Clearwater Analytics Holdings, Inc. Q3 FY2023 earnings
CWANQuarter ended Sep 2023.
Summary
Clearwater Analytics reported third quarter 2023 revenue of $94.7 million, up 23.7%. Gross profit rose to $67.7 million. Gross margin improved to 71.5%, up 1.1 percentage points. The quarter showed solid top-line growth, but GAAP profitability remained under pressure. The company posted an operating loss of $5.9 million, and the operating loss widened. Operating margin fell to negative 6.2%, down 4.7 percentage points. Net loss attributable to Clearwater Analytics Holdings, Inc. narrowed to $1.9 million. Diluted loss per share narrowed to $0.01. For the first nine months of 2023, revenue increased 21.9% to $269.1 million. Net loss for the nine months widened to $17.2 million.
Non-GAAP results showed stronger profitability. Adjusted EBITDA was $28.6 million, up from $18.8 million, and Adjusted EBITDA margin was 30.2%. Non-GAAP gross profit was $73.2 million, equal to a 77.4% non-GAAP gross margin, an increase of 250 basis points over the prior-year quarter. Non-GAAP net income rose to $23.7 million from $13.8 million. Non-GAAP diluted net income per share was $0.09. The gap between GAAP and non-GAAP results reflects large equity-based compensation and related costs. Annualized recurring revenue reached $362.4 million as of September 30, 2023, up 19.4% from $303.6 million a year earlier. Gross revenue retention was 98%, consistent with the prior-year period. Net revenue retention was 108%, compared with 109% at June 30, 2023 and 103% at September 30, 2022. Operating cash flow was $31.4 million, up 114.1%. Free cash flow, a non-GAAP measure, was $30.9 million, up from $12.8 million. Capital expenditures were $0.8 million, down 59.8%. Deferred revenue, current portion, was $3.5 million, up 168.6%. For the first nine months, operating cash flow was $60.5 million, up 51.8%.
Operational momentum was visible in several areas. Clearwater cut its average client onboarding time from nine months to five months. The company hosted its annual Clearwater Connect conference with more than 500 global in-person attendees. Product demonstrations covered generative AI, Clearwater LPx, LPx Clarity, J-Curve, the LPx Management Console, Clearwater MLx, Clearwater Prism, and Clearwater JUMP's order management and portfolio management capabilities. Clearwater added clients such as Alpha Warranty, Atrium Group Services Limited, Chilton Investment Services, Crossmark Global Investments Inc., Highview National Insurance Company, Kera Capital Partners, Methodist Health System, NorthStandard Limited, Optima Seguros, Perion Network Ltd, Point Biopharma Inc., and Westfield Specialty, Ltd. Ofi Invest Asset Management, part of a group with more than 187 billion under management, selected the platform. RiverStone International implemented Clearwater, and Bank of Saint Lucia chose Clearwater JUMP. The company also won the Captive Review US Award for Software Solution of the Year and was named to the IDC FinTech Rankings 2023 Top 50. Clearwater says it has a 100% recurring revenue model, excluding professional services and license revenue from the JUMP acquisition.
Guidance points to continued growth but slower expansion. For the fourth quarter of 2023, Clearwater expects year-over-year revenue growth of 19%, Adjusted EBITDA of $28 million, and an Adjusted EBITDA margin of 28%. For the full year 2023, the company guides to year-over-year revenue growth of 21%, Adjusted EBITDA of $104 million, and an Adjusted EBITDA margin of 28%. Management also expects equity-based compensation expense and related payroll taxes of $80 million, JUMP-related equity-based compensation of $25 million, depreciation and amortization of $9 million, a non-GAAP effective tax rate of 25%, and a diluted non-GAAP share count of 255 million. Risks include rapid technological change, especially in artificial intelligence, competition, market volatility or an economic downturn that could reduce asset values on the platform, the ability to manage growth, attract and retain skilled employees, and keep solutions performing properly. Other risks include disruptions in computer and cloud systems, data protection and intellectual property claims, and challenges integrating JUMP Technology and retaining its clients. Clearwater also notes that revenue can fluctuate with the market value of client assets, international expansion costs more than North America, and gross margins may vary with onboarding activity. The company also faces the risk that clients may cancel contracts with 30 days' notice without penalty.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $94.7M | $89.9M | +5.3% | $76.6M | +23.7% |
| Gross profit | $67.7M | $62.9M | +7.5% | $53.8M | +25.7% |
| Gross margin | 71.5% | 70.0% | +1.4 pp | 70.3% | +1.1 pp |
| Research & development | $32.3M | $29.8M | +8.0% | $25.4M | +26.8% |
| Sales & marketing | $15.0M | $14.3M | +4.8% | $13.2M | +13.9% |
| General & administrative | $26.3M | $25.9M | +1.5% | $16.4M | +60.5% |
| Total operating expenses | $73.5M | $70.0M | +5.0% | $55.0M | +33.7% |
| Operating income (loss) | -$5.9M | -$7.1M | +17.4% | -$1.2M | -405.8% |
| Operating margin | -6.2% | -7.9% | +1.7 pp | -1.5% | -4.7 pp |
| Net income (loss) | -$1.9M | -$10.9M | +82.7% | -$3.0M | +36.5% |
| Net margin | -2.0% | -12.2% | +10.2 pp | -3.9% | +1.9 pp |
| Diluted EPS | -$0.01 | -$0.06 | +$0.05 | -$0.01 | ±$0.00 |
Risks
The company expects to lose emerging growth company status as of December 31, 2023 based on public float as of June 30, 2023, requiring its first formal assessment of internal control over financial reporting and an independent auditor audit of ICFR as of December 31, 2023. It warns that evaluation may identify material weaknesses or that existing material weaknesses may not be remediated, potentially causing delayed reporting, SEC sanctions, NYSE rule violations, or loss of investor confidence.
The filing states the company intends to continue presenting non-GAAP financial measures and warns that any failure to accurately report and present those measures could cause investors to lose confidence in reported financial and other information, likely negatively affecting the trading price of its Class A common stock.
Revenue is generally billed monthly in arrears based on a basis point rate applied to clients' assets on the platform, which can be influenced by general economic conditions. Although 77% of assets were high-grade fixed income and structured products as of December 31, 2022, asset values vary daily due to securities prices, cash flow needs, and client buying and selling, making revenue subject to market and interest rate fluctuations.
Future growth depends on entering and expanding international markets, where the cost to acquire clients is currently greater than in North America because of less brand awareness and lower historical sales and marketing investment. The company expects to invest more in international sales and marketing relative to North America, and sales and marketing in new end-markets are expected to be less efficient than in established verticals.
MD&A states the priority is maintaining and growing technological advantage over competitors and notes that opportunities such as generative AI may lead the company to increase research and development investments at rates faster than revenue growth, which could pressure long-term growth and profitability.
For the nine months ended September 30, 2023, accounts receivable increased $18.9 million, including $8.4 million from aging of receivable balances for certain customers due to short-term deterioration in days sales outstanding, though management continues to believe the balances are collectible. This raises collection and working capital risk.
MD&A discusses tax receivable agreement benefit or expense volatility, estimated 2023 taxable income partly from Section 174 research and development capitalization and limited equity-based compensation deductibility, and expects to utilize tax benefits subject to the TRA. It also states the effective tax rate may increase as ownership in CWAN Holdings increases via exchanges, and discrete items may cause period-to-period volatility.
SaaS KPIs
All quarters →Net Revenue Retention Rate
Adjusted EBITDA
Adjusted EBITDA Margin
Free Cash Flow
Non-GAAP Gross Margin
Total clients
Gross Revenue Retention Rate
Annualized Recurring Revenue
Summary, forecast, risks and KPIs are extracted from Clearwater Analytics Holdings, Inc.'s SEC filings for Q3 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 1, 2026.