Clearwater Analytics Holdings, Inc. Q3 FY2022 earnings

Clearwater Analytics reported third quarter fiscal 2022 revenue of $76.6 million, up 18.7% from the prior-year quarter. Gross profit rose 15.3% to $53.8 million, while gross margin was 70.3%, down 2.1 percentage points. The company swung to an operating loss of $1.16 million from operating income in the prior-year quarter, and operating margin was -1.5%, down 12.8 percentage points. Net loss attributable to Clearwater Analytics Holdings, Inc. was $2.97 million, and the loss narrowed from a year earlier. Diluted EPS was -$0.01, also an improvement from a year earlier.

For the first nine months of 2022, revenue was $220.7 million, up 21.1% from the prior-year period. Operating cash flow was $39.8 million for the nine-month period, up from cash used in operations a year earlier.

Annualized recurring revenue was $303.6 million as of September 30, 2022, up 18.1% from $257.0 million as of September 30, 2021. Gross revenue retention was 98%, the fifteenth consecutive quarter at that level. Net revenue retention was 103%, down from 104% at June 30, 2022. Management tied the decline to lower market values of client assets and lower fixed income pricing, and said those factors reduced annualized recurring revenue growth by 5% in the first nine months of 2022. The company added clients including Nationwide Mutual Insurance Company, Altos Labs, Chandler Asset Management, Continental General Insurance, FAI Capital Management, The Bank of Nevis Limited, Sonatus, and expanded within existing clients. It also announced the pending acquisition of Paris-based JUMP Technology for €75 million, adding 100 employees and 70 customers, with up to 3.8 million restricted stock units over four years. The deal is expected to close in the fourth quarter of 2022.

Cash generation improved. Operating cash flow for the third quarter was $14.7 million, up 101.3% from the prior-year quarter, and free cash flow was $12.8 million, a 68% conversion of Adjusted EBITDA to free cash flow. Capital expenditures were $1.91 million, up 50.8%. Deferred revenue was $1.29 million, up 103.3%. Adjusted EBITDA was $18.8 million, up from $17.1 million a year earlier, and Adjusted EBITDA margin was 24.6%. Non-GAAP net income rose 59% to $13.8 million.

For the fourth quarter of 2022, Clearwater guided revenue of $79.3 million to $81.3 million, with year-over-year growth of about 14% to 16%, and Adjusted EBITDA of $22.2 million to $23.2 million. For the full year 2022, the company guided revenue of $300 million to $302 million, with year-over-year growth of about 19% to 20%, and Adjusted EBITDA of $79 million to $80 million. The guidance assumes about $1 million of revenue from JUMP Technology after the acquisition closes, and the timing of that closing remains uncertain.

The quarter came with clear risks. Management pointed to market volatility and said a downturn in economic conditions or other factors could cause negative trends or fluctuations in the value of assets on the platform. That matters because revenue is tied to client assets. The company also flagged risks tied to rapid technological change, competition, managing growth, attracting and retaining skilled employees, and potential disruptions or failures in its systems and third-party services. The pending JUMP Technology deal adds integration risk, including the ability to close on the expected timing, integrate operations and technology, and retain management, employees, and clients. The company also cited risks related to its ownership structure and status as a controlled company.