Speaker Change: Why would we want to do that one is our clients are really happy.
Speaker Change: So when you have an NPS like we do.
Speaker Change: And they have real team it sort of gets them to think about what else can clear where to do so I do think on the margin you would see us be more aggressive on opportunities of partnership opportunities in M&A.
Speaker Change: And frankly opportunities of using technology.
Speaker Change: Like Jimmy I hope to continue to improve our performance even faster so focus on growth, but with somewhat more aggression on what we might be tomorrow or thereafter.
Speaker Change: Thank you that's all for me Thank you Kimberly.
Speaker Change: Thank you for your questions.
Speaker Change: Our next question comes from the line of Dylan Becker with William Blair.
Speaker Change: Your line is now open.
Speaker Change: Hey, Sandeep <unk> I appreciate the question here I'll just ask one for the sake of time, but maybe.
Speaker Change: Sandeep for you wondering if you could talk to the momentum youre seeing with upmarket insurers I think you called out another large win in the quarter.
Speaker Change: There is obviously a substantial opportunity to drive adoption here, but.
Speaker Change: Maybe thinking about the nuances here and the progress you're making in that segment of the market as they maybe have a growing propensity to expand to spend and expand excuse me.
Speaker Change: Yes.
Speaker Change: Look I think we get excited when we take a large client.
Speaker Change: A large insurer, who thinks about the onboarding and the 234 year timeframe and we can bring them live and are your core 12, 14, 15 months and so that's exciting and that's why we announced it because you can take.
Speaker Change: Really a significant insurer and bring them on board that quickly.
Speaker Change: So thats what you pointed out look I think this continues to be real opportunity in that market.
Speaker Change: There is pain as you all know there is more premium from alternative assets as they continue to invest more in alternative assets and Thats really all this he has talked about we are building more and more there but at the basic platform just works.
Speaker Change: The basic platform works it does well it scales well so really why are we spending all of this money.
Speaker Change: On R&D.
Speaker Change: This is the reason that I do think alternative assets continues to grow and our ability to service them well is is important and.
Speaker Change: I think on the margin I think large insurers is a big target area for US we continue to win there and we hope to continue to window over the next two or three or four years.
Speaker Change: Great. Thanks, Andy Congrats good.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from the line of Michael <unk> with Wells Fargo.
Speaker Change: Your line is now open.
Michael <unk>: Hey, great. Thanks for thanks Rami.
Speaker Change: I'll keep it to one as well just given the.
Speaker Change: The time constraints you have gotten a number of questions just on the retention characteristics of the uptick I wanted to just spend some time more specific way.
Speaker Change: <unk> plus business model, which the team did.
Speaker Change: A remarkable job of executing on and that tougher environment. Previously. So maybe you could just help level set for us scenarios that the base price model now enables is it.
Speaker Change: Still AUM base change on top of the more stable base I think just given we're now seeing trend lines improved when I go back to <unk>.
Speaker Change: <unk> scenarios, there understand the upside scenario.
Speaker Change: As robust as it was in the prior model and maybe just spend some time revisiting that.
Speaker Change: For a public commentary throughout.
Speaker Change: Yeah. Thanks, Michael So I think it has been it has been successful we obviously implemented it in a time when we were worried about assets going down and it stabilized.
Speaker Change: <unk> during that period of time, we still capture.
Speaker Change: The upside as far as AUM so.
Speaker Change: So we have that is what the pluses for as assets grow.
Speaker Change: We have that basis.
Speaker Change: I think the other thing that we did that has turned out to be far more strategic is that we also defined what we sold at the time of sale to the client and that has enabled us to really enter into this multi product.
Speaker Change: <unk> cel program.
Speaker Change: Hi.
Speaker Change: If you go back five or 10 years, we just built everything onto our platform and just added it and rolled forward and so I think when you see some of the upside of course, there's a tailwind from AUM, but there's also you're also seeing a tailwind through the cross sell of these new products and it helps everyone because because we.
Speaker Change: Commercializing these products discreetly, we're able to understand the ROI and really invest in doing more for our clients. We've been able to turn things from what was a burdened.
Speaker Change: Collectively for all of us into an opportunity.
Speaker Change: For both of Us.
Speaker Change: And both our clients and for Clearwater and I'll just use one small example of this and AIC hat Soobee should be described at all where this was a significant change and we've been able to enable our clients to kind of.
Speaker Change: Execute with very little burdened on their behalf to this change to the significant regulatory change.
Speaker Change: Change for them.
Speaker Change: And guess what.
Speaker Change: They are very comfortable.
Speaker Change: Pain.
Speaker Change: For that service and for us to solve that problem for them. So that's kind of a small example of a real nice win win.
Speaker Change: Okay.
Speaker Change: That's great detail. Thank you. Thanks.
Speaker Change: Thank you for your question Michael question Michael.
Speaker Change: That concludes today's call. Thank you for your participation and enjoy the rest of your day.
Speaker Change: Okay.
Speaker Change: Do you want to say some lost for good.
Speaker Change: It's we're still go ahead.
Speaker Change: Hello.
Speaker Change: I just wanted to thank the Clearwater team and these results were extraordinary but theyre not generated by Jim or myself or <unk>. It is the team, which does but I also wanted to take a moment to thank the board Special Committee, which did extraordinary work and bringing the TRA termination proposal.
Speaker Change: To our shareholders for ratification underwrote. So thank you all and thank you for your interest in pure.
Speaker Change: Okay.
Speaker Change: [music].