Release Date: February 19, 2025

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 28% year-over-year revenue growth for Q4 2024, reaching $126.5 million.
• The company achieved a Net Revenue Retention (NRR) rate of 116%, surpassing their target a year ahead of schedule.
• Clearwater's gross margin improved significantly, reaching 78.8% for Q4 2024, indicating strong profitability.
• The company successfully expanded its client base, adding marquee clients such as Imperial Fund Capital Partners and the United Nations Federal Credit Union.
• Clearwater's strategic acquisition of Infusion is expected to enhance their platform capabilities, offering a comprehensive front-to-back solution for investment management.

Negative Points

• The company faced a one-time negative free cash flow of $29.8 million in Q4 2024 due to a payment to terminate a tax receivable agreement.
• Despite strong growth, the integration of Infusion poses challenges, as it is a larger acquisition than Clearwater has historically managed.
• The company acknowledged that some regulatory-driven revenue in Q4 2024 was pulled forward from Q1 2025, which may impact future quarterly comparisons.
• Clearwater's insights and marketplaces initiatives are not expected to significantly contribute to revenue growth until 2026 or later.
• The company faces potential headwinds from currency fluctuations, particularly with a significant workforce presence in India.

Q & A Highlights

• Warning! GuruFocus has detected 4 Warning Signs with HLF.

Q: What has been the early feedback from customers regarding the upcoming infusion deal and the potential integration of front office solutions? A: Sandeep Sahai, CEO, mentioned that customers are generally very excited about the infusion deal. The ability to bring a market leader like infusion into play accelerates their 1 to 4 bit journey. While integration work is necessary, customers find the prospect of getting both pre-trade and post-trade solutions from the same vendor very interesting and exciting.

Q: How do you view the potential headwinds from GenAI as you incorporate more of the technology into your solutions? A: Sandeep Sahai, CEO, stated that they do not see GenAI as a headwind for margin expansion. They believe GenAI pays back quickly, often within the year, and does not lower the margin profile of the company. They are stringent about unfunding projects that do not demonstrate ROI within 6 to 9 months.

Q: Will the NAIC regulatory changes continue to be a tailwind for your business in 2025? A: Sandeep Sahai, CEO, explained that regulatory reporting has always been a tailwind for Clearwater Analytics. While the NAIC changes in 2024 were significant, they expect regulatory changes to continue in 2025 and beyond, providing ongoing opportunities for growth.

Q: How quickly do you expect to achieve synergies from the infusion acquisition? A: Sandeep Sahai, CEO, expressed confidence in achieving synergies quickly due to the similarities in technology between Clearwater and infusion. Both companies are cloud-native, single-instance, multi-tenant platforms, which should facilitate easier integration and synergy realization.

Q: What drove the incremental revenue beyond the $3 million from the NAIC project in Q4? A: Jim Cox, CFO, highlighted that Clearwater had a strong bookings quarter in Q4, with better-than-expected conversion of bookings into revenue. The net revenue retention rate of 116% also contributed to the revenue outperformance.

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