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Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Clearwater Analytics First Quarter 2023 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, to begin the conference.

Joon Park: Thank you, and welcome, everyone, to Clearwater Analytics first quarter 2023 financial results conference call. Joining me on the call today are Sandeep Sahai, Chief Executive Officer; and Jim Cox, Chief Financial Officer. After their remarks, we will open the call to a question-and-answer session. I would like to remind all participants that during this conference call, any forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Expressions of future goals, including business outlook, expectations for future financial performance and similar items, including, without limitation, expressions using the terminology may, will, can, expect and believe and expressions which reflect something other than historical facts are intended to identify forward-looking statements.

Forward-looking statements involve a number of risks and uncertainties, including those discussed in the Risk Factors section of our filings with the SEC. Actual results may differ materially from any forward-looking statements. The company undertakes no obligation to revise or update any forward-looking statements in order to reflect events that may arise after this conference call, except as required by law. For more information, please refer to the cautionary statement included in our earnings press release. Lastly, all metrics discussed on this call are presented on a non-GAAP or adjusted basis and include the results of JUMP Technology since the acquisition on November 30, 2022, unless otherwise noted. A reconciliation to GAAP results can be found in the earnings press release that we have posted to our Investor Relations website.

With that, I’ll turn the call over to our Chief Executive Officer, Sandeep Sahai.

Sandeep Sahai: Thanks, Joon, and welcome all to our Q1 earnings call. We delivered a solid Q1. Let me start by discussing our revenue. As a SaaS-based solution, onboarding clients successfully and making them live on our platform is key to driving revenue and ARR growth. As you know, over the last few years, we have invested in setting up a scalable onboarding capability across the world, and we are now consistently delivering multiple programs concurrently. We were successful in bringing 29 clients live this quarter, some with hundreds of billions of dollars and others with a few hundred million. Simply put, revenue is better in Q1 because we continue to successfully onboard new clients and delight them. Clients like Athora, Corvid Peak, DARAG, UBS and many others went live on our platform under the leadership of our Chief Client Officer, Subi Sethi.

She has built an organization that delivers consistently and repeatedly for clients, small and large. Centers in Boise, Noida and Edinburgh work closely with program leaders in London, New York, Boston, San Francisco and other offices to bring new clients on board often in less than four months. And in a vast majority of the time in less than nine months. The expanding network effect and the single instance architecture allows us to continue to make gains on the onboarding effort required to bring new customers’ lives. In general though, we are a critical business solutions provider. As I’m sure you’re acutely aware, the volatility of the investment landscape continues and it’s in times like these that our platform shines brighter and our customers need us even more.

One perfect example of this is SVB Asset Management. When Silicon Valley Bank, the parent company close the door, the more than 2,000 clients that received Clearwater reporting on their assets through SVB were left in a state of flux. After the news broke, our client servicing and technology teams worked over the weekend to provide these clients direct access to the Clearwater platform and to the portfolios, which, in turn, allowed them to understand their positions and investments. We supported the ability to not only get to their data but also help them understand their exposure and risk. When SVB landed with First Citizens Bank, we seamlessly turned access back to the new entity. The fact is we care very deeply about the success of our clients, whether they are direct or indirect.

We believe that this focus and commitment allows new clients to come to the Clearwater platform with confidence. Speaking of new clients, we continue to sign new logos and are very excited to announce the Bank of America Private Bank and Merrill Lynch on our clients of the company. Asset managers continue to migrate to the Clearwater platform to grow their business by offering their customers comprehensive and timely reporting across asset classes and countries. And while doing that, they also dramatically improve the efficiency of the operations. We are excited to announce several other new logos, including Robinhood, Becker Capital Management, Arrowood Indemnity Company, Elastic, and Pacific Biosciences of California. We continue to see acceptance across market segments and geographies.

On the product side, we are excited about the continuing maturity of our Prism platform. Building on the success of the seven-figure Prism deal in Europe announced during the last quarter, we closed another significant Prism deal where we will provide a comprehensive report on over $50 billion of our clients’ assets. Here, again, they will use the platform for high-quality and inclusive client statements and reports. This is exciting because this is another proof point that Prism is allowing us to become the client reporting platform of choice. As we continue to invest in R&D and a multiproduct strategy, we are very excited about the progress our alternative assets initiative has made in 2023. Our focus on the alternative asset space has been instrumental in winning new logos and deals.

Testament to that is the fact that in the last 12 months, approximately 40% of the net AUM added on our platform has been alternative assets. Based on feedback from our clients, we believe we are already delivering a best-in-class solution, but we are not satisfied. We will continue to invest in this program as we seek to bring disruptive solutions for LPs, mortgages, derivatives, bank loans and other asset classes. We have already integrated gap for the 11 largest global markets into our platform, and we are developing additional 6 bases, which will support our global portion. Finally, we are also investing in capabilities like insight and self-service, which will likely bear fruit in 2024 and beyond. A vast majority of our investments have been focused on ensuring that the platform continues to scale across client segments, asset classes and geographies.

This has been very successful, and we expect to reduce the investments needed on that front as we close out 2023. Next, I would like to talk about the global opportunity. In Q1, I personally spent time in Europe and Asia with our teams, customers and prospects. I was struck by the commonality of opportunities and issues our clients face in these markets. If anything, the diversity of the accounting standards and regulations, make the demand for us usually even more compelling. The problems are exactly the same across markets, and our platform has proven to be as capable of providing a disruptive solution in Europe and Asia as it has been in North America. In support of this, we appointed Scott Erickson as our Chief Revenue Officer, to lead sales globally.

Scott already led this function for North America and Asia and now adds Europe to his portfolio. He has embarked on unifying our global sales organization, ensuring consistency in the approach, process and messaging. Our other operating functions are already value globally. Subi Sethi leads operations and so it does lead technology. This structure allows us to move faster and deliver informally as one Clearwater across the globe. The integration of JUMP Technology is proceeding very well. We have an excellent partner Emmanuel, the JUMP Technology Founder and President and are working actively to provide a comprehensive solution for asset managers of all sizes and complexity. Integrated technology, sales and product teams have been working together since the beginning of the year.

Lastly, let me talk about the team. We continue to hire across every office in line with the growth of the business. In Q1, we expanded our return to office policy. In my visits to different offices, I’m inspired by the enthusiasm and collaboration that I see within our team and that only comes from being together in the office every day. As I interact with the team, I’m continually pleased that our focus on building an outstanding engaged team shine through in each person. I’m very proud of this team and the passion and customer focus to bring to the office every single day. With that, let me turn it over to Jim to talk in more detail about our numbers.

Jim Cox: Thanks, Sandeep, and thank all of you for joining us. I’m happy to report good Q1 2023 results. Let me start with the top line and the metrics that drive revenue. In Q1 2023, we delivered 20% year-over-year revenue growth despite a macro market environment that certainly felt the impact from the challenges with regional banks, which happened to comprise approximately 2% of our revenues in Q1. First quarter revenue was $84.6 million or $1.6 million higher than we expected when we provided our guidance. We were able to deliver this revenue and beat our guidance based on the successful and faster-than-anticipated onboarding of new client assets during the first quarter. We reported annualized recurring revenue, or ARR, at the end of the first quarter of $337.4 million, an increase of 17.5% year-over-year.

While we were heartened by the reacceleration of growth in ARR and the Q1 sequential growth of $13.9 million, which was better than the first quarter of both 2022 and 2021, we won’t be satisfied until returning ARR growth to 20% plus. As of March 31, 2023, the gross revenue retention rate rounded to 97%. Actually, to be specific, it was 97.4%. This was the first time that gross revenue retention dipped below 98% in 17 quarters. And this was due to a confluence of churn related to acquisitions among our corporate insurance and asset management clients in Q1 of 2023. In general, our clients are more likely the acquirer, but when our clients are not, we will have our sales teams stay close to the acquiring company to be ready when they need better reporting.

In the first quarter, net revenue retention remained the same as the prior quarter at 106%. We were assured by this good number because it aligned with our expectations. But of course, we strive to do better. As we indicated last quarter, we expect net revenue retention to remain near these levels as we build out our multiproduct offerings. It’s also worth noting, we’ve made our new commercial model, our de facto standard of contract. And in this quarter, essentially all of our new clients signed at base plus contract. As a reminder, the base plus contract framework includes a base fee for a prospective clients existing book of business, plus 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 service.

This base plus structure has the effect of limiting the downside volatility in our asset-based fees. Over the next 90 days, we will roll out our new market-specific offering bundles. This is an important next step in our journey to becoming a multiproduct company, and we look forward to updating you on that initiative at our next earnings call. Now let’s turn to our profitability results. We reported $22.5 million in adjusted EBITDA and 26.6% EBITDA margin in the first quarter, a solid result and better than our guidance based on the revenue beat and prudent expense management. Gross profit in the first quarter was $64.2 million, and gross margin came in at 75.9%, which is a significant improvement from the 74.2% in the first quarter of 2022.

Gross margin continues to be robust even as we continue to invest to build our global scale. Research and development expenses in the quarter were $22.7 million or 26.8% of revenue, an increase of $2.6 million from Q4. R&D expenses include three months of JUMP expense in Q1 compared to the single month in Q4. Sales and marketing expenses in the quarter were $10.2 million, an increase of 18.4% year-over-year, and that equates to 12.1% of revenue. Sales and marketing expenses typically ramp up throughout the year as annual quota achievement bonuses are earned, and there is more marketing spend in Q2 and Q3. General and administrative expenses in the quarter were $8.8 million or 10.4% of revenue, an increase of $1 million from Q4 based primarily on the timing of professional services fees.

On a GAAP basis, there was a $6.4 million increase in G&A expenses from Q4 to Q1. The primary driver of the increase is the $3.3 million of equity-based compensation associated with the JUMP acquisition as well as a $1.3 million increase in equity-based compensation to management and a $0.9 million increase in transaction fees associated with the secondary offering. The JUMP equity-based compensation was negotiated as part of the acquisition of JUMP Technology. Speaking of the JUMP acquisition, as Sandeep mentioned previously, we continue the integration process of JUMP in the first quarter, and we are happy with the progress. We’ve created joint teams to merge our development efforts and business functions, and we are excited by the pipeline.

We see demand from our existing client base and with investment management prospects in North America to desire an end-to-end solution. In fact, we’re also excited to announce that in early Q2, our first Clearwater client selected JUMP Technology to augment their Clearwater solution with intra-day portfolio management supported by JUMP. Let’s turn to the balance sheet and cash flow. We ended the quarter with $256.8 million in cash, cash equivalents and investments and $49.9 million in total debt, resulting in net cash holdings of approximately $207 million. During the quarter, we began investing our excess cash in fixed income securities for excess yield. Perhaps it goes without saying, but of course, our team is yet another happy user of the Clearwater system for our investment portfolio.

Free cash flow for the first quarter was $6.2 million, representing year-over-year growth of 33%. Free cash flow also included $1.7 million of capital expenditures. EBITDA to free cash flow conversion is lower in the first quarter of each year as we typically pay year-end bonuses and commissions. Within the financing activities of the statement of cash flow, you will notice that we used $7.3 million to pay taxes related to the net settlement of shares. We elected to net settle certain RSUs and options to limit the dilution to shareholders from equity-based compensation. Now let’s turn to guidance. Focusing on guidance for the second quarter of 2023, we expect revenue to be $87.5 million and adjusted EBITDA to be $22.8 million. In Q2, we expect an adjusted EBITDA margin of approximately 26%.

For the full year 2023, we have increased the low end of the revenue guidance range from $361 million to $362 million and now expect revenue for the year to be in the range of $362 million to $364 million, which represents approximately 19% to 20% year-over-year growth. The guidance we provided previously for all other measures remain unchanged. After another quarter of strong execution in Q1, we look forward to continuing to reaccelerate revenue growth by building on our leading competitive positioning with further integration of JUMP and the execution of our full multiproduct solution. With that, I’ll turn it over to Sandeep to provide some closing thoughts.

Sandeep Sahai: Thank you, Jim. We appreciate your interest in Clearwater Analytics. We continue to be focused on execution and remain cautiously optimistic despite the macroeconomic conditions. As always, we remain relentlessly focused on our clients’ long-term success and supporting them as the benefit from our technology’s powerful network effect. With that, let me turn it over to the operator for questions.

Operator: [Operator Instructions] The first question comes from the line of Kevin McVeigh of Credit Suisse.

Operator: Thank you. The next question comes from Rishi Jaluria of RBC. Please proceed.

Operator: Thank you. The next question comes from James Faucette of Morgan Stanley. You may proceed.

Operator: Thank you. The next question comes from Michael Turrin of Wells Fargo. You may proceed.

Operator: Thank you. The next question comes from Jackson Ader of SVB MoffettNathanson. Please proceed.

Operator: Thank you. The next question comes from Gabriela Borges of Goldman Sachs. You may proceed.

Operator: Thank you. The next question comes from Dylan Becker of William Blair. You may proceed.

Operator: Thank you. The next question comes from the line of Brian Schwartz of Oppenheimer. You may proceed.

Operator: Thank you. The next question comes from Yun Kim of Loop Capital Markets. You may proceed.

Operator: Thank you. There are currently no additional questions registered at this time. So I would like to pass the conference back over to the management team for any closing remarks.

Sandeep Sahai: Yes, I just want to thank all of you for your interest in Clearwater. We’re trying to build something special here and your involvement with us is very much appreciated. Thank you all.

Operator: And with that, we will conclude today’s call. Thank you for participating. You may now disconnect your lines.