Joe:
Hello and welcome to Innovators and Ideas and Executive interview series from RBC Capital Markets, where we share ideas, perspectives and advice from today's industry leaders. I'm your host, Joe Coletti. Today I'm coming to you from RBC's Global Technology, Internet Media and Telecom Conference. And I'm joined by Sandeep Sahai. Thanks for joining us.
Sandeep:
Thank you for having me.
Joe:
As the CEO of Clearwater Analytics, maybe you can give some of our listeners who aren't as familiar with your company a little bit of an idea of kind of who you guys are, what you do, who your customers are, and kind of what your vision is for the company.
Sandeep:
Sure. So Clearwater Analytics is a company based in Boise, Idaho, about 1700 people. We've been growing at a really nice clip, nicely profitable company. So what do we do is we provide services to asset managers and asset owners and we do investment accounting and analytics for them. So if we think about an asset owner that's an insurance company, they have assets all around the world and they invest in equities, stocks, bonds, mortgages, literally a wide array of assets. And what Clearwater does is every morning they get one comprehensive view of all the assets globally, and that allows them to make decisions about investments, allows them to make decisions by what's compliant, allows them to make decisions about risk and performance. So that's what the company does and continue to grow in that market for the last several years and continue to expect to grow in that market.
Joe:
And you know, one thing we talked to you last year at this conference and one thing you talked a lot about, which I think speaks to the success of the company is your philosophy and approach around innovation really being a part of your DNA and how you approach it. Could you maybe talk a little bit about that?
Sandeep:
Yeah. So right off the top, the company spends 27% of all revenue on R&D. So this company obviously believes a lot in building a good product, taking it to market and not spending a lot of money on sales and marketing. And the point is, if you build something which is really good, people will come to it. Right. So what about innovation? I think that I don't want to dive right into the genie, but the point is we think that the technology landscape is changing massively on a daily basis. And if companies don't take cognizant of that impact, they could be left behind. So a whole culture is about can we innovate and innovate faster? And part of that was moving to the cloud on the point being that with the newer technology, you don't have to do undifferentiated heavy lifting, which means you can innovate faster.
Joe:
We're talking a lot about AI specifically, generative A.I. at the conference. You know you announced in July the expected launch of Clearwater, GPT. Can you tell us what your view is sort of on the Gen i A.I. space? Tell us a little bit more about what you guys are launching, traction you may be getting.
Sandeep:
We are super excited about Gen AI. We think I would urge everyone to think about it like the internet. I remember when I was much younger, people would samy technology or my business will be impacted by the Internet. And the others would say, No, not really. And now it changed everything. You think about today, if you don't have network connectivity or, the Internet, you're dead. And so I think Gen AI is going to be like that. I think Gen should be akin to the Internet of our times. Every software you develop sometime from now will have to have at its core, Gen, I have to have is core the cloud have to have its core security.
And so I think it is that big. So what is clear what to do? You've got to think about two different streams. One is how do you improve efficiency within the company and therefore improve margins. And the other one is how can it be used to create new products and therefore accelerate revenue growth? And if you're not clear, this whole thing can get intertwined.So we are focused on that. We have got two programs which are focused on growth. And to give you an idea, investors eventually want to make better investing decisions. And Gen, AI can help with that. It can help a lot with that. And so that is one thing. The other one is, you know, we provide investment accounting. And so suppose I give you accounting for your portfolio.
You have questions. Where do you get that number from? Where do you get that? And you send us an email. You don't do that anymore. You can just have a natural language query where you can ask natural language questions and the Gen AI engine will be able to find you the answer. And so instead of you writing to me, I responding to you.
You write in to me with clarification. This back and forth goes on for hours and days. It can happen literally in the space of minutes. So something that transformative is possible. You know, changing how you think about what to invest in, that's massive. And I think Gen AI will change that completely. On the efficiency side, it's more straight tracked.
It is about we do data ingestion every day. We take about 2800 data sources and bring them in. And a lot of it happens. So the computers are able to reconcile all the differences. But there is six, 7% where human beings do it. And Gen AI enables human beings to do it much faster and much more accurately. So, again, I'm picking some examples here, but it's not the right way to think about it.
You should look at every piece of your business and your market and client needs and think about how Gen AI is going to transform that. Three years from now, five years from now, ten years from now, and if you lead, you will succeed. And if you don't, you could very well die. That's very much a game changer.
Joe:
Everything you're saying, It's fascinating. Amazing, but the potential is great. And staying on sort of the thread, maybe building on A.I., if you take a step back and look at your space, look at the sector, are there other other forces of change, other things that you have your eye on that you feel like investors and other companies are also sort of thinking about longer term?
Sandeep:
Yeah, if I can just get technical for a second. Gen AI, though works very well, but the basis of the data, do you have all your data in one spot? So I think companies which have all the data in one spot win. And so you think about Salesforce. Yeah, they have all the company, about all the companies and services in one database, effectively, logically, at least two or two does that.
So we want to all of our client data on one single security master, and so we can query that very, very differently and very efficiently. And so I would urge everyone to think about all your data sources. And is there a way to bring it into one instance? Then you're quitting will be so much easier and so much better.
So few people aren't thinking enough about the technology in the platform, and I would urge them to do that, whether those are companies or really, frankly, software companies. I think both of them.
Joe:
Let's let's let's pivot back a little bit more specifically.PRISM is something you're talking about or maybe asked about by investors today.Can you give our listeners a little bit of information on kind of what it is and where you're at? You know, the traction it's getting right now?.
Sandeep:
Yeah, Typically, we like our customers to take all of their assets globally and put them on our platform. And what that lets us do is give them one comprehensive view about the whole global platform. That's what the company does now, something that's not possible. Sometimes there's an asset pool in Germany, that’s assembled somewhere else, which is another accounting engine. And what PRISM does is allows us to bring those other disparate data sources into our platform and still give you a comprehensive view. So an example, you have a real estate portfolio in Germany and they can move the platform for the next 18 months or 24 months.
Ideally, we would have wanted all on our platform on day one, but if you can't do that for two years, then we will take that data in and still give you a comprehensive view. Otherwise, without PRISM, we would have still given you a view, but without that real estate portfolio and therefore would be less comprehensive. So PRISM just enhances our ability to provide a core value proposition, which is a comprehensive view of your global assets.
Joe:
That's excellent. Why don't we turn to M&A for a second. Curious to hear your philosophy, the company's philosophy on M&A, how it plays in to your growth strategy moving forward?
Sandeep:
Yes, I'm a good about has always been high for one simple reason. The simple reason is we are growing really nicely. And the second thing is our margins are continuing to expand. So I think we said at Investor Day that we will grow from 27% EBIT and 200 basis points next year, and then another 200 basis points a year after that. And we just said last month that it's on 27 will actually be 28 this year. But we still committed to doing 30% and 32% in the next two years.
So the point is it's a nice story. Do you really want to really mess up the financial metrics? You don't. So we have a high bar. That's number one. Where would we do M&A is anything to accelerate our growth. And so that might be geography. So there was something in Europe or there might be something in Asia
we would look at that seriously. The second one is adjacent markets. So anything in the pension space, things like that. But the third and the most exciting one, I think would be that we do investment accounting and analytics. And typically customers spend one bit roughly, give or take a little bit, but in the investment management lifecycle.
So that's front office, middle office and the accounting is four bips. So things which could get us from the one bit to the four bit is really exciting for us. So that's something we want to do. M&A, as you know, we havephantom billion dollars of cash. We don't, but we have a stock which is which is which trades quite well.
And so can we go out and do M&A, which is accretive to our solution? I think very keen to do it
Joe:
. I think if we think about the next 3 to 5 plus years, what are you most excited about for your company? But I also think when you take a step back and think more broadly from a CEO perspective, are there other other challenges you're going to have to confront? I think you've probably mentioned some of them just by some of the conversation. But curious to get your thoughts.
Sandeep:
Yeah, One is the biggest one, I think, is learning to move at genius speed. So, you know, we had warp speed, we had Internet speed and we hadn't industrial speed. But just learning to move the team of genius is the thing with Chad.It's a year old now. And just look at our conversation. How much time did we spend talking about it? And it's impacting a business already today. Our margins are up. We sort of think in a different way. So I feel like Journey is the defining moment, the defining technology of our times. And it's not just attack.
Learning to move that quickly I think is going to be pivotal and companies are either going to do it or not. And I just urge you to think about the Internet and just go back 15 years, 20 years back and you see some companies moved and evolve their business models completely and they succeeded and thrived and some didn't.
Some said, no, it's not going to be impactful. And they died. And obviously, by Blockbuster and Netflix and there's hundreds like that. And so that is what I'm most excited about. As far as clear one is concerned. The two thing they're super excited about is one is we have all of the infrastructure on one spot.
And what that means, just as you understand it, we have close to $7 trillion of assets on our platform. And every day we know what got bought, what got sold, which asset quality got levered, which where did people invest on a daily basis? So, the insights we can drive from there is going to be exceptional. When you look at standard benchmarking, we talk about benchmarking once a quarter, once in six months, some detail of that.
We can do that every day. And because we do accounting, our data is is really high quality because you can't do accounting with half knowledge. And so, yeah, really exciting times. I think for the world in general there's lots and lots of growth opportunities which we are super excited about.
Joe:
Excellent. Thank you so much for spending your time with us today.Really appreciate you being here.
Sandeep:
Thank you. Thanks a lot.