• Revenue: $115.8 million, a 22.4% year-on-year increase.
• Annualized Recurring Revenue (ARR): $456.9 million, a 26.1% year-on-year increase.
• Gross Revenue Retention (GRR): 99% for the last 3 quarters.
• Free Cash Flow: $48.1 million, a 55.6% increase from last year's Q3.
• Net Cash Holdings: Approximately $290 million.
• Net Revenue Retention Rate: Increased to 114 from 110 last quarter.
• GAAP Net Income: $4.8 million in Q3 versus a GAAP net loss of $2.3 million in Q3 2023.
• Q4 Revenue Guidance: At least $120.2 million, representing a 21% year-over-year growth rate.
• Full Year 2024 Revenue Guidance: Raised to $445.5 million, a 21% year-over-year growth rate.
• Adjusted EBITDA Guidance for Full Year 2024: Raised to $142.5 million, a 35% year-over-year increase.

• Warning! GuruFocus has detected 5 Warning Signs with LEV.

Release Date: November 06, 2024

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

Positive Points

• Clearwater Analytics Holdings Inc (NYSE:CWAN) reported a 22.4% year-on-year increase in revenue for Q3 2024, reaching $115.8 million.
• The company's annualized recurring revenue (ARR) grew by 26.1% year-on-year to $456.9 million.
• Clearwater achieved a 99% gross revenue retention rate for the last three quarters, showcasing strong client retention.
• The company has made strategic international hires and opened a new office in Hong Kong to support growth in Europe and Asia.
• Clearwater's integration of generative AI (GenAI) is enhancing operational efficiency and client interaction, contributing to improved gross margins.

Negative Points

• The company faces potential risks and uncertainties related to forward-looking statements, as highlighted in their cautionary statements.
• Clearwater's Q4 revenue guidance suggests a slightly slower growth rate compared to Q3, despite a favorable demand environment.
• The termination of the tax receivable agreement (TRA) involves a significant payment of $72.5 million, which requires shareholder approval.
• The impact of interest rate changes on ARR growth remains uncertain, with the company unable to provide precise sensitivity metrics.
• Clearwater's new product innovations are not yet mature, which may affect the consistency of growth from these offerings.

Q & A Highlights

Q: Sandeep, can you elaborate on the booking strength this quarter? Were there any significant deals or was the growth broad-based across markets? A: The booking strength was very broad-based across industries and geographies. There wasn't a single deal or market that stood out. Our new products continue to drive momentum, with about a quarter of our bookings coming from new product innovations.

Q: Jim, the NRR result is close to your 2026 goal. How firm is the 115% ceiling, and could it be exceeded? A: We believe NRR 115% in 2026 is achievable. The recent results, particularly the 9% contribution from new products, are encouraging. However, these products are still maturing, and we aim for consistent, reliable growth before considering raising the target.

Q: Can you discuss the impact of onboarding additional assets on NRR and the potential for continued momentum? A: Wallet share growth comes from large asset management clients expanding and cross-selling new products. We also saw a 2% increase in AUM due to interest rate changes, which contributed to the NRR.

Q: How do you plan to monetize GenAI functionalities, and what opportunities do you see for 2025? A: GenAI enhances platform efficiency and client interactions. We launched a product in September with over 10 paying clients, initially targeting the corporate market. While it's not yet a major growth driver, it contributes to gross margin improvements.

Q: Can you explain the impact of interest rate changes on AUM and ARR under the new Subscription Plus model? A: The Subscription Plus model limits downside and modifies upside. Interest rate changes affect asset prices, which in turn impact AUM and ARR. While the model captures most of the upside, the exact impact varies with asset class pricing.

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