Clearwater Analytics Holdings, Inc. Q4 FY2021 earnings
CWANQuarter ended Dec 2021.
Summary
Clearwater Analytics closed FY2021 with fourth-quarter revenue of $69.76 million, up 27.4% from the prior-year quarter. Full-year revenue reached $252.02 million, up 24.0%. Annualized recurring revenue ended the year at $277.8 million, compared with $257.0 million at the end of the third quarter. The company added over 100 new clients in 2021 and now aggregates and normalizes data on over $5.9 trillion of global invested assets for more than 1,100 clients. Gross retention stayed at 98%, and net retention was 111% in the fourth quarter, within the 109% to 111% range reported for the full year. The platform runs on more than 2,500 daily data feeds and more than four million modeled securities.
Operating leverage improved in the quarter. Fourth-quarter operating income was $0.65 million, a swing from an operating loss a year earlier, and operating margin was 0.9%, up 113.2 percentage points. For the full year, operating income was $28.46 million and operating margin was 11.3%, up 21.3 percentage points. Gross profit rose 21.8% in the quarter to $49.58 million and 22.8% for the year to $184.16 million. Gross margin slipped, though. The fourth-quarter gross margin was 71.1%, down 3.3 percentage points, and the full-year gross margin was 73.1%, down 0.7 percentage points. Management links gross margin fluctuation to onboarding activity and says margins should improve as clients move to steady state.
The bottom line remains thin. Net income attributable to Clearwater was $0.10 million in the fourth quarter, while the full-year net loss attributable to the company was $8.21 million. Diluted EPS for the full year was -$0.05. The September 2021 IPO repayment of debt brought a loss on extinguishment and interest expense that kept net results below the operating line. Operating cash flow was positive in the fourth quarter at $12.42 million, up from the prior-year quarter, but full-year operating cash flow was only $3.36 million. Capital expenditures were $1.53 million in the quarter, up 130.9%, and $5.02 million for the year, up 32.0%.
The cash flow picture shows the strain from working capital. The filing points to receivables growth, a rise in prepaid expenses, and higher deferred commissions as uses of cash. Deferred revenue, which reflects the current portion only, was $0.80 million at year end, down 44.0% from the prior-year quarter. That decline is small in dollar terms but worth watching because it can signal the timing of set-up fees and implementation activity.
Risks are embedded in the business model. Clearwater bills monthly in arrears based on client assets, and contracts are generally cancellable with 30 days' notice without penalty. About 78% of assets on the platform were high-grade fixed income and structured products as of December 31, 2021, which limits volatility, but revenue still moves with asset values and client decisions. Management also warns that onboarding new clients can dilute gross margins, that international client acquisition costs are higher than in North America, and that sales and marketing in nascent end-markets may be less efficient. The New Credit Agreement requires a consolidated secured net indebtedness to consolidated EBITDA ratio of not more than 4.75 to 1.00 beginning with the quarter ended December 31, 2021, and the company was in compliance. The filing carries no quarterly or full-year guidance, so the quarter stands on reported results alone.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2021 | Q3 FY2021 | QoQ | Q4 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $69.8M | $64.5M | +8.2% | — | — |
| Gross profit | $49.6M | $46.7M | +6.2% | — | — |
| Gross margin | 71.1% | 72.4% | -1.4 pp | — | — |
| Research & development | $21.7M | $18.4M | +17.8% | — | — |
| Sales & marketing | $12.9M | $10.1M | +27.5% | — | — |
| General & administrative | $14.3M | $10.9M | +31.3% | — | — |
| Total operating expenses | $48.9M | $39.4M | +24.1% | — | — |
| Operating income (loss) | $654.0K | $7.3M | -91.0% | — | — |
| Operating margin | 0.9% | 11.3% | -10.3 pp | — | — |
| Net income (loss) | $101.0K | -$8.3M | +101.2% | — | — |
| Net margin | 0.1% | -12.9% | +13.0 pp | — | — |
| Diluted EPS | $0.00 | — | — | — | — |
Risks
Substantially all revenue comes from basis-point fees tied to assets on the platform, with 52% from insurance clients and 32% from asset manager clients for the year ended December 31, 2021. Market volatility, economic downturns, or investor withdrawals can reduce assets under measurement and therefore fee revenue.
Insurance industry clients generated 52% and asset manager clients generated 32% of total revenue for the year ended December 31, 2021. Adverse conditions, consolidation, or regulatory changes in those industries could reduce demand and materially reduce revenue.
The financial services software market is highly competitive and fragmented, with competitors including SS&C, State Street, SAP, BNY Mellon, Simcorp, BlackRock, FIS, and Northern Trust. Some clients may develop in-house capabilities, and increased competition could cause price reductions, lower gross margins, and loss of market share.
The platform relies on data from thousands of sources and web-based data feeds, including scraping, and some third parties have previously blocked access or requested cessation. Legal or contractual restrictions on data access could require costly alternative methods, increase fees, or force discontinuation of certain solutions.
Sales to large financial institutions, corporations, and government entities involve longer sales cycles, complex client requirements, substantial upfront costs, and less predictability. The company expects to invest more in international sales and marketing, where client acquisition costs are greater and brand awareness is lower.
Revenue grew 24% for the year ended December 31, 2021, increasing demands on resources, and success depends on attracting and retaining high-quality employees. Research and development expense was approximately 29% of revenue for the year ended December 31, 2021, and intense competition for qualified personnel could impair growth if key talent is lost.
The company processes institutional financial information and may hold personal investment data, and it uses third parties including Google Cloud for data center hosting. A cybersecurity event or third-party breach could cause regulatory investigations, fines, litigation, loss of clients, and significant remediation costs.
As of December 31, 2021, the New Credit Agreement had $54.3 million of term loans, with interest rates based on LIBOR, which is being phased out. Failure to agree on a replacement benchmark or a replacement that results in less favorable rates could increase debt service obligations and reduce financial flexibility.
The company is subject to evolving sales tax rules for electronically provided services and could face audits for jurisdictions where it has not historically collected tax. In December 2021 it reduced its estimated sales tax liability by $2.0 million, but a successful assertion of additional tax obligations could result in substantial past taxes, interest, and penalties.
As an emerging growth company, the company is not yet required to complete a management assessment or auditor attestation of internal control over financial reporting under Section 404. Undetected material weaknesses could lead to financial statement restatements, regulatory sanctions, and loss of investor confidence.
SaaS KPIs
All quarters →Net Revenue Retention Rate
Total clients
Gross Revenue Retention
Summary, forecast, risks and KPIs are extracted from Clearwater Analytics Holdings, Inc.'s SEC filings for Q4 FY2021 (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.