Clearwater Analytics Holdings, Inc. Q1 FY2024 earnings call

• Revenue growth was purely organic, with NPS scores being industry-leading and churn incredibly low, leading to gross revenue retention of 99%.
• ARR growth re-accelerated to 19.3%, and new products introduced over the last two quarters contributed to an NRR of 110% for the quarter. The Clearwater JUMP platform added 6 significant clients.
• The company secured wins across various sectors, including a publicly traded healthcare company, Erste Asset Management, T. Rowe Price for Stable Value funds, and introduced solutions for pooled funds. The acquisition of Wilshire Advisors' risk performance and analytics platforms was highlighted as a strategic move to enhance offerings in risk and performance analytics.
• Generative AI programs started positively impacting customer inquiries, helping client servicing teams deliver faster and more comprehensive responses, contributing to the gross margin reaching 78%.

In the first quarter of 2024, Clearwater Analytics reported revenue of $102.7 million, representing a 21% year-over-year growth. EBITDA was $32.2 million, a 42.9% year-over-year increase, which was 31.3% of revenue. North America saw a 20% growth, while Europe and Asia grew faster, contributing to the aggregate 21% growth. ARR (Annual Recurring Revenue) increased to $402.3 million, with a year-over-year growth of 19.3%. The gross margin reached a new record high of 78%.

• Full-year 2024 revenue guidance was raised to $438 million to $442 million, representing a year-over-year growth of approximately 19% to 20%.
• Full-year 2024 EBITDA guidance was raised by $2 million to $137 million at the low end to $139 million at the high end, with an adjusted EBITDA margin of 31%.
• Q2 2024 revenue is expected to be in the range of $105 million to $106 million, representing a year-over-year growth of approximately 17% to 18%, with adjusted EBITDA expected to be $31 million, or approximately 29% to 30% adjusted EBITDA margin.

• Forward-looking statements involve risks and uncertainties, including those discussed in the risk factors section of the firm's filings with the SEC.
• Quarterly seasonality in free cash flow conversion, which generally results in a lower conversion rate of EBITDA to free cash flow in Q1 compared to other quarters.
• Dependence on the successful rollout and market acceptance of new products and initiatives, which may not always proceed as planned.

Q: David Unger asked about Gen AI investments' impact on revenue vs expense efficiencies. What's the breakdown?

A: Sandeep explained that Gen AI helps with efficiency by deflecting client inquiries and providing comprehensive responses to client service reps, which is positively impacting gross margin faster than expected. The generative AI-based solutions for LPs (Quick LPx) are in the client design stage and not yet meaningfully contributing to revenue, but are expected to drive revenue growth in the future.

Q: Gabriela Borges asked about the feedback from new high-profile leaders and early observations. What are the priorities?

A: Sandeep stated that priorities include continuing growth in North America, focusing on Europe and Asia, and addressing key areas like alternative assets (LPx), comprehensive client reporting (Prism), risk performance and attribution, and JUMP functionality. The new leaders are helping drive focus on these key growth areas.

Q: Yun Suk Kim asked about the trend of alternative assets driving multi-product adoption. Is this trend continuing?

A: Sandeep mentioned that client discussions heavily focus on managing alternative assets, with products like LPx addressing the challenges of managing limited partnerships. The growth of alternative assets among clients continues to drive multi-product adoption, as seen in sales discussions about merging alternative asset reporting with public securities for a comprehensive view.