Clearwater Analytics Holdings, Inc. Q2 FY2022 earnings
CWANQuarter ended Jun 2022.
Summary
Clearwater Analytics reported $73.4 million of revenue for the second quarter of fiscal 2022, up 20.6% from $60.9 million in the prior-year quarter. Year-to-date revenue was $144.2 million, up 22.4% from $117.8 million. Management said average assets billed to new and existing clients increased 16% in the quarter and 18% year to date, while the average basis point rate billed rose 4.0% and 3.3%, respectively. International revenue grew to 15% of revenue in the quarter and 14% year to date, from 8% and 9% a year earlier. Gross profit rose 15.9% to $52.5 million from $45.3 million in the quarter. Gross margin slipped to 71.5% from 74.4%. Higher costs, including payroll, equity-based compensation, travel, data, and facilities, pressured the margin. Operating income fell to $1.1 million from $8.6 million. Operating margin was 1.5%, down from 14.1%. Net loss attributable to Clearwater Analytics Holdings was $2.4 million, and diluted loss per share was $0.01. The year-to-date net loss attributable to the company was $2.0 million, with diluted loss per share of $0.01.
Cash flow improved sharply. Operating cash flow was $18.3 million in the quarter, up from $2.0 million a year earlier. Capital expenditures were $1.7 million, up from $0.9 million. For the six months, operating cash flow was $25.2 million, up from a use of $16.4 million in the prior-year period. Capital expenditures for the same six months were $4.0 million, up from $2.2 million. Free cash flow, a non-GAAP measure, was $16.5 million in the quarter, representing 87% conversion of adjusted EBITDA. Adjusted EBITDA was $19.1 million, compared with $17.4 million a year earlier, and adjusted EBITDA margin was 26.0%. Non-GAAP net income rose 119% to $13.3 million from $6.1 million, and non-GAAP net income per diluted share was $0.05. Non-GAAP gross profit was $55.6 million, or 75.7% of revenue. The quarter included a charge tied to the tax receivable agreement.
Operating metrics showed durable retention but pressure from market values. Annualized recurring revenue was $290.4 million as of June 30, 2022, up 18.5% from $245.0 million a year earlier. Gross revenue retention was 98%, marking fourteen consecutive quarters at that level. Net revenue retention was 104%, down from 107% as of March 31, 2022. Management said asset values on the platform fell by 2% in the first quarter and an incremental 3% in the second quarter, which reduced annualized recurring revenue. The company attributes the net revenue retention decline to market value fluctuations and lower pricing on fixed income securities. Clearwater served over 1,100 clients and reported on more than $5.9 trillion in assets. New client wins included Sutton RE, PERSI, and MSIG. Deferred revenue, current portion, was $1.1 million at June 30, 2022.
Guidance points to continued growth but at a slower pace than the first half. For the third quarter of 2022, management guided revenue to $74.5 million to $75 million, with about 16% year-over-year growth, and adjusted EBITDA to $19 million to $19.5 million. For the full year 2022, it guided revenue to $298 million to $300 million, with about 19% growth, and adjusted EBITDA to $79 million to $81 million. The full-year guide covers the entire fiscal year, while the other guide is for the next quarter. Risks include market volatility that can move client asset values and revenue, a net revenue retention rate that has slipped, rising compensation and public company costs, and the need to manage international expansion and competition. The company also cited broad risks tied to rapid technological change, growth management, employee retention, system disruptions, data protection, intellectual property claims, and its controlled company structure. The business remains highly recurring, with a 100% recurring revenue model and a majority of platform assets in high-grade fixed income.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2022 | Q1 FY2022 | QoQ | Q2 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $73.4M | $70.8M | +3.7% | — | — |
| Gross profit | $52.5M | $49.6M | +5.8% | — | — |
| Gross margin | 71.5% | 70.1% | +1.4 pp | — | — |
| Research & development | $22.8M | $21.3M | +7.2% | — | — |
| Sales & marketing | $13.1M | $12.0M | +9.0% | — | — |
| General & administrative | $15.5M | $15.0M | +2.7% | — | — |
| Total operating expenses | $51.4M | $48.3M | +6.3% | — | — |
| Operating income (loss) | $1.1M | $1.3M | -11.9% | — | — |
| Operating margin | 1.5% | 1.8% | -0.3 pp | — | — |
| Net income (loss) | -$2.4M | $398.0K | -710.1% | — | — |
| Net margin | -3.3% | 0.6% | -3.9 pp | — | — |
| Diluted EPS | -$0.01 | — | — | — | — |
Risks
Revenue is billed primarily on the value of client assets on the platform, so market value declines reduce recurring revenue. Net revenue retention rate decreased to 104% as of June 30, 2022 from 109% a year earlier, after client assets under management on the platform fell 2% in Q1 2022 and an incremental 3% in Q2 2022, reducing annualized recurring revenue.
Cost growth outpaced revenue. Gross margin declined 2.9 percentage points to 71.5% for FY2022 Q2 and operating margin declined 12.5 percentage points to 1.5%, while operating income fell 86.8% to $1.13M for the quarter.
Equity-based compensation rose to $16.2M in FY2022 Q2 from $6.7M a year earlier, and to $32.1M for the six months, due to increased grant-date fair value and headcount. This pressures GAAP profitability and may dilute shareholders.
The company recorded $3.1M of tax receivable agreement expense in FY2022 Q2 and expects to pay 85% of certain tax benefits under the TRA, with the related liability expected to be paid in Q4 2023. The expense can vary significantly with taxable income estimates.
International revenue grew to 15% and 14% of revenues for the three and six months ended June 30, 2022, but client acquisition costs abroad are greater and sales and marketing spend is expected to be less efficient than in North America. International expansion also contributed to cost of revenue headcount growing faster than revenue.
Revenue and gross margins may fluctuate with the number and size of clients being onboarded, because effort to serve a client is relatively consistent while assets ramp over time. Cost of revenue headcount grew faster than overall revenue as the company expanded scale for expected international growth.
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)
Non-GAAP Gross Profit
Summary, forecast, risks and KPIs are extracted from Clearwater Analytics Holdings, Inc.'s SEC filings for Q2 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.