Clearwater Analytics Holdings, Inc. SEC 10-K Report

Clearwater Analytics Holdings, Inc., a leading provider of SaaS-based investment accounting and analytics solutions, has released its 2024 10-K report. The report highlights the company's robust financial performance, significant business achievements, strategic initiatives, and the challenges it faces in the competitive financial services software market.

Financial Highlights

Clearwater Analytics reported strong financial results for the year ended December 31, 2024:

• Revenue: $451.8 million, reflecting a 23% increase from the previous year due to new client acquisitions and increased assets from existing clients.
• Gross Profit: $328.8 million, representing a gross margin of 73%, up from 71% in the prior year, indicating improved cost management.
• Income (loss) from operations: $12.2 million, compared to a loss of $16.7 million in the previous year, highlighting a turnaround in operational efficiency.
• Net income (loss): $427.6 million, significantly impacted by a non-recurring tax benefit of $472 million related to the valuation allowance reversal.
• Net earnings (loss) per share attributable to Class A and Class D common stock - Basic: $1.93, compared to a loss of $0.11 in the previous year, driven by improved profitability and tax benefits.
• Net earnings (loss) per share attributable to Class A and Class D common stock - Diluted: $1.68, reflecting the impact of potential share dilution.

Business Highlights

Clearwater Analytics achieved several key business milestones in 2024:

• Revenue Segments: Clearwater's platform aggregates and normalizes data on over $8.8 trillion of global invested assets for over 1,400 clients as of December 31, 2024. The client base includes asset managers, insurance companies, and large corporations, with significant assets from state, local, and education entities, as well as bank/community foundations.
• Geographical Performance: Clearwater has expanded its international presence with offices in Edinburgh, London, Paris, Frankfurt, Singapore, and Hong Kong. Despite international revenues representing only 18% of total revenues for the year ended December 31, 2024, these markets account for approximately 46% of the total addressable market, indicating significant growth potential.
• Sales Units: The company added over 100 net new clients in 2024, contributing to the growth in assets managed on the platform.
• New Product Launches: Clearwater introduced new solutions such as Prism, LPx, and MLx, enhancing its product offerings. The acquisition of JUMP Technology in 2022 and Wilshire Technology in 2024 further expanded Clearwater's capabilities, particularly in the European market and in providing post-trade risk capabilities.
• Future Outlook: Clearwater plans to continue expanding its product offerings and international presence. The acquisition of Enfusion, expected to be completed in the second quarter of 2025, aims to accelerate the development of a cloud-native front-to-back platform for the investment management industry. The company also intends to pursue strategic partnerships and acquisitions to enhance its competitive positioning.

Strategic Initiatives

Clearwater Analytics has undertaken several strategic initiatives to enhance its market position and service offerings:

• Acquisitions: In 2024, the company acquired Wilshire Technology to bolster its risk and performance analytics capabilities, particularly targeting investment managers and institutional asset owners. Additionally, in January 2025, Clearwater entered into a Merger Agreement to acquire Enfusion, a leader in SaaS solutions for the investment management and hedge fund industry, for approximately $1.5 billion. This acquisition is expected to accelerate the company's vision of creating a comprehensive cloud-native front-to-back platform for the investment management industry.
• Capital Management: The company has engaged in several capital management activities, including secondary offerings and changes in its contracting structure. In 2023 and 2024, Clearwater participated in multiple underwritten secondary public offerings, facilitating the sale of shares by its Principal Equity Owners, although the company itself did not sell any securities or receive proceeds from these sales. The company incurred expenses related to these offerings, which were recorded as general and administrative expenses. Additionally, Clearwater transitioned its contracting structure to a 'Base+' model in 2022, which includes a base fee and incremental fees for asset increases, designed to stabilize revenue streams and limit downside volatility.
• Future Outlook: Looking ahead, Clearwater plans to complete the acquisition of Enfusion in the second quarter of 2025, subject to shareholder and regulatory approvals. The company intends to finance this acquisition through a combination of cash and a new senior secured term loan B facility, along with a revolving credit facility. Clearwater aims to continue expanding its client base, particularly in international markets, and to enhance its technological capabilities to maintain a competitive edge. The company also plans to invest in sales and marketing to support growth in new and existing markets, with a focus on sustainable long-term growth and profitability.

Challenges and Risks

Clearwater Analytics faces several challenges and risks in its operations:

• Macroeconomic and Industry Risks: The company operates in a highly competitive financial services software and services market, which could adversely affect financial performance and cash flows. The company is also heavily dependent on fees based on the value of assets on its platform, making it vulnerable to market volatility and economic downturns. Additionally, prolonged sales cycles with large financial institutions and government entities pose challenges in predictability and upfront costs.
• Business and Operational Risks: The company faces difficulties in sustaining revenue growth and the need to attract and retain top talent. The tightening labor market could increase costs and impact service delivery. The transition to a new contracting structure, Base+, aims to mitigate fee volatility but may not fully protect against client negotiations for lower fees.
• Technological Risks: Potential failures in investment accounting and reporting solutions pose threats to business operations and reputation. The reliance on cloud-based services and third-party IT systems introduces risks of disruptions and data breaches, which could lead to financial losses and reputational damage. The company is also exposed to cybersecurity threats, which are becoming more sophisticated with the use of AI technologies. These threats could result in unauthorized access to sensitive information, leading to significant liabilities and operational disruptions.
• Integration Risks: Management acknowledges the challenges of integrating acquisitions, such as the proposed acquisition of Enfusion, which may not yield anticipated synergies and could strain resources. The company is investing significantly in research and development to drive innovation, but there is a risk that these investments may not translate into successful new solutions or enhancements.
• Financial Risks: The company is exposed to financial risks, including fluctuations in revenue due to changes in financial market asset values and interest rate increases. The company's indebtedness could limit financial flexibility and increase vulnerability to economic changes. Additionally, changes in tax laws and regulations could impact financial results, and the company faces potential liabilities from unauthorized access to personal information.

Overall, the company is implementing strategies to address these risks, such as transitioning to a Base+ contract model, investing in cybersecurity measures, and focusing on talent retention. However, the effectiveness of these strategies remains to be seen in mitigating the identified risks.

SEC Filing: Clearwater Analytics Holdings, Inc. [ CWAN ] - 10-K - Feb. 26, 2025