Clearwater Analytics Reports Strong Q4 and Full-Year 2023 Revenue Growth, Margin Expansion

Fourth Quarter and Full-Year 2023 Performance Highlights

Clearwater Analytics Holdings, Inc. (NYSE: CWAN) announced its financial results for the fourth quarter and full fiscal year ended December 31, 2023, on February 28, 2024. The SaaS-based investment management solutions provider reported substantial revenue growth and improved profitability, signaling a robust operational year.

For the fourth quarter of 2023, Clearwater Analytics recorded revenue of $99.0 million, representing a year-over-year increase of 19.8%. The company's Adjusted EBITDA for the quarter reached $30.0 million, resulting in an Adjusted EBITDA margin of 30.3%, an 80 basis point expansion over the fourth quarter of 2022. Operating cash flows stood at $24.1 million, with free cash flows increasing to $22.5 million from $16.6 million in the prior year's fourth quarter. The net loss per basic and diluted share for Q4 was $0.02, while non-GAAP net income per diluted share was $0.10.

The full fiscal year 2023 saw Clearwater Analytics achieve total revenue of $368.2 million, marking a 21.3% increase from the previous year. Annualized Recurring Revenue (ARR) grew 17.2% year-over-year to $379.1 million as of December 31, 2023. Full-year Adjusted EBITDA was $105.9 million, corresponding to a margin of 28.8%, a significant improvement of 203 basis points over 2022. Free cash flow for the year surged by 57.2% to $79.0 million. The company also maintained a strong gross revenue retention rate of 98% and improved its net revenue retention rate to 107% from 106% in 2022. The number of clients contributing over $1 million in revenue increased by 28% over the year.

Strategic Execution and Operational Efficiency Drive Gains

The strong financial performance is largely attributed to Clearwater Analytics' strategic initiatives and enhanced operational efficiency. The company successfully completed its transition to the public cloud, a move that CEO Sandeep Sahai highlighted as pivotal.

"We had a strong 2023, and the durability of our business was on full display as we delivered a full year revenue growth of 21%, while meaningfully improving both gross margin and Adjusted EBITDA."

This transition has allowed Clearwater Analytics to reallocate more than 60% of its research and development (R&D) capacity towards fueling future growth. Furthermore, the company has leveraged advancements in machine learning and artificial intelligence to enhance operational efficiency. This is evidenced by the fact that the operations team was smaller at the end of 2023 than at the beginning, despite significant growth in assets under management (AUM) on the platform, which reached $7.3 trillion. This demonstrates the scalability and disruptive potential of its single-instance, multi-tenant business model.

Broader Market Context and Future Outlook

Clearwater Analytics' performance in the Software and Fintech sectors underscores a broader trend of demand for advanced, efficient investment management solutions. The company's consistent gross revenue retention rate of 98% for nineteen out of the last twenty quarters, alongside an improving net revenue retention rate, indicates strong customer loyalty and success in expanding existing client relationships.

Looking ahead, Clearwater Analytics has provided optimistic guidance, projecting continued margin expansion and strategic growth. For the first quarter of 2024, the company anticipates Adjusted EBITDA to be around $28.8 million, with an EBITDA margin of 28.7%, approximately 200 basis points better than Q1 2023. For the full year 2024, management expects to achieve an Adjusted EBITDA margin exceeding 31%, surpassing its previously announced goal of expanding margins by 200 basis points annually through 2025.

Clearwater Analytics is also focused on innovation to drive increased back-to-base sales and achieve a net revenue retention rate target of 115%. Strategic expansion into Europe and Asia is a key component of its growth strategy, marked by the addition of Keith Viverito to its executive team. The company aims for a long-term gross margin goal of 80%, reflecting ongoing operational improvements.

"We are on a mission to be the world's most trusted and comprehensive technology platform that simplifies the entire investment management lifecycle, and eventually, revolutionizes the world of investing."

This forward-looking statement from CEO Sandeep Sahai reinforces the company's ambitious vision for sustained growth and market leadership within the investment management technology landscape.