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

Good morning, everyone. Thank you for joining us for the second day of Citi's 2024 Global TMT Conference. My name is Andrew Schmidt. I'm the lead fintech analyst here at Citi. The sessions for Citi institutional clients only. Today, it's my pleasure to host Clearwater Analytics. With us, we have Jim Cox, CFO of Clearwater. Good morning.

Great. Thanks for hosting us. Thanks for picking up coverage. Look forward to having this conversation and many more in the future.

Absolutely. No, it's been -- it's good to pick up coverage and it's good traction since the launch. So. Great. It's been great.

So maybe just start with traditional level set, just overview of Clearwater's value prop, what does a Clearwater solution bring to clients and then the pain points it solves across different end markets.

Great. So -- actually you know what, do you mind if I switch [indiscernible]. Sorry, it's kind of -- I was -- I felt like I was -- I must be in the front row. Sorry. Yes, this works. Is that all right?

Perfect.

Yes, this is great. So -- okay, Clearwater. So the most important thing to understand -- actually, there's lots of important things to understand about Clearwater. But let me tell you why I work -- even though I live in the Bay Area, why I work for a company headquartered in Boise, Idaho. Now Boise is a very livable city, but that isn't what drove it. I was actually a client of Clearwater 3 times before I became the CFO. And so when you talk about what's the value prop that Clearwater provides, I can actually speak to that, like I really, really experienced it. So what Clearwater does is investment accounting, performance, risk compliance and reporting for investment assets. So if you think of yourself as a -- hey, are we running? Is the clock isn't running? Is that -- are we live?

Yes, we are live.

So sorry, I was a client. And so Clearwater provides investment accounting reporting performance risk compliance. And so if you think about it, if you're a cash-rich company, that was -- I'm a CFO of a cash-rich company, you basically have this excess capital, but you're worried, kind of up to a dozen different things. How do you grow? How do you become more profitable? What do you do? But we have this excess cash, you need to make a little money on it. You don't want to lose any money. That's the easiest way for a CFO to lose his job, to lose a bunch of money. I was a CFO when the reserve broke a buck. That was a -- unfortunately, we weren't in it, but for someone, it was a very unfortunate day, right? So it gives complete visibility to the asset owner. In this case, I was a CFO of a corporate. Of all of their assets, across all of their asset managers, across all of their instruments, across all of those elements, and we give it to you daily. So our value prop is 9:00 a.m. beginning of the day, clean reliable data for you to go do your day. So it's comprehensive, it's trusted and it's understood. And it was -- honestly, it was game-changing for me as a CFO. I would have this conversation with my treasurer, right? And she was great at many things, but she was not great at investment accounting. And so it would always end in tiers. And the point is, she bought Clearwater -- she's resourceful. So she bought Clearwater. She showed me these reports, and it's like it was all there. So that's the value prop for kind of corporates. For insurance companies, well, hold on, let me ask you, like if you think about it, where corporates invest it? They generally invest in relatively short maturity, fixed income because you don't want to lose any money. Corporates -- then the company started with corporates, then you move to insurance companies, generally are investing in those same things and something. They start with the fixed income and then they move into kind of a more sophisticated income I guess. And so that was really the life cycle of the company pivoting from corporate into insurance companies, which is now kind of 52% of our ARR. And then if you think about it, if you -- so 2/3 of our revenues are set owners, if you are doing the accounting for asset owners and your asset manager is providing your report, and you don't like your asset managers report. The asset owner can turn to the asset management and say, "Please -- can you please just give me the same information I'm getting myself from Clearwater." And so that's how we moved into the asset management world. Ultimately, at the end of the day, it's trusted, clean, reliable data. And I'm sure we'll get into this, but there's a unique reason why we're so well positioned to do that.

Got it. No, that's a great level set. So -- maybe we'll jump right into it. Obviously, a lot of focus on the transition to a multiproduct platform. Maybe we could talk about where we're at in the journey. And then if we could leave in aside from NRR, what metrics you use to gauge the progress of that transition? And how have those been trending? And while you're answering that, I'm going to grab a clock.

Thanks. Yes. Great. You're good. Okay. So as we think about -- so first, before we go to multiproduct, let me start with why. So if you just get to that beginning platform and what is really such a differentiator in the platform, is -- and so this is kind of the secret sauce of the company. Not only are we in the cloud. Not only are we single instance, multi-tenant, but we have a single security master, a golden copy. And what that derives and this gets into while all these additional products are there. So if you're -- so what's very unique about Clearwater is when you start for every incremental client we have, it creates a network effect, both for the company, for investors and for the clients themselves. So let me talk you through it. We have 3,800 connections already. Every new customer offers an opportunity for another connection or if we're already connected to all those data sources, it's just very easy for them to connect. So instead of connecting all over, we connect once and it works for all of our clients. If anyone else on the platform, because we also have a single security master, that is if anyone else on the platform owns that same security, we consume it and we reconcile it once. So if you bring a book on and all of those assets on the book are identical to other clients on the book. Those securities are already there. The accounting for that is already there. And so what that provides to clients -- what it provides to investors is, obviously, there's a lot of scale, there's a lot of efficiency. That's why our margins are 80% plus. That network effect on a recurring basis, they're 80% plus. For clients, though, it creates quality because the idea is if both of us are in the same security. If you didn't use Clearwater, you would have your team reconciling it and you would be trying to figure out what's gone wrong. I would be reconciling it and trying to figure out what's going wrong. But if on the Clearwater platform, what's different, if you find a mistake or anyone in this audience finds a mistake and it gets fixed, the quality ripples through to everybody else. That's with the single security master. So if you just pause for a second and think, okay, we've got truly clean, reliable data. You talk to risk people, they say, "Oh, risk models. That's not so complicated." What's complicated is bringing in clean reliable data that you can rely on. Now I would assert risk models can be complicated. But if you're in that business, that doesn't seem complicated. So if you start with this concept of we have clean reliable data that is kind of across the entire ecosystem and we provide accounting reporting performance risk and compliance. Suddenly, someone says, that's great. Thank you for providing me that information at the beginning of my day. What more can I do with that? And so clients are coming to us because they say, we have this data, this is his valuable thing, what more can you do? And so that led us on to this multiproduct journey and so then you start saying, "Okay, well, what could we do? Could we help them with their trading? Could we help them with more of their risk, not just their reporting loan risk, but their free trade risk, perhaps?" There's a whole variety of things. And so we did a study to say, "Well, how much money is there?" And we kind of said, "Hey, in average, on accounting, our clients and those in this industry, whether they use us or not kind of in this industry, spend about 1 bps on accounting, but they spend about 4 bps across their entire stack for that. And so let's say that, that's wrong by 50%. It's still 1.5x the opportunity that we have. And so what we said is, "Okay, there's a nice TAM here. We have clients who are asking us to do it. It makes sense to move into this multiproduct strategy." And so we've done that in a variety of ways. We're doing it organically. So we've been able to free up investment and we're looking at investments. So an example of an organic one is a product called LPx. So we've always had -- so I'm an insurance company, I have an allocation to fixed income, I have an allocation to private equity, I have an allocation to hedge funds. And in those allocations to private equity and hedge funds, all I'm getting is an LP statement once a quarter. Now those assets were always on our platform because it's not that difficult. It's like I get a number and here's your number, and that's what it is. So it was already on that platform. But what's challenging about that LP is when is my next capital call? When am I going to get a distribution? How do I have to reserve some cash on the side because I'm going to have investment flows between these asset classes. And what LPx allows you to do is look through and understand what your capital calls may be, what your distributions are, the workflows around that and then look through into the underlying investments. If you were -- we have some private equity investors as well as being a public company still as they kind of sell down. If you own that fund and you own Clearwater stock as an asset owner, you would probably have more exposure, which you'd like to understand your total exposure to Clearwater per se. With LPX, you can understand that because you'll understand at both those layers, what your exposure is. So that's an example of an organic process because that we're doing -- where we're doing more for our clients around the assets. That's the organic strategy. There's also inorganic that we've done. So in April of this year, we did a very small acquisition where we bought the risk technology models from Wilshire. And so Wilshire, you've heard of the Wilshire 5000. It's very -- these risk models, they were built in the '80s and they've been tried and true and the math around them is kind of well regarded. And so what we can do is we can take those math models, blend that with our clean, reliable data and provide our clients with yet more information than they would. So that's kind of -- as we move to this multiproduct strategy, one thing that I jumped over on the multiproduct. It starts with this is the reason why a multiproduct strategy works for us is because we have a 98% gross retention rate. The last 2 quarters, it's been 99%, but a 98% gross retention rate is ridiculous. So when clients come on our platform, they stay. We have an NPS score that is ridiculous. I've never seen it anywhere else. I understand -- as a former client, I understand why. Because we do all that sausage making, and we just provide you that clean reliable data. You don't have to do it. So happy customers, sticky customers who have problems that they want us to do more for. That's ultimately -- it sounds pretty obvious now. I don't know why it took so long for us to think about it. But that's kind of the model to move to that. And then the last thing you said is, "Hey, how do we think about metrics? How do we think about kind of the progress towards that?" So what we said is in the first half of this year, about 25% of our bookings were with these incremental products, which is nice to see. So we don't disclose bookings, but we'll talk contextually about kind of -- of it. So we're seeing progress. We understand that there is demand, and we could see how that works. But ultimately, the metric that is helpful for all investors to think about is net revenue retention. So I talked about our gross revenue retention 98%, 99%, world-class. I'll put that up against anybody's. 110%, our NRR. Last year, it was kind of in the single digits. That is slightly pretty average for -- you look at world-class companies, they're 120% or 125%, something like that. Now a little bit of a different business model, but we set out in September of 2023 and said, look, aspirationally, we're going to NRR 115%. So today, we're at 110%. So we've made a few progress points on that. If you think about it, what are all the ways that we can grow our relationships with our clients. So you start at 100%, you go down to 98% because you lose 2%, right? That's -- to gross retention. You get about 3% kind of in price increase. You get kind of 2% to 3% depending on the year AUM. And that isn't really market volatility, but that's more just incremental profitability and the more assets coming on to the platform. Then we have something called wallet share. So that's doing more with our clients. Examples of that is, I'm at a strategic asset manager, and I have one line of business, and I either help them add assets at that line of business or I move to another line of business. So Citi, thank you for being a great client. We're in your corporate cash space. We'd like to help you grow that business, and that would be great. And now that you're on Clearwater, that's going to be very helpful for you. We'd also love to do many, many things. Citi is a very large organization. And so that would be wallet share with our core products. And then the final element is then new products. And kind of in Q2, new products was about 2%. And we think that new products could be 7%. And so that's really the bridge from 110% to 115%. These incremental products, both organic and inorganic. And it isn't like one product is going to be 7%. It's about offering a variety of products that provide 1% or 2% and kind of build that NRR of 115%. So we watch to the track of that. And so I think that, that's the journey. I think you'll also look for more announcements about new incremental products because we really pivoted a lot of our investment at the beginning of this year to focus on these new products. And so you'll see -- you should see things coming out. And I know someone from your team is coming to Clearwater Connect in a couple of weeks. So we'll be able to update all of our clients on that, and we'll be able to test demand.

Yes. Look forward to seeing what comes out of that.

Sorry, that was a really wrong answer. I'm sorry about that.

No, that's great. I appreciate you giving the backdrop because I think just jumping into the multiproduct strategy, you need some context -- context support. That's super helpful. When we stay on that same vein, we'll come back to kind of how you approach the end markets in a second. But since you talked about NRR, we'll jump to that. You talked about the components to get you to 110%. Maybe we'll start there. Like retention, AUM growth, pricing, wallet share and obviously, cross-sell of product, just in the current 110%. Aside from retention, which you obviously have very good visibility on, are there components that you have more or less visibility on which you think about what makes up the current 110%. Talk about the visibility in terms of the ability to deliver each of those components today before we go to 110 % to 115%, just the current 110%?

Yes, let's talk about the 110%. So this is what's really -- so maybe I won't -- I can give you some context about the visibility, but what I think is more powerful is this, I can tell you whose job it is to solve each piece of this. So we've broken that. It's not just one number that we're fitting into. We disaggregate this, and we give somebody the job. So number one, price increase. I talked about that. That's -- we yield roughly 3% on that. We have a team that does price increases, they execute on that. There's a person. She has a number. She executes to that number. We think of what that number is. So that's kind of -- and so there's pretty good visibility on that. That price increase comes through standard contract increases. Others are kind of negotiated and that sort of stuff. So that's one piece. AUM, we don't have anyone that works on that. So no visibility on that. It kind of -- look, in 2022, it was a big headwind; in 2023, it was like -- ; in 2024, so far, it's been -- it hasn't hurt, but it's not been a huge helper, right? Wallet share. Wallet share is really important, and we have sales teams we have within asset management. We've bifurcated the asset management. We kind of arbitrarily pick $20 billion. But $20 billion and below, there's a certain kind of buying pattern there. $20 billion and above, we call that strategic asset management. So Citi would be one of those examples. You can think of all the bulge bracket banks that have those. And these -- here, we have a relationship management model. Those are folks and we have teams whose responsibility and amtequota to go meet with those folks, help them grow their business, right, and help them find other places within their business where they can use Clearwater, and that's that cross-sell. Then for new products, we have effectively -- their titles change across the organization. But for each product, we have a general manager. So we have a general manager for LPx. We have a general manager for a product that I'm going to oversee. And these folks are ultimately, they hold a number. When we decided how many resources to allocate to different groups, that was because the General Manager stood up and said, "I'm going to sell this much business this year, and therefore, I get 7 people or 12 people or 70 people depending on the number that they're signing up for. And obviously, you don't get 70 people that sign up for $3 million, right? You got to sign up for a big number if you're going to have that many people. And so that's -- and so within that kind of -- so everyone has that number, if that makes sense. Now, the general manager also needs to work with the sales team, right? So we have a little bit of a hybrid there. For the new product, you have sales engineers who understand the product and understand that, but the actual sales rep owns the client relationship. And so as a general manager, you have to be sufficiently compelling to the salesperson to get them to picture product. And so that's -- so that's everybody's job. And what I would say is we have good visibility, not because we're great, but why we have good visibility is because we have a lot of irons in the fire. We just have a lot of optionality. We don't just -- we don't need every strategic asset management client to hit to get to our numbers because we know some it works for some it doesn't. We don't need every product to hit to get there. We need because we just understand that. And so we take a real portfolio approach.

Got it. Maybe just drill down on one of those components, which is AUM growth. And it's been it's been variable last couple of years. Historically, obviously, there's been growth. Yes, what are the sources? Is it -- when I think about the source of AUM growth, it might be an acquisitive insurance company, right, could be rates. Maybe you want to talk about rates' impact on fixed income. What are the drivers of that AUM piece over time?

Yes. So when you think about wallet share, right? So that's helping people -- that's very much controllable, and somebody has that number. And an example of that would be -- so you might say, "Hey, wait a second, how controllable is an insurance company that's a client of our choosing to sell or buy the assets of another insurance company." Well, in general, that wouldn't be the case. But we have a great market within the reinsurance market. And they are in the business of buying assets, right, as well as taking on the risk and creating greater returns from that. And you might think why is Clearwater such a great fit for them. It's because if I'm a reinsurer and I buy a book, do you know whose job it is to make sure that, that's accounted for, and accurate, and right and onboarded and everything is okay? That's my job. It's Clearwater's job. So how freeing would it be to be the CEO of a reinsurer and say, "I have a strategic imperative to go buy these assets. And I don't have to worry about the operational burden that, that occurs." If you look at these reinsurers and you see the sizes of their teams, they've stayed pretty constant even as they dramatically scale. So that's something where our folks are working on that. So of course, it isn't in our control what they do, but there is more control on that. As it relates to rates, it's a very complicated question, for a couple of reasons. Obviously, just I'll summarize it by saying the 500 basis point increase in 2022 created about a 500 basis point headwind in our growth rate in 2022 over time. But 2 things have changed since then. One, obviously, we changed our business model. We had an AUM only business model at that point in time, right? And as a private company, that worked great. It's a public company, not so much. So we pivoted to this base plus model. So we've taken some of the upside, some of the downside out of AUM since that time period because it helps with a more manageable, predictable business. It's really increased the predictability there. And frankly, our clients have enjoyed the predictability as well. So that's that. The other thing that happened at that time is the whole bloody curve moved. And so if you can tell me exactly not what the Fed is going to do, which is hard enough, right? And for example, at the beginning of this year, everyone was asking me why I hadn't priced in 7 rate cuts in my guidance for the full year 2024. I mean, I guess I am [indiscernible] about that. I'm really glad I didn't do that. But not only is it what the Fed does, but what does the whole curve do. And so I think if you've seen some of the changes in [ SOFR ] recently, the curve has already shifted. So it's hard to know kind of how that relates. It also comes down to -- because we don't have control of what our clients are investing in. Now we're able to see, "Oh, that's interesting." Clients have extended duration because we see $7 trillion in assets coming across the platform, we can see that. And we say, "Oh, that's interesting." 60% of clients have extended duration. Why have the other 40% not? Are they not looking? Do they don't know? Do they have a different point of view? I don't know. So that's -- so kind of that's the short answer. I don't -- generally, I think it's safe to say across all asset classes as interest rates fall, asset prices go up, and so that's generally helpful. But...

Quantifying it is difficult.

Yes. And we run our business to kind of provide more value.

That's good context. Yes. I appreciate that. So I think you may just to round out the comments on 110%, maybe overall comment on visibility. I think you've made comments previously that this should be more of a floor in this point plus or minus, obviously, right? How do you think about kind of the stability of 110% now over the next -- over the near term -- probably for the near-term question, speaking up with that...

I think we keep building -- I think what I said on the last earnings call, "Hey, I think, here's -- at the beginning of the year, we were roughly 106%, I think. And so now we're up to 110% and we're -- so we've made nice progress." But you know what, 99% gross retention, which is typically, we're at 98%. So could there be a point here or there between any of these? Yes. But I think we're steadily -- what we said was it's not like getting to 115% once, it's about fundamentally changing the business so that our relationship with our clients expand at that rate consistently year over year, over year, over year. And so that's we've definitely -- we feel confident in the sustainability of that because there's -- in the first half of the year, 3 products that were all organic worked really well. In the second half of the year, it may be 3 different products that worked very well. And -- or it may be those same 3. The point is we have some optionality, which is nice.

That's super helpful. Now maybe we can just spend a little bit of time, the path of 110% to 115%. So the additional 5 points of cross-sell, is that existing products? Or is that -- or is it new product efficacy required between now and the time when you expect to achieve the target?

Yes. So I think -- so the answer is yes, always. Yes, everything. Yes, all of the above, right? And so what I would think -- how I think about it is what was the success that we had in the first half of this year. I think of 3 big buckets. One was Prism had a good first half, LPx had a good first half and then [indiscernible] funds. Prism and LPx have been in market. Prism for a longer, LPx was really in market for all of 2020. So it takes time for these things to build in. What was a pleasant surprise to me about the first half is, this fund stuff, was it caught on much faster, much better than I had anticipated. And so that was net a positive surprise. But funds was just one of the many things. We have kind of 5 buckets that we have kind of been focusing on innovation. Most of those products under those 5 buckets are still underdeveloped. So you'll hear about a commercial paper issuance product. You'll hear about insights shortly and these types of products. They are -- we've -- really all we've sold those products -- the only clients we've sold those products to date have been client development partners, people who have been helping us to say, "Oh, is this product right? Is this there?" And so who knows how much we're going to do in that in kind of the last few months of the year, but then we kind of move forward. But I do also want to say there's also been areas we don't know at all. We listen to our clients, and so let's use just the Wilshire acquisition as an example. The risk models that they put together, that they view as so simple. I met with them, and they were talking about stuff. I'm an accountant. Do you want to talk about accounting with me? I can go all day long. I'll bore you all with that. But you start talking about these risk models that to them were very rudimentary. To me, I was like, I don't even know what you're talking about. And so I think we also need to think of inorganic as an opportunity to expand our knowledge base in the specific areas where our customers are also asking us move. So it comes back to that bedrock of clean, reliable data. What can I do with it? And we have some good ideas for what we can do with it, and I think our clients have great ideas about what we can do with it. And if we don't think we have the right to build that, then we're going to look to buy things that will help people on that front.

Got it. Maybe we'll come back to inorganic question later, but that's really good context. If you could flip to gross margin, and again, we'll, maybe come back to a new logo, we have time. But I want to make sure we hit on gross margin. There's a lot of things about the story that are attractive. But I think that the gross margin opportunities just seem somewhat underappreciated. So maybe you can just start with a basic question. Just the primary drivers of gross margin, fixed cost leverage, network effect on the platform, scalability, scaling newer markets, GenAI. Maybe you talk about the drivers of gross margin and where we're at amongst each of the buckets and if there's any of the buckets that I missed?

Yes. So in September of last year, what we said was we would expand gross margins by 50 bps a year, kind of until we got to 80%. Generally, when we think about pricing, new business on a recurring basis, we think of north of 80% margins. And -- so when you went -- and we talked about that. And if you go back and look at what we've performed since then, it's been -- we far outperformed that. Now why did we say the 50 bps? That comes to the network effect, right? Now you offset the network effect. So every new client, right, makes us better, more efficient. If you already have the connections, then it's efficient. If you have a new client and you don't have the connections, then it's more burdensome. That client would have lower gross margins while you get the connectivity going, and then once those connections are there for the next client, that comes by them. So as you enter a new region like Europe or Asia, that would naturally just -- you can intellectually understand why that would -- we probably have almost all the connectivity in North America. We have very much less in Asia to just contrast those 2. So those clients, you would expect there would be more burn there. Even though we had that expectation because of the network effect, the true network effect, we expect that we could grow gross margins by 50 bps. Now, we've significantly outperformed that. And you might ask, well, why is that? And that -- and really what we've looked at is we implemented -- we have a number of ways we're implementing these GenAI large language models. And really, there's no story yet on the revenue side. I mean as frustrating is that is, there's no story. And just to be realistic, it will take time for people to figure that out. I don't think we're the only ones who have realized it takes time to figure out the right way to do that. The -- but on the gross margin side, you can see it. So the 2 ways where we're really being effective is, what we were able to do by looking at these questions and burning on our data, we know what the top 10 questions. Did you know that roughly half the questions we get, our client services team get every day is that number is 7 or that number is 12 or that number is 23. And the question is, why is it 23? Prove to me why it's 23, why isn't it 24? Why isn't it 22? Why isn't -- and that -- and generally, what you have to do to answer that question is, "You've got, oh, well, what number are you talking about? Show me the data. Let me show you this data", and there's 5 e-mails that go back and forth, and it takes a few hours for someone to kind of solve that with someone if it's reasonably complicated. Those 10 questions are already there on the right-hand side. So someone can click and answer those questions and it flows through. So that is true deflection. And so that's a tool that we've been enabling. The other thing we've been enabling is human in the loop interactions where the machine is coming up with here's 3 answers. What do you think? Now, a couple of things happen. Either the rep picks as that looks like the right answer. They pick it and it's done. That's great. Otherwise, if it doesn't give them the right answer, guess what, they do their job as if they did it. And so those are 2 ways. So look, those tools are in place. And then you say, "Wow, okay. Great. What are we really getting out of that?" I think we're definitely getting something out of it because if you look, our client satisfaction stays the same, our employee satisfaction is still high. So they're not getting overworked. We're not burdening our clients even more. And yet, we're seeing gross margin expansion because we just aren't adding the scale of these people that we would normally do. And so now, we have rules say, "Hey, for this many assets on the platform, we'd expect this many people in kind of operations to help with that." Guess what? Those models are tweaking and we're saying, "You know what, instead of x, it's 30% more than x" is as those assets shift to be able to shift to that. I think we're just in the early stages there, but that has been the tangible spot where I think we have seen some benefits from that. lots of investment has gone into this. We've had to build these models internally, and we've worked on that. But at least that's one spot where I feel like I'm not sure it's working, but I think it is. At least the numbers show it.

Right, exactly, yes. No, that's important. Maybe a direct question about a framework to think about the ceiling for gross margin. Obviously, you [indiscernible]. But what's the right way to think about the ceiling for gross margin, especially considering your comment about GenAI not being fully ramped yet. Is there a framework to think about that?

Yes. I think -- so I think that -- so I think -- so we're -- sorry, not this relationship. And I think what you'll find is what's really important to Sandeep and to me is that when we say we're going to do something, we do it, and we meet that. And so I think that although we are very optimistic that we can go beyond 80%. I think what we'll do is we'll get to 80%, declare a bit of victory and then come up with our new target. But I do think there's -- if we're in a new world, and I think that any number I gave you would be a finger in the air I guess at this point in time, but I do think that it's there.

Understood. And maybe one last question for me, and then we have time for a question or two from the audience. But just -- as we think about margin trajectories in general, are there larger investment projects that we should think about, either in cost of sales or OpEx that we should think about over the intermediate longer term, they might get margin expansion or do you feel like you have a pretty good grasp on the investment profile of the business today on an organic base. Obviously, inorganic, a different story. But just thinking about organic...

So organically, I think we're really with where we sit. Over the -- if you look backwards, in R&D, we spent -- we're upside down relative to other businesses. We love that we can tell clients we're spending at $0.25 of every $1 you give us on R&D and clients love that too. Now, we will continue to grow R&D but not as quickly as revenue, and so I think that can come down over time. The reason why we can do that and innovate is we had 2 very large projects that we've completed. So we're kind of past that on the R&D side. One was the internationalization and providing gap throughout the world. And the second was really moving to the public cloud, and all that's done. So we've ingested that. The other thing is in sales and marketing, though, you haven't seen it because that number hasn't really changed. We've really expanded the footprint internationally as we've expanded. So I think those things are behind us. And so I think we think incremental -- now, do you have other great ideas and other things we can do? Yes. But within the envelope of 200 basis point margin expansion year-over-year, very easily.

Got it. We have about a minute or so left. Any questions that people want to sneak in?

[indiscernible]

I can repeat it. I can repeat. Yes. If we -- so I think the way to think about pricing is that it's about a relationship with a client. It's about the value you provide and it's about the total relationship. And I think that when we think about NRR of 115%, that's growing a relationship with the client across a variety of different streams, right, including that.

So [indiscernible], you had a question?

[indiscernible]

Yes. So a competitive response. Sure. So yes -- so I think generally, we are in a replacement market, you're right. And what I would say is that if you're an on-premise software provider that has a separate instance, what are they doing? They're going to the cloud, and they're certainly trying to pitch that. But what you're missing there, what you don't have is that single instance, multi-tenant, single data, no one else doesn't like this. That's the real -- if there's one thing you can take away from this, it's -- we have a single security master. No one else doesn't like that. Has anyone else done it? It's hard. It's hard. It's a fundamentally different architectural structure. So every other person thinks my container is my portfolio. And we think of it about the securities that are across portfolios. So if you think portfolio first, it's very difficult. If you think security is first, it's a fundamentally different way of thinking.

Okay. Sorry, go ahead. Yes. Last question.

[indiscernible]

So I think we've certainly following our footprint. And I think that when you think about our -- so Asia is important, and it's a tiny piece of our business today and here's how you would know that. We talk about TAM and then we talk about core TAM. And our core TAM is where we have kind of a certain element cadence, referenceable clients, product market fit. Asia, honestly, we've been pulled into Asia as clients have raised their hand and said, "Please, can we buy Clearwater?" And so that's developed in our mind, "Hey, wait a second. There's an opportunity there." And so we're leaning into that now.

Any closing remarks you want to leave us with or...

Thank you so much. Thanks for your interest in Clearwater. I look forward to speaking with all of you. And thank you very much. Good morning, everyone. Manhattan is back.

I saw that too today. Yes, for sure. It was very good. Thanks, everyone.

Absolutely.

Thanks everyone for joining.