Clearwater Analytics Holdings, Inc. (CWAN) Earnings Call Transcript & Summary

Anyway, we'll get started. Hey, everybody, thank you very much for joining us here at the Morgan Stanley TMT Conference. Once again, we're at second day of 4, so big event. Very excited to have Clearwater Analytics and Jim Cox, the CFO to join us today. Before we get started with Jim, a quick introduction, I'm James Faucette, senior research analyst covering the fintech space at Morgan Stanley. And before I actually launch into my questions with Jim, I do have an important disclosure to read. Please see the research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley representative. So, Jim, great to have you back.

Great to be here.

Thanks for coming. Always love hearing about kind of how Clearwater is developing and the markets you're in a really interesting business that has been successful in growing for quite a while. But maybe for those of who may be listening or sitting here today that aren't as familiar with your business, can you provide a quick overview of Clearwater and what you offer to customers?

Sure thing. First of all, thanks for having us. Thanks for your continued support of Clearwater all the way along. This is a great event and really busy day. So thank you very much. It's been great. So Clearwater, so we do investment accounting. We do it for insurance companies, for asset managers, corporations, state and local governments pensions. And basically, we do the accounting, right? And so, it's important to be comprehensive. It's important -- so kind of the services that we provide are accounting, compliance, performance and risk. We do it for some of the world's largest organizations, as well as some smaller. Founded in -- by 2 brothers and a friend who were kind of commodities traders and kind of fixed income commodities and they moved back to Boise, Idaho, which is our headquarters, and founded that and kind of started a hedge fund in Boise and we're less successful at the hedge fund, but very successful. Part of kind of their pitch was, hey, we're going to provide complete transparency to folks so that they see what we're doing. And no one wanted their hedge fund services or not many people wanted their hedge fund services, but everybody wanted their technology. And that was how it started. And so, it's been a long journey in the arc since then. But just consistent, really durable, reliable growth, 20% to 25% growth. Historically, it's a profitable business. 30-plus percent EBITDA margins and really high win rates, 80% win rates and really sticky client base, really high gross retention. So great business. Even I can't screw it up.

So let's talk a little bit about the evolution of the company since IPO. You went public in September of '21. If I look at kind of the list of other companies, especially fintechs, that went public around that same time in various forms or fashions, you've got to be one of the few that's probably trading above your IPO price. So -- but that notwithstanding, as you think back to that period and how much the business has evolved since then, what are the main factors that you would point to? Like what changes have evolved? What have been the important evolutions of Clearwater over the last couple of years?

Sure. So I think a lot has stayed the same, and I think that's why the consistency has persisted and been successful. So what has stayed the same? We're in a replacement market. We're replacing legacy technology, and so those -- the win rates are there. Our customer bases are relatively consistent with respect to insurance companies, asset managers, corporates. But what has changed? So part of the reason, you might say, wait a second, why did we go public? One of the reasons we went public was to help with the brand recognition globally. And so, although we continue to be focused in North America with insurance and asset managers and new logos, globalization and pushing the international business has been one of the things that has evolved over that period of time. We're now up to 18% of revenues are internationally. So that's one piece. Then the next evolution was we went public in 2021, and then, lo and behold, the interest rates -- and we had an AUM-based pricing model when we went public in 2021, and interest rates skyrocketed, which -- that has a tendency to create a headwind on AUM-based pricing. And so, throughout 2022, we really focused on migrating to what we call a base plus model. So we evolved that, and that was kind of job done in 2022 to kind of move to the base plus and kind of continue to create that certainty in that. Then the next step, which kind of has commenced in 2023, and I think we look forward into the future as well, is moving from that single product, right? I described us, and I make the same mistake still today, I say, hey, we do investment accounting, right? And that implies we're a single product company. And by the way, when we went public, we were. We were mostly North America, mostly single product, AUM-based. And so, now, we're pivoting to a multiproduct company. And so, we really think about, we have over 1,300 clients. We have, I think, 86 clients that pay us over $1 million. So we're doing big important work for big important companies. But the question is, we have really high NPS. And so, naturally those clients want us to do more. So what do we want to do? What was our back to base sales motion for folks when we had a single product? Well, let's find more assets, let's add more assets, let's figure out how to do that. But then once we got someone's entire book, we'd say, okay, well, we're done. And the truth is, you're never done, right, serving these clients. And so, this evolution into a multiproduct company is really where we stand. And we're kind of in the early to mid-innings of that. I think there's still a lot of work to do, but we're able to sit on the shoulders of kind of the great client base. We're able to stand on the shoulders of the new contract framework. And now what are we doing? We're also fully kind of globally in the public cloud. And so, now we're able to pivot and put a lot more emphasis within R&D into innovating with new products. And so, I'll give a couple examples of some that are out there. So one that we -- that you'll have heard of is kind of to be able to share kind of data more broadly outside of both from the Clearwater system and other systems. Think of it as kind of investment accounting specific data warehouses is Prism. And so, that allows you to kind of combine both financial data and non-financial data to come together or derivatives of those data to make decisions. That's one piece. The other area you might go is to say, okay, how do we go deeper with some of these specific asset classes? So a lot of insurance companies come to us because -- not because we account for fixed income better or equities better than anyone else, which I think we do, but it's because no matter what you invest in, it's on one single platform, we take care of it. You get one consolidated holistic view. And so, when you do that, as new instruments come into play and folks are -- so let's take limited partnerships. As people are looking for yield, they're looking for more limited partnerships. Accounting for LPs is interesting, but also not that interesting. I get a mark from my GP, I put it in and it's probably going to move next quarter, I'll know that. What actually people really care about with LPs is what are my -- when am I going to get my distributions back? When are you going to ask me for capital calls? And then lastly, if I look through that LP interest that I have, what do I really own? And is that mirroring what I own in my other investments as well? So how do I look at that holistically? And because we have that view and the ability to see that, that's one way where we step through. And so, that solution is called LPx and LPx Clarity. So these are kind of ancillary products. And so, as we think about this, and by the way, the uptick on those have been really strong. People are excited about that. And so, that's the next evolution is, okay, how do we do -- what we've done for LPs, for mortgages, for derivatives? You think about derivatives, you care about who your counterparties are, not what you're -- I mean, you do care about your derivative pricing and all the accounting, but you care about all those other things. For mortgages, it's very much like the LPs. I need to look through. What are the ZIP codes that are underlying the security and all of that. That kind of information is kind of what folks are looking for. So that's kind of -- so we talked a little bit about the investment data. We talked a little bit about different asset classes that we cover and actually doing more than just accounting for those. We also think about providing -- and this is kind of something that we've developed and now we have to further commercialize is more GAAPs. We do U.S. GAAP, we do tax, we do IFRS, we do German GAAP, we do it all over the world. Well, for some clients, that's really important to them. How do we discreetly commercialize that? And so, that's kind of the -- those are some of the nascent things and there's some more exciting things that are bigger products that we think about. But I think that's the journey. We still have to continue to win in North America with insurance and asset managers every day, just like we always have. We've got to do that. We've still got to continue to expand internationally. That work is not done. We have to keep doing that. And now on top of that, there's a third leg of growth, which is okay, how do we go back to our base and really leverage the great work that our client services and operations team do every day to deliver for those folks to build wallet share with them.

So I want to delve into a few different things that you talked about there. So let's -- I know that the focus is always on a go-forward basis. But if we go back to this move off of asset-based pricing to what you call base plus. I think maybe even you were -- as an organization, were a little surprised at how quickly that moved. And I think it's not intuitive to investors. And I would put myself in that why your customers would be so willing to move the way they did, right? Because if I'm running kind of an insurance company and I recognize, like, interest rates are going up, my asset -- that puts downward pressure on my asset values, particularly if I have a lot of fixed income. Seems like I'm trying to minimize my -- like try to keep my costs fixed as best I can and base plus kind of goes away from that a little bit, right? So what do you -- what was the motivator there? And then I want to follow up with kind of then how that takes us into new products.

Sure. So I think that it's fair. And I think that you have to recognize Sandeep, our CEO's great leadership in this. Like when we first started talking about this, I said, give me a couple of years to try and get this worked out. He said, no, no, no, 6 months, get it done. I was like, okay. But you know what? It was something where -- just let's back up for a second and you need to contextualize this. We have really high net promoter scores, and we have really high gross revenue retention. So at some point, you've got to have some sort of an economic benefit from that. People can talk about that as price increases. People can talk about it as being able to back sell into more folks. But this is another permutation that came home that when our client services team went to their clients, their insurance clients, and said, hey, generally you're paying this much, we'd like to make this a fixed fee. And it's important for us because it helps us plan our business, it helps us deliver great service to you, and it really helps us do a better job and keep us aligned on this. And yes, there's this plus fee, but everyone had already bought into, hey, as my business gets bigger, Clearwater is enabling you to grow without adding headcount because we're doing all that work for you. You're a reinsurance company. You want to go buy another book of business, you do not have to worry about the operational impact of that. That's on us. We just do that. So I think people were bought into that. And that was what really -- I'd like to say we were geniuses. But no, it was all the hard work that people had done up to that point to build that relationship where you could have those conversations with folks. And then you would say, okay, so now those folks are bought in. So then it went into procurement, where procurement would say, okay, it's my job to try and figure out what the right thing. And then you got into the nuances of, okay, well, how do we think about this? What's the benefits to you on the procurement side? It comes down to, okay, we have -- you have a budgeted amount, you're in line with that budgeted amount, you get understanding around that budgeted amount, and you have a model for how this is going to grow going forward. And I think by being able to kind of talk through those, that worked out. I think in general, I'll be the first one to say, it worked out way better than I was expecting. I was really pleasantly surprised. And I think that's the first time I ever really started to understand and get confident in a net promoter score. What is a net promoter score?

Like, how that actually you can translate it into business?

It actually -- you know what I mean? It was real.

Right. So sitting here today, how much of the customer base has moved to base plus? Is it...

So I would say it's 100% a new business and has been since 2022.

Yes, that's right.

So then -- and I would say the vast majority of our existing business. The one place where there was more hesitation, not surprisingly, about going to the base plus was more in some of the large asset management clients that we have. And really, when you think about it, a lot of those asset management clients are buying Clearwater to help with their clients. And so, the alignment to growth for them and the alignment to customer satisfaction and adding clients and helping them grow their business was a real focus of that. And so, for those folks that had large, complicated relationships where it kind of behooved us with our go-to-market and how that all worked, we kind of accepted that. So, I would say, it's in the -- you know what I mean? It's kind of those last few...

And would you expect them to stay asset-based or how are they going to transition?

So I think for that -- for those folks, I think we've spent enough time with them where we just feel like the juice isn't worth the squeeze for changing the contract. And we'd rather just say to them, hey, let's think about for new products, let's do it this way for new. Let's do this on a go-forward basis. Everyone accepts that, and we go forward.

Got it. And so, then let's talk about the new products and new capabilities. How do we think about those as like, if I look at the growth algorithm and kind of what the growth targets you've put out for this year, how much is from new products versus existing products? And on these base plus, is there annual pricing escalators or inflation adjustments or how do we think about like that algorithm of building up?

Yes. So, I guess, as -- so one of the key metrics that we've talked about, we've talked about aspirationally moving this forward. One of the key metrics we talk about is net revenue retention. So, gross revenue retention is 98% world class. It's just incredible how stable it is. That really just means if a company is acquired or they go out of business or they consume all their investable assets, they're not going to use us. Other than that, it's a [ fair statement ]. So -- and then -- but our net retention, our net revenue retention, really world class SaaS is 120%, 130%, something like that. So -- and we've always been in kind of the high-single digits, right? And so, that's where we came up with, hey, we really need to have this talisman, this aspirational NRR 115%. And we talk about that and we're pushing on that. And that drives the organization to think about, okay, how do we build more products so that we can sell more? But let me talk about the algorithm today that says, hey, you start at 100%, you go down to 98%, right? And then you have about 3% price increase is what you effectuate, kind of roughly. And then another 3% is kind of what we'll call asset increases. It's not market related AUM. But if an insurance company is profitable, they have more assets to invest as corporations are more profitable. So just assets do grow for a variety of reasons, including potentially market could make that higher or negative. But the 3% is kind of just kind of a profitability. So now you've stepped from 100% down to 98%, up to 104%.

That 3%, if you're not asset-based anymore in your base plus, like how are you able to capture?

So that's the plus.

That's the plus.

Right. That's the plus on the base plus. Because generally when we're signing up new business, we might say, hey, you have a $10 billion book. It's $1 million or something like that a year. And that's the book of business. If you go buy another business and you go to $13 billion. Yes, it's more. So that's kind of how that flows through. Then -- so that gets you to kind of the 104%. And then we're living today at like 107%, 108% something -- 106%, something like that. That is generally the 4% there is incremental products that we're selling back into the base. Or like what we do with Morgan Stanley. You'll say, hey, we want to go out and win new business. We'll come out with you and we'll help you. So that could be asset growth in the case of our relationship, but it could either be incremental assets, new lines of business. So at an organization or those additional. Now then you say, okay, now you're to 108%. Okay, how do you get to the 115%? The vast majority of that increase to 115% would be these additional products, because right now we're just very nascent in what those products are. And so, as we think about putting more kind of -- giving more products for salespeople to sell back into the base. So what do we do -- what have we done in 2024 that's different than 2023? Number one is, well, last year we had a back-to-base salesperson. Now we have back-to-base sales teams. Okay. So that helps, right? You have reorganized the go-to-market to try and think about that. And that kind of happens annually. So that's done. The other thing we've done is, because we completed all the investments in kind of all the international GAAP. GAAP is generally accepted for all those other areas. We've finished that. We've also finished the migration to the public cloud. And so, that work is done, and that's freed up some more capacity. And so, now we're pivoting all that capacity to what we're calling these growth initiatives, which is about 60% this year and we're allocating to these growth initiatives. Some of them are kind of within our existing product and building that out. Other is these additional products. And so, the idea is, what you ought to be hearing from Clearwater for the next -- for the first half of this year is, here's all the new product introductions that are coming out to you. And so, okay, so what are these new product introductions? How do we drive that? And as we have more of those solutions to sell out to clients and the teams in place, you see that building and moving forward.

Got it. So let's talk about '24 specifically. You did have acquisition of JUMP. And how -- like how much did that contribute in '23? And how's that contributing to the growth for '24?

Yes. So, obviously, it annualized in '23 because we bought it in the fourth quarter of '22. So you get kind of a little step up from that. And it did grow kind of -- it's hard because we're also selling. So what did JUMP do? So let me back up and explain to everybody what JUMP is. JUMP is about 100 people in France. They were a very French company. They sold primarily to asset managers and some insurance companies. And they sold kind of a full suite within that marketplace. So we acquired JUMP to be able to spread JUMP kind of outside of just a French-speaking throughout the whole world to move it throughout the world. But our strategy was really threefold. One, increase our footprint in Paris with these 100 people and actually check. We'll call that -- we'll give that an A. We're selling more Clearwater. We're selling more JUMP. JUMP is actually benefiting from being tied to a public company. They were pretty small.

Sorry, Jim, can you just elaborate how JUMP was different than Clearwater from a product?

Apologies. Thanks, sorry. It's all. So JUMP generally sold to asset managers and they sold the full investment management life cycle. So they have order management, performance, portfolio management. So think of interday, right, as well as some risk and some, what I'll call asset manager performance, which has more flexibility. We have a performance engine that works great. It's mostly thought of as an asset owner performance. So those are some of the functions. So one is, they have more asset management client base. 2, they're in France; and 3, they have this broader footprint. And so, the third piece was how do we take this broader footprint and sell it back into our client base? So I'd say being in France has worked. Check, check plus, right? Selling back into our client base. Check. Most of our client base is in North America. Their product has historically been French. And so, there's a translation in -- in both through -- not just language but also instruments and how you think about stuff and the way people do things are a little bit different. So there is -- so I'd say that's a check, right? And then the third piece is then building out asset management and really having this full asset management footprint. And we're still nascent on that. And so, I think that, that's when we talk about providing the full investment management life cycle to folks, we're using the technology pieces of JUMP in combination with Clearwater to deliver that. And so, that's -- and we've had some nice wins. We've had a number of clients go live. So as that confidence builds, I think we see that. So sorry, you went back to, hey, what's the growth algorithm in 2024? And so, I talked a little bit about, hey, there's this back-to-base piece and then the rest is obviously new logo, right? And new logo is comprised of both new logo in North America, as well as new logo internationally. And that gets us -- so as we think about NRR moving to 115%, we're not really like, that's a talisman. We're using that for motivation for everyone as -- but the point is, it's all in service of north of 20% growth. We've always grown top line north of 20% and we are really laser focused on -- we're a $400 million business in a $5 trillion -- sorry, $5 billion global market, sorry, assets are trillions, markets, billions. Sorry. And you just look at that and you say, there's a long runway to grow. So we need to stay focused on that growth rate. In 2023, we've guided to slightly less than that.

2024. Just make sure...

Sorry. For 2024, we guided to slightly less than that going into the year. And so, in that algorithm, we said, hey, there's probably 10% or 11% new logo. And what we said in that guidance was, hey, let's not assume that there's any difference in what our net revenue retention is for the year. Look, I'll just be honest. I'll be disappointed if our net revenue retention is in the same spot at the end of the year that it is at the beginning. But it seems prudent given we have a lot of products to develop. We have a new go-to-market motion, we have a lot of stuff like when you're thinking about guidance, you need to be thoughtful about those...

So if I take that 18%, just forget about the 20% where you've been historically. So that contemplates NRR flat in spite of the efforts to improve NRR. So if we get improvement through the course of the year, that would be...

We would hope that would be better.

Okay. So then let's go to the new logo component, which by definition means that it's smaller in your forecast than it has been in previous years, right? Because if NRR is flat and growth rate is coming down, then the new logo component is smaller. Okay. So can you talk a little bit about why that is what you're seeing? I think you alluded to some enterprise bookings being a little bit lumpier or that kind of thing. So just try to give us a sense of what's happening with new logo and logo wins?

Sure. So I think we continue to have good momentum in new logo. So let's break out new logo. New logo is -- comes from North America, right, and international. And I think that as we look at that, we see the opportunity to do better in both of those areas as we kind of grow going forward, because naturally you want that to grow at least 20% if we're growing more. And so, I think what we saw in the fourth quarter was that we are blessed with being a very linear business, not only from a revenue perspective, but from kind of a new business booking business. And I think in the fourth quarter, we saw that December was a terrific month, which you could also infer then October and November weren't as great as December. And so, we're starting to think a little bit about -- well, as you -- in the context of the guidance, not about in the context of how we go to work every day and work, but in the context of the guidance, you think about, okay, well, do we want to think about that a little bit differently? And it plays through in a couple of ways. One is, is that, linearity going to persist or not? And only that will find out that change of linearity or not. And then number 2 is then for all that business that we won, there's a lot of large -- these are basically in the smaller insurance segment. We're maybe 50% -- we're winning a ton of -- we've had a ton of success in that area. And now we're talking about the top 25. We have -- I think we have 4 of the top 25 North American insurers. They're all on our list. We know when they're coming, but those are long, complicated, and they're large ones and zeros, right? So these are multimillion-dollar prospects. The lumpiness in that is also something as we go large that's there. And so, you think about that really good December. But then how that then translates into '24 is then, okay, well, are those projects going to go on stream? So if you recall, converting that booking into revenue, you've got to onboard those assets and think about that.

100%.

And if you -- if -- just hypothetically, if you had closed that deal in October, then you'd have done all your planning in November and you'd be off and running. If you close that deal in December, because they don't -- because those accountants that you sold it to don't use Clearwater, they're going to spend the entire month of January on their old system, closing their book. Once they move to Clearwater, it'll take them 2 or 3 days. But -- so then January is quiet. And so, now we're launching a lot of these programs in February.

So you basically lose a month of new customer revenue in January...

I think you -- and you lose the visibility into the whole program, kind of tying out and understanding, oh, will this be done in 6 months? Will it be done in 9 months? Will it be done in 12 months? Let's understand all those things.

Is that time of implementation and bringing those new customers on stream? Is that changing at all?

It actually is. The teams have been -- so that's another change. Gosh, I haven't even thought about all the operational improvements that we've done since we went public. But that's one thing. When we went public, we had some that were 18 months, others that were -- and we would say, oh, most of -- so for relatively simple corporate deals, we can finish those in -- they can go live in a month. That's pretty clean. But other more complicated ones can go longer. Subi, our Chief Client Officer, who runs all the operations teams. She set out to create this initiative called, it was called 99. We love our number, right? And so, what it says is 90% of all onboardings are done in 9 months or less. She nailed it. Like that's what we do. So 90% of the time, everything's done in 9 months or less. And so that -- and it's actually much faster than that. But that's driving, and that has really come down. Not only has it come down, but there's also -- she's a very 6 Sigma-oriented person. So not only is it that the total time period has gone down, but we've also organized it, and it's much more predictable, right? So it's more predictable for the clients. They understand all the steps. We can understand where we are in that program. And so, that's all things being equal, that's been a benefit throughout 2023, and we expect it to persist in 2024.

I've been monopolizing time up here. If anybody has any questions, please feel free to raise your hand and we'll get you a mic and you can ask your question here. So I want to turn quickly to -- back to the NRR conversation before we move on to margins and the like. But we spent a little bit of time talking about what JUMP is, and I can go self-educate myself on other products like Prism and LPx, MLx, OMS. But I do want to ask, at your Investor Day, you did talk about how that there are multiple products that can drive wallet share, including those. It seems like Prism is the furthest along from a monetization perspective, but what else is close behind? And what's the time frame that you're thinking about those really helping drive to that 115% target, right? Like, how long is this process as you start to commercialize some of these other platforms and capabilities?

So I think the next one to come along after Prism was LPx and LPx Clarity. We talked a little bit about what you do for LPs. That had a great year last year, really is up and running. And I think -- directionally, I think it was 10% of our total new business. It's meaningful, right? It's a -- and so then the question is, okay, so that took -- it always takes longer for everyone to learn how to do stuff. So now, coming on the heels of that, what did we just announce? MLx, right? So that -- okay, could that -- so we would expect LPx to continue to persist to do well, and then MLx to step in and add that and go along the way. So as you think about the timing of this, we've got to build these products. Some are in pipeline. And I think we'd like to see the announcements this year and start to see the benefits of many of these. We're going to have to see something meaningful from these within this year so that we know that we want to invest then again in 2025 and beyond in those. And I think we will kind of, as we learn, I think we have to be also mature about the fact that some markets may not be what we expect them to be. And so, we want to incentivize people to take risk and to try these things, but also we want them to execute very well. Okay. Sorry. And so, I think you'll see a bunch of announcements throughout the first half of this year, and I think you'll continue to see bookings come through, some in this first half, but most in the -- more in the second half. And as we see more visualization on that. And then I think one other thing just to lay in, we've added a few people to the senior management team, and I think one of the things coming out of the earnings call people were thinking, wait, we talked a bit about M&A, and I think when you think about a multiproduct strategy, we need to be really thoughtful about the organic things that we're building, and we are being thoughtful about that. We've only done one acquisition across kind of the company's history, and that was JUMP that we did in Q4 of 2022. But there are some areas, when you think across the investment life cycle, there are some places where the knowledge underlying that may or may not reside with us. And so, I think we want to be really thoughtful about using that as an additional option to another kind of tool in the toolkit, so to speak, for those salespeople to go back and deliver. And I think when we think about those things, it's what would be unique attributes or functionality or something like that, that would be very difficult for us to build, given our expertise. And where could we acquire expertise that could sit along with us in delivering to our clients? That's how we're thinking about M&A. I would assert that, that's how we've always been thinking about M&A. For us, we just -- and I would say, I would assert we've always had a very high bar, and we continue to have a really high bar with that. But what we do have that's different than what we had before we hired Shane and Mike is, we have a team that will be able to execute that instead of it being kind of a third or fourth part time job by various members of our team. And so, I think that will -- like anything, when you add someone with exclusive focus on something, you're going to execute better.

Right. So with that being said, I mean, cash balances are at or near record highs. Free cash flow generation is similar record or very close to record levels. But how are you feeling? So I get the appetite and the wherewithal, but how are you feeling about where valuations are and the kind of conversations you're having around that right now?

Yes. I think -- so I think it's -- my experience in 2023 was that the private company valuations, or at least expectations, had not...

Come down.

Yes. Hadn't come down yet. And we'll see what happens in 2024. I think you're right. We do have the dry powder to be able to do that, but we have a great thing going, so we're very cognizant of that.

Right. And 2 last topics I want to hit in the last 5 minutes, margins. Just quickly, you've provided really impressive profitability targets where you're anticipating about 50 basis points of margin expansion in each of the next couple of years to go along with a couple of hundred basis points plus of EBITDA. What's the source of that leverage? And how are you thinking about R&D in particular, as you continue to add functionality?

Yes. So, look, we're blessed to have a great underlying kind of unit economics in the business that drive -- and that really comes from this golden copy, the single security master, and the efficiencies, the network effect around that, that really drives that. And so, when we had the Investor Day in last September, we talked about 200 basis points improvement in 2024 and 2025, 50 basis points in the operating line and the rest throughout down to EBITDA. But we actually did that in Q3 and Q4, and then we leaned on that and went to 250 basis points of improvement in EBITDA in 2024, and then expect another 200 basis points in 2025. And we were able to do that because we're leveraging machine learning and AI. And so, we grew north of 20% last year, and we didn't add anyone in operations. And so, operations to us means cost of revenue. So that's people who reconcile the data, who manage the data, who answer client inquiries, who onboard clients, 20% more, exactly the same headcount. So then you might say, oh, my gosh, everybody's going to quit, you're working them so hard. No, employee satisfaction really high. Still higher than it was. Check. Okay. Clients are pissed off. No. Did an NPS survey in October, even higher than it was in April, right? So we then sat back and said, okay, what is it? And it's the investments we made, which in September we said, hey, we are optimistic about this, but we haven't put it into the model. It's come good, it's real. It's real. Now, we've got to do more AI to facilitate our clients and we don't have a good revenue monetization answer for that yet, but we are seeing it in the margins and driving that. For R&D -- to your point on R&D, we're up 26%. We love having R&D being our biggest operating expense line item, right? It just aligns with our clients. We're building more and making the product more valuable to them. But I don't think we have to grow it faster than we grow revenue. And so, we'll finally see that coming down. And you see that we aren't sacrificing anything. This 250 basis points of improvement in EBITDA margin that we're guiding to for this year includes incremental investment in sales and marketing and in G&A, those M&A people are in G&A and we're able to do that because of all the help in the cost of revenue line item. And with the capacity switch and all that capacity freeing up, we don't have to add a bunch of headcount in R&D and we're still going to get kind of a significantly greater bang for the buck this year.

Right. And then last couple of minutes, just reminder of ownership structure. Previously, Clearwater had been private equity owned. Your partner there has been gradually putting more stock into the market. Kind of what's your sense of where they're at and what makes sense and what would you like to see happen?

So we think of it as there's 3 kind of legacy private equity owners, 3 firms, but we actually think of them as 4 because WCAS, Welsh, Carson, they first invested in us in 2016. And then there's Welsh, Carson XIII, which invested in 2020 when Permira and Warburg did. And so, let's talk about Welsh, Carson XII, separate from Welsh, Carson XIII. Welsh, Carson XII is the entity that has been selling down and they invested in 2016. I think they're now investing out of fund XIV, not even XIII. So XII is old and they're at -- I mean, I think I can say this, they're at like $4 or something like that. So they've -- this has been a real home run for them and they've been monetizing that. We're coming -- they're down to -- they started with 62 million shares and they're less than 20 million shares left. So I think that's that program. And so, I think feel like there's been a cadence and that's coming to an end and we'll see from there.

And the other 3 including Welsh, Carson XIII, so they did it in 2020, and...

They invested in 2020. And like I said, Welsh, Carson XIII hasn't sold at all. And I think in November the way it works is they all have -- it's called drag along right or participation rights, some right to participate. And I think in November when the stock was like $20 or whatever, they participated at that level but they haven't participated always.

Always. Got it.

The Permira and Warburg.

Got it. Well, we're out of time. Jim, thank you very much for coming in and talking about Clearwater. I love it.

Thanks for your support. Thank you.