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Clearwater Analytics Holdings Inc (CWAN) Q1 2024 Earnings Call Transcript Highlights: Robust ...

GuruFocus Research
·4-min read

  • Revenue: Grew 21% year-over-year to $102.7 million in Q1 2024.

  • EBITDA: Increased 42.9% year-over-year to $32.2 million, representing 31.3% of revenue.

  • Gross Revenue Retention: Improved from 98% to 99%.

  • Net Revenue Retention (NRR): Reported at 110% for the quarter.

  • Annual Recurring Revenue (ARR): Reaccelerated year-on-year growth to 19.3%, reaching $402.3 million.

  • Gross Margin: Achieved a record high of 78%.

  • Adjusted Gross Margin: Also reported at 78%.

  • Free Cash Flow: $8.6 million, a 38.3% improvement year-over-year.

  • Operating Cash Flow: Increased 26.5% year-over-year to $10 million.

  • Total Cash: Ended the quarter with $296.5 million in cash, cash equivalents, and investments.

  • Total Debt: Reported at $47.9 million.

  • Net Cash: Holdings approximately $249 million.

Release Date: May 01, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Clearwater Analytics Holdings Inc reported a 21% year-over-year revenue growth to $102.7 million in Q1 2024.

  • EBITDA grew 42.9% year-over-year to $32.2 million, representing 31.3% of revenue.

  • Gross revenue retention improved from 98% to 99%, indicating extremely low churn.

  • Net revenue retention rate increased to 110%, reflecting strong client expansion and retention.

  • Clearwater Analytics Holdings Inc successfully integrated new acquisitions, enhancing their product offerings and market reach.

Negative Points

  • Despite strong financial performance, the company faces challenges in predicting the exact timing of revenue from new products.

  • Quarterly revenue guidance remains conservative due to potential fluctuations in churn and client onboarding schedules.

  • The company is still in the process of developing and gaining traction for newly introduced products, which may affect short-term revenue growth.

  • Investments in R&D and new product development are substantial, posing risks if new product uptake does not meet expectations.

  • The integration of new acquisitions, while strategically beneficial, requires significant resources and management attention, which could divert focus from other key business areas.

Q & A Highlights

Q: Can you elaborate on the strategic value of the Wilshire acquisition and how it compares to developing similar capabilities in-house? A: (Sandeep Sahai, CEO) The Wilshire acquisition strategically allows us to expand beyond investment accounting into broader investment management technology. Developing these capabilities in-house would be costly and time-consuming, particularly in building credible risk and performance models, which can take decades to mature in the market. This acquisition accelerates our ability to offer enhanced services to our clients.

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Q: Given the strong Q1 results, why does the Q2 guidance suggest a deceleration in growth? A: (Sandeep Sahai, CEO) The Q2 guidance accounts for several factors: an unusually low churn rate in Q1, which we do not expect to persist, and the early onboarding of a large client which shifted some revenue from Q2 to Q1. While we are confident about our annual plan, we aim to set conservative expectations for Q2 to manage uncertainties around new product uptake.

Q: How should we view the ramp-up of sales and engineering efforts and their impact on platform innovation? A: (Jim Cox, CFO) We are focusing on integrating incremental products to drive our net revenue retention to 115. Current products like LPS, Prism, and Jump are gaining traction. We're also targeting new client segments with tailored solutions, which should open up additional markets and contribute to our growth.

Q: How does the shift to T+1 settlement impact legacy systems, and are you seeing increased demand for transformations due to this change? A: (Jim Cox, CFO) The shift to T+1 settlement is one of many regulatory changes prompting clients to move away from legacy systems. This environment creates opportunities for Clearwater to provide solutions that address these evolving regulatory requirements.

Q: Can you discuss the customer profile from the Wilshire acquisition and the potential for cross-selling? A: (Jim Cox, CFO) Less than 20% of Wilshire's clients overlap with ours, presenting significant cross-selling opportunities. We plan to integrate Wilshire's risk and performance models into our offerings, enhancing our value proposition to both sets of clients.

Q: With the availability of funds for acquisitions, how do you decide whether to buy or build new technology? A: (Sandeep Sahai, CEO) Our decision to buy versus build hinges on the urgency of market needs and the availability of suitable solutions. While our preference is to develop internally, acquisitions are considered when they can significantly accelerate our ability to meet client demands or when building in-house would be too slow.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.