Pulling on the software team here at RBC, and I'm delighted to have with me Sandeep Sahai, the CEO of Clearwater Analytics. Thanks for coming. Sure. We're happy to be here. Yeah. And so just to kind of set the stage, you know, can you talk a little bit about Clearwater, where they sit today in terms of investment accounting and analytics, and just kind of the expansion that you're going through to a multi-product platform? Okay, that's called a softball question, but okay, I'll tell you a little bit about what the company does. So essentially what we do is we provide investors or asset owners with a global view of their assets every morning. So that includes everything they sold yesterday and what they bought, any asset class, any country. So if you are, let's say, an insurance company and you want to look at what happened yesterday or in the last week or the last two weeks, we provide that to you every morning. What do you use that data for? Well, use that data for making investment decisions, not at a subsector level, but across your portfolio. You do that, use that data for doing risk management. Again, risk in a certain asset class is interesting, but risk across a portfolio is obviously much more interesting. And then use it for compliance. Again, compliance on an asset class, but across the portfolio, regulatory reporting and actual accounting. So for almost all of our customers, we are the book of record. So we are the one who feeds, if you will, a general ledger of the financial systems. So what the company does is provides that to clients. And you may be thinking, you know, how did you do it before? Well, what companies did was they used to invest in equities and bonds, and pretty much that's it. That's what insurance companies did. But in the last decade, they've started investing in limited partnerships. They started investing in private credit, into mortgages, into real estate. And so when you think about the plethora of asset classes, accounting for that on a daily basis becomes super complicated. But that's not the only vector. The other vector is countries. People from here started investing in Europe, in Germany, in France, in the UK, but also in Asia. So they're investing in India, in China, in Japan, all of that. And you want to see an aggregated view of your assets around the world so you can make decisions at the senior most level. And that's what Clearwater does. So, you know, that sort of gives you a sense of what we do. Yeah, that's great. And then so I guess with the acquisition of JUMP, you guys extended it a little bit into the front office side of things. Can you talk a little bit about just kind of, are there any gaps to fill to meet that end-to-end investment life cycle, or just kind of maybe how the competition set changes as you go to fill that end-to-end investment life cycle? So essentially, though, what Clearwater does is everything after the trade is done. So we're not really in the trading system as much as after the trade is done. So 4:00 P.M., you've done all your trading. We will go and grab from your trading systems directly what you did. So we will go grab that data. We'll also go to every manager who manages your money for you, and maybe some of you do. And we'll get a daily report from you on what you did on behalf of a client. And then we'll go to every custodian and say, "Hey, show me what a client has." And we get the T&Cs from the custodian. And then we'll also go to all the market sources and say, "What's the price of this asset? What are the terms and conditions changes of this municipal bond?" Whatever that might be. So on an every evening basis, we'll get all of that data, we'll aggregate it, and we will normalize it, and we'll do the accounting for you. And so when you think about competitors of who else does that, well, literally, it's very hard to come up with a name. And so what you have in our industry is companies which are meaningfully bigger, but they usually address one or two or three asset classes. Or they'll do German GAAP reporting, or they'll do Japanese GAAP reporting. But there aren't software in the world which is sort of this new age cloud native single instance multi-tenant. I mean, our platform, it is the same platform whether you are a $100 million asset manager or a $500 billion insurance company. In both cases, we probably have your full book globally. Why do we have to have that? Because without that, it doesn't make sense, right? I mean, how do you do risk reporting if you don't understand your whole book or regulatory reporting or compliance checks? So that's how we do it. Now, you talk about JUMP. So we'll come back to one more second. So investment accounting is about one B, give or take a little bit. And so that's the market we've been in for the last 10 years. Our revenue guide this year is about $440 million of revenue. And if you go back five years, we have continued to grow pretty nicely at about 20%+ for each of those years. I think Q1 our growth rate was 21.4%, something like that. And so in one sense, we feel like we have a really long runway in just that. Just keep doing investment accounting and analytics. You know, look at other industries which need it, look at other geographies. And so there's a, is it a $10, $11, $9 billion TAM? Something of that order of magnitude. So we feel like we have a lot of runway. But as Richard said, we're also thinking about what else we could do for our clients. So what you could do is obviously, if you do it after the trade, can you do things before the trade? And so we bought this company called Jump. And Jump, what it does is order management system, portfolio management, and end-to-end for an asset manager, right? So we bought that asset to start to move from addressing one B to four Bs. Now, it's nothing we need today or in 2025, but we will need it, I think, in 2026 and 2027. As you know, companies sometimes when they get bigger, then growth slows down. Now, that hasn't happened to us in five years, but that's because we are continuing to invest two, three years out. Because if we don't do that, then I do think growth slows down at some point. So we could feel really happy about $10 billion and say, "Excuse everything else, let's just do this." It's just not the right approach when you think about continuing to grow the business. Great. You've been quickly innovating with products or add-ons that are directly tied to asset classes. There's been a new product for LPs, a new product for pooled funds. When we think about just kind of adding new products for different asset classes, how should we think about that kind of upgrade from what's on the core platform and then just kind of how you're monetizing it? Yeah, so this is all an effort to, if you think about our business, other competitors are usually doing one or two asset class, one or two countries. So we've been a lot. We win 80% of the time. If we write a proposal, we're going to win 80% of the time. And it's not like we lose the 20%. In that 20%, about 15% is when the client says, "Yeah, it's a good solution, not right now. I'll do it two years from now, three years from now." But we rarely lose to competition. It's not like someone is going to leave one of our legacy providers and go to another legacy provider. That would be pretty strange. So it's not like we win a lot. We don't win in our markets. So then the question is, why are we developing other products? A client may say, "Okay, you do accounting for LPs really well." But the problem is LPs are the papers that come in. So if you have invested in 100 partnerships, you know, you could have private equity fund one and fund two and fund three, and you got 100 of these, and you got hundreds of these coming in every quarter, think about the amount of paper you got to manage. Then you got capital calls and you got redemptions, you got all of these things. So we developed this product called LPx. What that does is takes all of the paper directly and sort of goes to the constituent element of what they own and sort of processes it and tracks it for our clients, right? The only thing I'd add in that is Clearwater single instance multi-tenant. So what does that mean? If I input something about private equity fund one and 500 or 200 of my clients are using fund one or own fund one, I process it one time. So every security which I process, we process it one time no matter how many people get to see it. Which is why when you think about our gross margin, it used to be in the high 60s historically, went to 70%, 72%, 75%, 77%. Q1 was 78%. Because for every new client, I sort of have to do less work. Because some of those securities are already there on our platform. Some custody connections are already there on our platform. So every new client makes it sort of better. And that's why we feel we can develop adjacent products because clients sort of develop it, co-develop it with us, and we can take it to market faster. Great. So in addition to adjacent products, you've also moved into serving adjacent end markets. So, you know, historically, insurance, asset managers, corporate treasury, but increasingly one new logo's around pension funds, hedge funds. So how do we think about just kind of the extension to other areas? And which of those, I guess, end markets do you think is the biggest untapped opportunity by Clearwater? Yeah. So you know, if you think about it, a Single Instance Multi-Tenant, so it's not like we launch a product for pensions. That's how it works. The way it works is we may do some reporting for pensions that are different. That's it. So the need for pensions is a little bit different from a corporate treasury. But the entire platform is a Single Instance Multi-Tenant. So can we go into pensions? Yeah. To the extent that they also want to see a comprehensive view of their global assets daily. That is the position of what the company does. Same thing with endowments. Same thing with sovereign funds. Same thing with state and local governments of municipalities. So anyone who needs to see a comprehensive view of their portfolio on a daily basis, that's what we do. Now, we don't do it for you personally. But think about it. Do you know your overall portfolio return? And how hard it is that you have an Excel spreadsheet with a bunch of usernames and passwords. And once in a while, you go look into all of these accounts and try and figure out what your return is. That's all very well. Till you're managing $20 billion or $50 billion. And the point is we do that for our clients. And without that, I think they have a hard time collating it from all of these accounting systems around the world and keeping track of regulatory reporting and things like that. So that's, you know, what Clearwater tries to do is address that for any industry where people need that. We don't do it for you quite yet, but there's really no reason we should. But we do it for more complicated asset books, obviously. Got it. So we've talked about adjacent products, adjacent end markets. I guess the last kind of piece of the growth story really is the, you know, international side. So you mentioned a little bit earlier how should we think about, you know, both the from a product and go-to-market side, how does Clearwater kind of expand into other geographies? And then also within that, just how should we think internationals, I think around 20% of revenue today, how should we think about that over time? Yeah, so I remember my initial pitch to you was that if an insurance company here had assets anywhere in the world, we were accounting for it already, right? So if somebody had assets in Europe or in Asia, we were accounting for that already. So for us, going to Europe was pretty natural. I don't think the platform changes. Same platform. What does change is the local regulations were different. So we had to build out French GAAP and Italian GAAP and German GAAP and all of the local GAAPs and the local regulatory reporting needs. But the value of our platform is that once you do it, it's available for everyone instantaneously. And that is the power of the platform. So the question is, what do we think about the market? You know, at least in the U.S., you have U.S. GAAP across the country. Not true in Europe. Every country has its own GAAP. And so their problem, if you are running an insurance company or a corporate or whatever with assets all over Europe, yeah, best of luck. Try and figure out on a daily basis what your comprehensive position is, right? And what Clearwater will do. So we think the insurance market in Europe is just bigger, some would say of the order of magnitude of 2x or what the U.S. market is. Asset management is completely different. The U.S. is much bigger in the asset management TAM versus the European TAM. But in insurance, it is Europe is much bigger. So we have been investing in the last year and a half, two years, a real significant amount of money setting up offices in London, in Paris, in Frankfurt. We set up a big center in Edinburgh, which has now scaled quite nicely. We also set up an office in Singapore, in Hong Kong. Are all of these working perfectly? No, they're not. You know, these countries take time. I've sold there before. So it's a little bit ahead of time. And we don't need it for 2024, but you will need it for 2025, and you will need it for 2026. And in these countries, you're either in or not. And so we now have over 100 clients in Europe. We have some major clients there. I think we announced one that went live last year was Aviva. And that was a big name because they obviously, as you can imagine, have assets all over the world and super high level of complexity. Being able to show that the entire book was on our platform was a bit of a statement that we are very ready for Europe. Not just with small and medium-sized company, but literally with any size company. We think Europe's a big, big market for us. We think Asia's going to be a really huge market. North America continues to be the market here and the reputation we have here still makes it somewhat the easier market for us in the short term. Got it. Okay. And so now, I guess talking a little bit about the North Star, the 115 NRR, how do we think about just kind of the path to that number and maybe the algorithm behind it? Yeah, so look, we have, like I said, we have done over the last 10 years, we've done two really small acquisitions. One which will add $4 million this year. So really small. We've mostly been an organic story. And we have been able to grow this 20%, sometimes 23%-25% in that range organically for a long period of time, right? And so the question is, what is this NRR 115%? You know, we have a really high satisfaction score. And I like to think we are a really good company. But it's also true that they're moving from legacy. So when they come to our platform, they're like, "This is great." And so we get really high, high scores. And as a result of that, our NRR, our gross revenue retention is very high. Our gross revenue retention has been 98% for literally 20 quarters. Could go back 20 quarters. Each quarter you'd find 98% with two exceptions. One time last year it was 97%. This quarter, quarter one of this year, it was 99%. But literally in that blip of 98%, there was 97% and 99%. It really averages out. It starts from there. It starts from a very high world-class 98% on the back of really, really satisfied clients. But our NRR has been 107%-108% sort of for a long period of time. That is pedestrian, I think. You have a world-class gross revenue retention and a somewhat. I won't say bad at all. I think it's nice, but it's not world-class, if you will. We launched a program to, can we get to 115% NRR, right? If we can get to 115 NRR over the course of the next six quarters, then we would be a different company. Now, I want to be really clear that our focus on new logo is absolutely unyielding because we think that that's how we get clients and that's how we sort of, you know, start to become more dominant in that market. But just because you're having a lot of success for years on end on new logo doesn't mean you don't try and be best in class in back-to-base sales. And so what we did last year was we took 60% of our R&D team and put them into innovation of products which are adjacent to us. And so that's why we talked about stable value funds. We talked about other products like LPx, which I was giving an example of. So we now launched MLx. And the idea is, can you come up with two products which can give you 2%-3% every year? And if you can do that every year, come up with two or three products, that is the path to a consistent 115%. And if you can get to 115%, then I do think it changes us as a company versus being at 107%-108%. We do expect our GRR to continue to remain 98% for a protected period of time. And so there's a lot of push in the company. We have a lot of room in our P&L. As you know, our P&L is quite rich. And so we could make this investment while continuing to grow EBITDA very strongly. And so look, it's a strategic initiative. We had really good success in Q1. I know we spoke about that. And so that was a little bit early, and that's why Q1 overperformed a little bit more than we thought. Because we launched these products in November, December of last year, we didn't expect it to do well that quickly, but it did. And so look, it's a big initiative for us to drive NRR 115%. Awesome. Well, it's never bad to see it come around. But so as we think about just like the, you know, the adjacent products side of things, a lot of that decision is, you know, build versus buy. We've mentioned a couple acquisitions. So can we just kind of, I guess, do a little bit deeper dive on the M&A playbook and just maybe how that's changed over time after acquiring a few assets like JUMP and then, yeah, just. So let's just take some examples because it makes it easy, right? So we built this product called Stable Value Fund product. So what is it? It's really all the same exact accounting with making a tweak for something called Stable Value Funds. So Stable Value Funds is something asset managers have, which really is a collection of bonds, which is insured. So it really tries to stabilize the return investors can expect. So 401(k) plans and things like that. And the point is we had to make some kind of tweak here to change the reporting to provide the reporting for Stable Value Fund, right? So that is something we never buy because it is adjacent to what we do. Clients know this. We work with T. Rowe Price and announced that. And so that those are an example of what we would build ourselves. Another one is pooled funds. What's a pooled fund? Well, government, state government treasurers invest money because they have enough money to hire investment professionals, do the research, and go buy products. But what happens to municipalities and local counties? They don't have enough money to do that. So they pool their money into the state treasurer. So again, very adjacent to what we do, but it makes a lot of sense for us to do it. And then you contrast that with risk. You can build risk models. All of us are mathematically inclined. Obviously, you can't test a risk model till some catastrophe happens because it is built on the back, right? And look at all the data from the back and you build a model. So you have to now wait two, three years to see how good your model was. Then you make tweaks and you wait another 2-3 years. It really takes a period of time before a risk model is accepted in the industry as effective. That's something which was easy to go buy. We went and bought this from Wilshire, who had a fantastic product for three decades, but they felt they couldn't take it to market effectively because not a software company. That's an example of where we would buy. We bought it for, I think, about $40 million. Company generates, expects to generate $100 million of cash this year. We want to use that money to get into markets which are adjacent, but which are hard for us to build. That's sort of the buy-build thinking that goes on. Got it. That's great. And then obviously, generative AI, it's a big topic. We love to talk about it. And so when we think about Clearwater strategy there and, you know, vertical software, we think lends itself to being, you know, a good spot for generative AI because deep domain expertise, a lot of data. So can you talk a little bit about Clearwater strategy and AI and just kind of, you know, how you think about monetizing it over time? Yeah. So, you know, everybody was excited about Gen AI. We also got super excited. And we said, "Crap, what are we going to get out of it?" Right? So we were really clear about this is fantastic, but we need to know what exactly we're going to get out of this. So I'll point you to the result and then tell you how we got there. So in the fall, our gross margin, if you go back and look at it, was 76%. And we said we will grow our gross margin 50 basis points every year. So we said next year it'll be 76.5%, 77%, 77.5%, 78%. And the point was how, why would it increase? Well, because of the network effect I spoke about. Every new client, you do a little bit less work. So then your margin should continue to grow. Makes complete sense. If we look at our Q1 result, our gross margin was 78%. And I think you would attribute the 150 extra basis points within five, six months on Gen AI. And so it's like, what did we do? If you think about our business, every morning you come, you see a portfolio, your portfolio. And you'll have questions. Why is this $32 million, not $31.6 million like I was expecting? Or why is the yield so much and different from what I was expecting? And you will call us. But we can have a call center person respond to this. We need people who really understand accounting. And so this is the biggest expense between the revenue line and the gross margin is people who are answering questions for our clients, right? So what we did was we tried to find out what are the top 10 questions we get asked. And behind each of those questions, we did the prompt engineering and we wrote all the prompt engineering behind it. So now if you're a client of Clearwater and you go to Clearwater Console, your morning dashboard, if you will, and you click it, it'll say, "Is it one of these 10 questions?" And you can say, "Yes," or you could write your own question. But every time you click one of those, it gives you a super comprehensive answer, and you don't even send us the question. So we think of that as measuring deflection. So when there's a deflection, the question doesn't get to us. So the amount of work we have to do is obviously lower. And therefore the gross margin should improve, right? Because I'm having lesser number of questions to answer. The second thing is you didn't like the 10 questions and you had an 11th question. And you wrote up some prompt. Half the time it's all messy prompt. But anyway, you still wrote it. So it comes to me as the analyst. The Gen AI engine tries to respond and says, "This is what I think the answer is." And I could say, "Wow, that is correct. Yes, good. Go." So instead of two hours on this, I spent 10 minutes. Or I could say, "Wow, that is not right." And I take the same two hours. But the point is instead of doing 10 such cases in a day, I could do 14 or 13 or whatever the number is. Again, the amount of work we have to do reduces, right? The proof point was in the gross margin. The other statement we made, I think, was it in April, that we grew revenue 20% and the headcount grew by exactly zero. That's because we got that much savings from deflection and productivity. We think there is a lot of juice here in vertical software because the question's always domain-oriented. Don't forget, every time I don't select the answer, the machine knows what I did answer. The machine learns. Not one, but hundreds of people are teaching the machine on a daily basis. Every time the client doesn't like the answer and sends it to us, that gets recorded. The machine learns as to what happened. So we feel like, you know, vertical software, yeah, but I think we are very focused on actual return instead of the talk about it because Gen AI is beautiful. I'm a massive fan. But we must get returns as we make investments. Otherwise, it sort of becomes hard to continue investing, right? Okay, that's great. And then just kind of as like a little bit of a follow-up, there's the Clearwater Intelligence Console, you know, I think formerly known as Clearwater GPT. So how does the product work and just kind of how do we think about that side of the business and what you're seeing in early days? Yeah, so we struggle with the, how do we think about the efficacy of it? So on one hand, if it can continue to increase the gross margin meaningfully, is that enough? And maybe you could argue, you know, if you can continue to increase that gross margin, 78%-80%-82%, whatever that number is, well, what's wrong with that picture? And the other thing is, do clients get additional benefit? Yes, they do. Instead of waiting for an answer for a couple of hours or whatever, they get an immediate response. And so should they pay for it? So forget about our savings. Should they also pay for it? I don't know the answer to that yet, right? I still think we are very early in the innings. But there's a value to the clients without question. So I think we have done well with the efficiency part of it, but are we generating additional revenue from it? That is still nascent. So we launched some products around insight on the data of a client. And so we get some revenue from it. And I think we said that we'll get some real revenue in 2025, and we see it as a driver of growth in 2026. So we do think that efficiency, we know it, we understand it. They're pushing all the engines. On the inside side, the revenue generation is behind. It lags what you're doing on the efficiency side. Okay, great. I know we have a couple of minutes left, so I want to see if there's any questions from the audience. Given the regulation landscape, where do you see the challenges on your business, but also the opportunities moving forward for people driving towards your goal? Yeah, you know, everything that's complicated, people hate it, we love it. Because every time you have more and more regulations, guess what? You have greater pressure to aggregate all your assets globally. I mean, no one asks for regulation on an asset class. It's like on your book. So every time you have regulation, which is complicated, it is a reason to move to Clearwater. Because what you could do is, if you bought a pool of German assets tomorrow, you have two choices. You either buy local German regulatory reporting and German GAAP, or you move to Clearwater. Every time you buy something in Japan, you have two choices. You either buy a Japanese accounting system and Japanese regulatory reporting and build a team, or you move to Clearwater. So yeah, that's a big friend of ours. I think compliance, regulatory reporting, new asset classes, new countries, those are big drivers to move to Clearwater. Because eventually no one wakes up and says, "I want a new accounting system today." Nobody does that. So it's got to be one of these elements which plays the game or an acquisition or something like that, which forces people to say, "Oh, this is becoming unmanageable." Yeah. One more? All right. So I guess just to wrap it up, we've talked a lot about growth. We've hit on the margin side a little bit. But if we just think about the long-term target of 40%+ adjusted EBITDA margins, how do we think about the path there? You mentioned AI a little bit and how that kind of plays on the gross margin side. Has that kind of changed how you think about that 40% long-term? So I think what we did was at the last Investor Day, I think it was in September of last year, we laid out a path. It was not complicated. So what we said was gross margin is going to grow from 76%-80%, and that'll give you 400 basis points. And R&D will return to its historical norm of 20%. And it was 26%-27% at that time. So we said, "This is 600, that's 400, congratulations, that's 10%, 30% + 10% is like 40%," right? And we felt that we had made massive investments to build the product for Europe. And that took a lot. We also made massive investments to move the product out to AWS Cloud. And that took a lot of money. So it does normalize down to 20%. And we are well on our path. If you think about where gross margin is right now, much ahead of what we said it would be, it's at 78%. We had said that 27% would become 29% this year in EBITDA. I think quarter one was 31%, mostly because the gross margin came out too hot. But the point is that I think that we don't have to change our business model. And we don't feel a super high urgency. I think we said we will increase EBITDA by 200 basis points every year for the next several years. I think we can do a little bit better. We are doing a little bit better right now. But I don't feel the urgency to do it. I'd rather invest that money into growth and continue to grow across the world, across asset classes, and continue to generate, you know, 70% of EBITDA converts to cash. You know, we're in a good spot here. All right, great. I think we're about at time, so we'll leave it there. Sandeep, thank you for coming. It was a pleasure. Thank you.