Clearwater Analytics Holdings, Inc. Q1 FY2022 earnings
CWANQuarter ended Mar 2022.
Summary
Clearwater Analytics reported first-quarter revenue of $70.8 million, up 24.4% from $56.9 million in the prior-year quarter. Gross profit rose to $49.6 million from $42.6 million. The top line grew faster than gross profit. GAAP gross margin fell to 70.1% from 74.8%, a decline of 4.7 percentage points. Operating income dropped to $1.3 million from $12.0 million. Operating margin narrowed to 1.8% from 21.1%. The company said the gross margin decline was mostly due to higher equity-based compensation from IPO-related grants and changes in grant-date fair value. Non-GAAP gross profit was $52.5 million, or 74.2% of revenue.
Net income attributable to Clearwater was $0.4 million, and diluted earnings per share was $0.00. Non-GAAP net income was $12.8 million, up from $7.8 million. Operating cash flow was $6.9 million, a swing from negative $18.4 million in the first quarter of 2021. Capital expenditures were $2.2 million, up from $1.3 million. Free cash flow was $4.7 million, compared with negative $19.7 million a year earlier. Adjusted EBITDA was $18.9 million, or 26.7% of revenue, versus $18.1 million in the prior-year quarter. The gap between GAAP and non-GAAP results remains wide because of equity-based compensation tied to the company's recent IPO.
Annualized recurring revenue reached $287.1 million as of March 31, 2022, up 23.5% from $232.5 million as of March 31, 2021. Gross revenue retention was 98%, the 13th consecutive quarter at that level. Net revenue retention was 107%, down from 110% a year earlier. Management tied the lower net retention to slower asset growth from acquisitions within the insurance client base and reduced pricing on clients' fixed income securities. The company added T. Rowe Price and Nuveen Asset Management as asset management clients, along with a large east coast-based asset manager. It won its first insurance client in France and its first European foundation. Clearwater opened offices in Singapore and London and expanded capacity in Edinburgh and Noida. Prism gained its first client where Clearwater was not the incumbent investment accounting solution, a large multi-family investment firm in Silicon Valley.
For the second quarter, management guided revenue to $73 million to $73.5 million and adjusted EBITDA to $19 million to $20 million. For full-year 2022, it raised revenue guidance to $303 million to $305 million and set adjusted EBITDA guidance at $80 million to $82 million. The second-quarter outlook implies roughly 20% year-over-year growth, and the full-year outlook implies roughly 21% growth. The company did not provide a GAAP reconciliation for these non-GAAP guidance items. The full-year revenue target assumes demand remains strong from new and existing clients across asset management, insurance, and other verticals.
Risks include market volatility and economic downturns that could reduce asset values on the platform, difficulty managing growth and retaining skilled employees, technology disruptions, data security failures, and its status as a controlled company. Clearwater also said future growth depends on adding clients in established and nascent markets, expanding internationally, and retaining and expanding relationships with existing clients. The company continues to hire ahead of expected new client demand in continental Europe and Asia, which could pressure near-term margins. Its net revenue retention rate of 107% shows expansion with existing clients, but it also reflects the slower insurance acquisition activity and lower fixed income pricing noted by management.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2022 | Q4 FY2021 | QoQ | Q1 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $70.8M | $69.8M | +1.5% | — | — |
| Gross profit | $49.6M | $49.6M | +0.0% | — | — |
| Gross margin | 70.1% | 71.1% | -1.0 pp | — | — |
| Research & development | $21.3M | $21.7M | -1.9% | — | — |
| Sales & marketing | $12.0M | $12.9M | -7.1% | — | — |
| General & administrative | $15.0M | $14.3M | +5.1% | — | — |
| Total operating expenses | $48.3M | $48.9M | -1.2% | — | — |
| Operating income (loss) | $1.3M | $654.0K | +95.6% | — | — |
| Operating margin | 1.8% | 0.9% | +0.9 pp | — | — |
| Net income (loss) | $398.0K | $101.0K | +294.1% | — | — |
| Net margin | 0.6% | 0.1% | +0.4 pp | — | — |
Risks
Gross margin fell to 70.1% for the quarter ended March 31, 2022 from 74.8% in the prior-year quarter (down 4.7 pp) and operating margin fell to 1.8% from 21.1% (down 19.3 pp), as cost of revenue headcount grew faster than revenue to support expected international expansion. Management states gross margins may fluctuate based on the relative size and number of clients being onboarded in any period.
Net revenue retention rate declined to 107% as of March 31, 2022 from 110% as of March 31, 2021, which management attributes to slower asset growth from acquisitions within the insurance client base and decreased pricing of clients' fixed income securities, partially offset by increased asset growth in asset management and EMEA clients. Gross revenue retention held flat at 98%.
Revenue is billed monthly in arrears as a basis point rate applied to the average daily value of client assets on the platform, so revenue fluctuates with securities prices, client cash flow needs and the changing interest rate environment. Only 78% of platform assets were high-grade fixed income and structured products as of December 31, 2021.
Equity-based compensation expense rose to $15.9 million for the quarter ended March 31, 2022 from $4.9 million in the prior-year quarter, driven by increased grant-date fair value of equity awards and higher headcount across cost of revenue, research and development, sales and marketing and general and administrative functions. The company depends on continued headcount growth across client services, onboarding and reconciliation teams.
International revenue grew to 13% of revenues for the quarter ended March 31, 2022 from 9% in the prior-year quarter, but the company states its cost to acquire clients internationally is greater than in North America because of lower Clearwater brand awareness and prior underinvestment in sales and marketing, and it expects to invest more in international sales and marketing relative to North America.
Growth strategy depends on adding clients in nascent end-markets such as state and local governments, pension funds, sovereign wealth funds and alternative asset managers, where management expects sales and marketing expenditures to be less efficient than in established verticals. General and administrative expense rose 99% for the quarter ended March 31, 2022 versus the prior-year quarter, partly from outside services and insurance costs of being a public company.
Accounts receivable increased $3.0 million during the quarter ended March 31, 2022, of which $2.3 million came from ageing of small receivable balances across several customers due to short term deterioration in days sales outstanding, which management has determined to be collectible.
The company's effective tax rate may increase in the future as its ownership in CWAN Holdings increases via exchanges from historical partners, and discrete items may cause volatility in the effective tax rate. Provision for income taxes rose to $0.24 million for the quarter ended March 31, 2022 from $0.04 million in the prior-year quarter on a change in mix of foreign jurisdiction income.
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 (ARR)
Summary, forecast, risks and KPIs are extracted from Clearwater Analytics Holdings, Inc.'s SEC filings for Q1 FY2022 (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 2, 2026.