Clearwater Analytics Holdings, Inc. Q4 FY2023 earnings call

• The company is proud of its 5-year achievements and mission to be a trusted technology platform for investment management. 2023 was a great year with revenue growth, improved gross margin, adjusted EBITDA, and cash flow.
• Completed transition to public cloud in less than a year with little disruption to clients, allowing over 60% of R&D capacity to be devoted to growth-related product development.
• Launched Clearwater's intelligent console and is working with customers to innovate in 5 areas: investment data consolidation, asset class and fund expansion, front and middle office solutions, platform innovations, and new frontier with GenAI and machine learning.
• Highlighted customer successes like a large private investment firm win and partnerships with insurers and investment management firms.

In 2023, Clearwater Analytics achieved a 21.3% year-over-year revenue growth, with full-year revenue reaching $368.2 million. In the fourth quarter of 2023, revenue was $99.0 million, representing a 19.8% year-over-year increase. Annualized recurring revenue (ARR) at the end of December 2023 was $379.1 million, a year-over-year increase of 17.2%. The Clearwater platform processes and reports on $7.3 trillion in assets daily, which is an increase of nearly $1 trillion from the prior year. The company's gross retention rate was 98%, and net revenue retention rate was 107 as of December 31, 2023.

• For full-year 2024, revenue is expected to be in the range of $431 million to $437 million, representing approximately 17% to 19% year-over-year growth.
• Adjusted EBITDA for full-year 2024 is expected to be in the range of $135 million to $137 million, reflecting an approximately 250 basis point improvement from 2023.
• Q1 2024 revenue is expected to be $10.5 million, with adjusted EBITDA expected to be $28.8 million or a 28.7% EBITDA margin.
• Total equity-based compensation for 2024 is expected to be approximately $106 million, a slight decrease from 2023.

• Forward-looking statements involve risks and uncertainties, including those discussed in the Risk Factors section of SEC filings. Actual results may differ materially from forward-looking statements.
• Risks related to market conditions, technology adoption by clients, and the execution of growth and innovation initiatives.

Q: Kevin McVeigh from UBS asked about R&D leverage and client behavior with GenAI.

A: Sandeep Sahai responded that 50% of R&D capacity was devoted to moving to public cloud last year, now 60% is for growth. Clients are excited about GenAI with aspects like client deflection, improved response, and faster comprehensive answers.

Q: Michael Infante from Morgan Stanley asked about jump's impact on revenue and new product contributions.

A: James Cox said Q1 guidance is apples-to-apples, jump grew but didn't meet performance share earnout targets. Sandeep Sahai added new product initiatives will have impact in H2 2024 and 2025.

Q: Eleanor Smith from JPMorgan asked about OMS/PMS applications and net revenue retention rate.

A: Sandeep Sahai said OMS PMS is working as expected in North America, Jim Cox said net revenue retention rate has minor fluctuations with no major issues.

Q: Peter Heckmann from D.A. asked about Asia Pac market update.

A: Sandeep Sahai said they have a high-quality pipeline in APAC and expect meaningful growth, Jim Cox added international revenue grew in 2023 with APAC growing fastest off small base.

Q: Rishi Jaluria from RBC asked about M&A and product functionality.

A: Sandeep Sahai said they hired Sean Akeroyd and will be more aggressive in M&A to add product functionality to current client base.

Q: David Unger from Wells Fargo asked about $1 million-plus customer stat.

A: James Cox said it was a combination of new wins, AUM growth, cross-sell, and onboarding clients stepping up to $1 million status.

Q: Gabriela Borges from Goldman Sachs asked about revenue guidance and pricing.

A: James Cox said guidance is thoughtful considering program lumps, Sandeep Sahai added ARR growth was better at end of 2023. Jim Cox said AUM component of growth is part of Base Plus model but not built into current model.

Q: Brian Schwartz from Oppenheimer asked about macro and demand environment.

A: Sandeep Sahai said December showed loosening, James Cox said sales team is agile and sees opportunity to win share in any macro conditions.

Q: Dylan Becker from William Blair asked about regulatory landscape and GenAI.

A: Sandeep Sahai said regulations and complexity drive clients to Clearwater's platform, GenAI helps with data and risk management workflows.

Q: Yun Suk Kim from Loop Capital Markets asked about sales capacity.

A: Sandeep Sahai said they are making significant investments in Europe and Asia Pacific with Keith and Sean leading, expecting to accelerate growth in these markets.