UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2022
OR
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-40838
Clearwater Analytics Holdings, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware |
87-1043711 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
777 W. Main Street Suite 900 Boise, ID |
83702 |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (208) 918-2400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
Class A common stock, par value $0.001 per share |
|
CWAN |
|
New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
|
☐ |
|
Accelerated filer |
|
☐ |
|
|
|
|
|||
Non-accelerated filer |
|
☒ |
|
Smaller reporting company |
|
☐ |
|
|
|
|
|
|
|
Emerging growth company |
|
☒ |
|
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☒
As of July 29, 2022, the number of outstanding shares of the registrant’s common stock was:
57,669,237 shares of Class A common stock.
2,696,785 shares of Class B common stock.
47,377,587 shares of Class C common stock.
130,083,755 shares of Class D common stock.
Table of Contents
|
|
Page |
|
ii |
|
|
iv |
|
PART I. |
1 |
|
Item 1. |
Condensed Consolidated Financial Statements (Unaudited) |
1 |
|
1 |
|
|
2 |
|
|
Condensed Consolidated Statements of Comprehensive Income (Loss) |
3 |
|
Condensed Consolidated Statements of Changes in Equity (Deficit) |
4 |
|
6 |
|
|
Notes to Unaudited Condensed Consolidated Financial Statements |
7 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 |
Item 3. |
34 |
|
Item 4. |
34 |
|
PART II. |
35 |
|
Item 1. |
35 |
|
Item 1A. |
35 |
|
Item 2. |
35 |
|
Item 3. |
35 |
|
Item 4. |
35 |
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Item 5. |
35 |
|
Item 6. |
36 |
|
37 |
||
i
GLOSSARY
As used in this Quarterly Report on Form 10-Q, the terms identified below have the meanings specified below unless otherwise noted or the context indicates otherwise:
ii
iii
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking” statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained principally in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, technology developments, financing and investment plans, dividend policy, competitive position, industry and regulatory environment, potential growth opportunities and the effects of competition. Forward looking statements include statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “will,” “would” or similar expressions and the negatives of those terms. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
Important factors that could cause actual results, performance or achievements to differ materially from our expectations include, but are not limited to, the following:
iv
Given these uncertainties, you should not place undue reliance on forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q and should not be relied upon as representing Clearwater's expectations or beliefs as of any date subsequent to the time they are made. Clearwater does not undertake to and specifically declines any obligation to update any forward-looking statements that may be made from time to time by or on behalf of Clearwater.
You should read this Quarterly Report on Form 10-Q in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2021, included in our Annual Report.
v
PART I—FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited).
Clearwater Analytics Holdings, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share amounts and per share amounts, unaudited)
|
|
June 30 |
|
|
December 31 |
|
||
|
|
2022 |
|
|
2021 |
|
||
Assets |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
278,646 |
|
|
$ |
254,597 |
|
Short-term investments |
|
|
3,000 |
|
|
|
— |
|
Accounts receivable, net |
|
|
55,593 |
|
|
|
50,190 |
|
Prepaid expenses and other current assets |
|
|
17,223 |
|
|
|
16,551 |
|
Total current assets |
|
|
354,462 |
|
|
|
321,338 |
|
Property and equipment, net |
|
|
12,613 |
|
|
|
10,738 |
|
Operating lease right-of-use assets, net |
|
|
21,583 |
|
|
|
— |
|
Deferred contract costs, non-current |
|
|
5,572 |
|
|
|
5,687 |
|
Debt issuance costs - line of credit |
|
|
826 |
|
|
|
922 |
|
Other non-current assets |
|
|
5,589 |
|
|
|
5,670 |
|
Total assets |
|
$ |
400,645 |
|
|
$ |
344,355 |
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
891 |
|
|
$ |
1,416 |
|
Accrued expenses and other current liabilities |
|
|
20,916 |
|
|
|
27,032 |
|
Notes payable, current portion |
|
|
2,750 |
|
|
|
2,750 |
|
Operating lease liability, current portion |
|
|
5,185 |
|
|
|
— |
|
Total current liabilities |
|
|
29,742 |
|
|
|
31,198 |
|
Notes payable, less current maturities and unamortized debt issuance costs |
|
|
49,824 |
|
|
|
51,157 |
|
Operating lease liability, less current portion |
|
|
17,789 |
|
|
|
— |
|
Tax receivable agreement liability |
|
|
3,100 |
|
|
|
— |
|
Other long-term liabilities |
|
|
965 |
|
|
|
132 |
|
Total liabilities |
|
|
101,420 |
|
|
|
82,487 |
|
Stockholders' Equity |
|
|
|
|
|
|
||
Class A common stock, par value $0.001 per share; 1,500,000,000 shares authorized, 57,660,081 shares issued and outstanding as of June 30, 2022, 47,948,888 shares issued and outstanding as of December 31, 2021 |
|
|
58 |
|
|
|
48 |
|
Class B common stock, par value $0.001 per share; 500,000,000 shares authorized, 2,696,785 shares issued and outstanding as of June 30, 2022, 11,151,110 shares issued and outstanding as of December 31, 2021 |
|
|
3 |
|
|
|
11 |
|
Class C common stock, par value $0.001 per share; 500,000,000 shares authorized, 47,377,587 shares issued and outstanding as of June 30, 2022 and December 31, 2021 |
|
|
47 |
|
|
|
47 |
|
Class D common stock, par value $0.001 per share; 500,000,000 shares authorized, 130,083,755 shares issued and outstanding as of June 30, 2022 and December 31, 2021 |
|
|
130 |
|
|
|
130 |
|
Additional paid-in-capital |
|
|
420,123 |
|
|
|
388,591 |
|
Accumulated other comprehensive loss |
|
|
(1,012 |
) |
|
|
(34 |
) |
Accumulated Deficit |
|
|
(183,198 |
) |
|
|
(191,926 |
) |
Total stockholders' equity attributable to Clearwater Analytics Holdings, Inc. |
|
|
236,151 |
|
|
|
196,867 |
|
Non-controlling interests |
|
|
63,074 |
|
|
|
65,001 |
|
Total stockholders' equity |
|
|
299,225 |
|
|
|
261,868 |
|
Total liabilities and Stockholders' Equity |
|
$ |
400,645 |
|
|
$ |
344,355 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
Clearwater Analytics Holdings, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except share amounts and per share amounts, unaudited)
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Revenue |
|
$ |
73,409 |
|
|
$ |
60,876 |
|
|
$ |
144,187 |
|
|
$ |
117,770 |
|
Cost of revenue(2) |
|
|
20,919 |
|
|
|
15,576 |
|
|
|
42,091 |
|
|
|
29,898 |
|
Gross profit |
|
|
52,490 |
|
|
|
45,300 |
|
|
|
102,096 |
|
|
|
87,872 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development(2) |
|
|
22,836 |
|
|
|
16,740 |
|
|
|
44,130 |
|
|
|
32,576 |
|
Sales and marketing(2) |
|
|
13,074 |
|
|
|
8,814 |
|
|
|
25,067 |
|
|
|
16,025 |
|
General and administrative(2) |
|
|
15,453 |
|
|
|
11,184 |
|
|
|
30,493 |
|
|
|
18,727 |
|
Total operating expenses |
|
|
51,363 |
|
|
|
36,738 |
|
|
|
99,690 |
|
|
|
67,328 |
|
Income from operations |
|
|
1,127 |
|
|
|
8,562 |
|
|
|
2,406 |
|
|
|
20,544 |
|
Interest expense, net |
|
|
403 |
|
|
|
8,510 |
|
|
|
832 |
|
|
|
16,959 |
|
Tax receivable agreement expense |
|
|
3,100 |
|
|
|
— |
|
|
|
3,100 |
|
|
|
— |
|
Other (income) expense, net |
|
|
(444 |
) |
|
|
(13 |
) |
|
|
(359 |
) |
|
|
65 |
|
Income (loss) before provision for income taxes |
|
|
(1,932 |
) |
|
|
65 |
|
|
|
(1,167 |
) |
|
|
3,520 |
|
Provision for income taxes |
|
|
298 |
|
|
|
276 |
|
|
|
535 |
|
|
|
320 |
|
Net income (loss) |
|
|
(2,230 |
) |
|
|
(211 |
) |
|
|
(1,702 |
) |
|
|
3,200 |
|
Less: Net income attributable to non-controlling interests |
|
|
198 |
|
|
|
— |
|
|
|
329 |
|
|
|
— |
|
Net loss attributable to Clearwater Analytics |
|
$ |
(2,428 |
) |
|
$ |
— |
|
|
$ |
(2,031 |
) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share attributable to Class A and Class D common stock (Note 8)(1): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic and diluted |
|
$ |
(0.01 |
) |
|
NMF |
|
|
$ |
(0.01 |
) |
|
NMF |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares of Class A and Class D common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
185,781,262 |
|
|
NMF |
|
|
|
182,085,548 |
|
|
NMF |
|
||
Diluted |
|
|
237,545,574 |
|
|
NMF |
|
|
|
237,213,366 |
|
|
NMF |
|
||
NMF - not meaningful
Cost of revenue |
|
$ |
2,376 |
|
|
$ |
749 |
|
|
$ |
4,687 |
|
|
$ |
1,272 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
|
4,565 |
|
|
|
2,034 |
|
|
|
8,870 |
|
|
|
3,686 |
|
Sales and marketing |
|
|
3,215 |
|
|
|
1,295 |
|
|
|
6,511 |
|
|
|
2,127 |
|
General and administrative |
|
|
6,035 |
|
|
|
2,613 |
|
|
|
11,999 |
|
|
|
4,471 |
|
Total equity-based compensation expense |
|
$ |
16,191 |
|
|
$ |
6,691 |
|
|
$ |
32,067 |
|
|
$ |
11,556 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands, unaudited)
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net income (loss) |
|
$ |
(2,230 |
) |
|
$ |
(211 |
) |
|
$ |
(1,702 |
) |
|
$ |
3,200 |
|
Other comprehensive income (loss), net of taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency translation adjustment |
|
|
(961 |
) |
|
|
(5 |
) |
|
|
(1,261 |
) |
|
|
16 |
|
Comprehensive income (loss) |
|
$ |
(3,191 |
) |
|
$ |
(216 |
) |
|
$ |
(2,963 |
) |
|
$ |
3,216 |
|
Less: Comprehensive income (loss) attributable to non-controlling interests |
|
|
(11 |
) |
|
|
— |
|
|
|
45 |
|
|
|
— |
|
Comprehensive income (loss) attributable to Clearwater Analytics Holdings, Inc. |
|
$ |
(3,180 |
) |
|
$ |
(216 |
) |
|
$ |
(3,008 |
) |
|
$ |
3,216 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Condensed Consolidated Statements of Changes in Equity (Deficit)
(In thousands, except share amounts, unaudited)
|
|
|
|
Class A |
|
|
Class A |
|
|
Class B |
|
|
Class B |
|
|
Class C |
|
|
Class C |
|
|
Class D |
|
|
Class D |
|
|
Additional |
|
|
Accumulated |
|
|
Accumulated |
|
|
Non- |
|
|
Total |
|
|||||||||||||
Balance at December 31, 2021 |
|
|
|
|
47,948,888 |
|
|
$ |
48 |
|
|
|
11,151,110 |
|
|
$ |
11 |
|
|
|
47,377,587 |
|
|
$ |
47 |
|
|
|
130,083,755 |
|
|
$ |
130 |
|
|
$ |
388,591 |
|
|
$ |
(34 |
) |
|
$ |
(191,926 |
) |
|
$ |
65,001 |
|
|
$ |
261,868 |
|
Exercise of options to purchase common stock |
|
|
|
|
857,647 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,226 |
|
|
|
— |
|
|
|
— |
|
|
|
1,387 |
|
|
|
5,613 |
|
Equity-based compensation |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,067 |
|
|
|
— |
|
|
|
— |
|
|
|
3,960 |
|
|
|
16,028 |
|
Foreign currency translation adjustment |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(226 |
) |
|
|
— |
|
|
|
(74 |
) |
|
|
(300 |
) |
Net income |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
398 |
|
|
|
130 |
|
|
|
528 |
|
Accrued tax distributions payable to Continuing Equity Owners |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
27 |
|
|
|
27 |
|
Effect of LLC unit exchanges |
|
|
|
|
6,643,614 |
|
|
|
7 |
|
|
|
(6,643,614 |
) |
|
|
(7 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,348 |
|
|
|
(8,348 |
) |
|
|
— |
|
Balance at March 31, 2022 |
|
|
|
|
55,450,149 |
|
|
$ |
55 |
|
|
|
4,507,496 |
|
|
$ |
5 |
|
|
|
47,377,587 |
|
|
$ |
47 |
|
|
|
130,083,755 |
|
|
$ |
130 |
|
|
$ |
404,884 |
|
|
$ |
(260 |
) |
|
$ |
(183,180 |
) |
|
$ |
62,083 |
|
|
$ |
283,764 |
|
Exercise of options to purchase common stock |
|
|
|
|
105,251 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
603 |
|
|
|
— |
|
|
|
— |
|
|
|
168 |
|
|
|
771 |
|
Restricted stock units released |
|
|
|
|
93,750 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
ESPP shares issued |
|
|
|
|
200,220 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,877 |
|
|
|
— |
|
|
|
— |
|
|
|
523 |
|
|
|
2,401 |
|
Equity-based compensation |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,759 |
|
|
|
— |
|
|
|
— |
|
|
|
3,555 |
|
|
|
16,314 |
|
Foreign currency translation adjustment |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(752 |
) |
|
|
— |
|
|
|
(209 |
) |
|
|
(961 |
) |
Net income (loss) |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,428 |
) |
|
|
198 |
|
|
|
(2,230 |
) |
Accrued tax distributions payable to Continuing Equity Owners |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(834 |
) |
|
|
(834 |
) |
Effect of LLC unit exchanges |
|
|
|
|
1,810,711 |
|
|
|
2 |
|
|
|
(1,810,711 |
) |
|
|
(2 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,410 |
|
|
|
(2,410 |
) |
|
|
— |
|
Balance at June 30, 2022 |
|
|
|
|
57,660,081 |
|
|
|
58 |
|
|
|
2,696,785 |
|
|
$ |
3 |
|
|
|
47,377,587 |
|
|
$ |
47 |
|
|
|
130,083,755 |
|
|
$ |
130 |
|
|
$ |
420,123 |
|
|
$ |
(1,012 |
) |
|
$ |
(183,198 |
) |
|
$ |
63,074 |
|
|
$ |
299,225 |
|
4
|
|
|
|
|
Clearwater Analytics Holdings, Inc. Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
|
|
CWAN Holdings, LLC |
|
|
Class A |
|
|
Class A |
|
|
Class B |
|
|
Class B |
|
|
Class C |
|
|
Class C |
|
|
Class D |
|
|
Class D |
|
|
Additional |
|
|
Accumulated |
|
|
Accumulated |
|
|
Non- |
|
|
Total |
|
||||||||||||||
Balance at December 31, 2020 |
|
$ |
(245,806 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
(98,860 |
) |
|
$ |
58 |
|
|
|
— |
|
|
|
— |
|
|
$ |
(344,608 |
) |
Issuance of common units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,560 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,560 |
|
Repurchase of common units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(626 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(626 |
) |
Options withheld for minimum tax obligations for net unit settlement |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(587 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(587 |
) |
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,865 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,865 |
|
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21 |
|
|
|
— |
|
|
|
— |
|
|
|
21 |
|
Net income |
|
|
3,411 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,411 |
|
Balance at March 31, 2021 |
|
$ |
(242,395 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
(93,648 |
) |
|
$ |
79 |
|
|
|
— |
|
|
|
— |
|
|
$ |
(335,964 |
) |
Exercise of options to purchase common units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
251 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
251 |
|
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,691 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,691 |
|
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5 |
) |
|
|
— |
|
|
|
— |
|
|
|
(5 |
) |
Net loss |
|
|
(211 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(211 |
) |
Balance as of June 30, 2021 |
|
$ |
(242,606 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
(86,706 |
) |
|
$ |
74 |
|
|
|
— |
|
|
|
— |
|
|
$ |
(329,238 |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Clearwater Analytics Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands, unaudited)
|
|
Six Months Ended June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
OPERATING ACTIVITIES |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
(1,702 |
) |
|
$ |
3,200 |
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
2,118 |
|
|
|
1,412 |
|
Noncash operating lease cost |
|
|
3,334 |
|
|
|
— |
|
Equity-based compensation |
|
|
32,067 |
|
|
|
11,556 |
|
Change in tax receivable liability |
|
|
3,100 |
|
|
|
— |
|
Amortization of deferred contract acquisition costs |
|
|
2,067 |
|
|
|
1,511 |
|
Amortization of debt issuance costs, included in interest expense |
|
|
138 |
|
|
|
974 |
|
Deferred tax benefit |
|
|
(484 |
) |
|
|
— |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
(5,403 |
) |
|
|
(12,193 |
) |
Prepaid expenses and other assets |
|
|
55 |
|
|
|
(11,433 |
) |
Deferred commissions |
|
|
(2,115 |
) |
|
|
(1,245 |
) |
Accounts payable |
|
|
(421 |
) |
|
|
50 |
|
Accrued expenses and other liabilities |
|
|
(7,130 |
) |
|
|
(4,805 |
) |
Accrued sales tax liability |
|
|
(457 |
) |
|
|
(5,379 |
) |
Net cash provided by (used in) operating activities |
|
|
25,167 |
|
|
|
(16,352 |
) |
INVESTING ACTIVITIES |
|
|
|
|
|
|
||
Purchases of property and equipment |
|
|
(3,968 |
) |
|
|
(2,231 |
) |
Purchase of short-term investments |
|
|
(3,000 |
) |
|
|
— |
|
Net cash used in investing activities |
|
|
(6,968 |
) |
|
|
(2,231 |
) |
FINANCING ACTIVITIES |
|
|
|
|
|
|
||
Proceeds from issuance of common units |
|
|
— |
|
|
|
1,560 |
|
Proceeds from exercise of options |
|
|
6,384 |
|
|
|
251 |
|
Minimum tax withholding paid on behalf of employees for net unit settlement |
|
|
— |
|
|
|
(587 |
) |
Repurchase of common units |
|
|
— |
|
|
|
(626 |
) |
Repayments of borrowings |
|
|
(1,375 |
) |
|
|
(1,539 |
) |
Proceeds from employee stock purchase plan |
|
|
2,401 |
|
|
|
— |
|
Payment of costs associated with the IPO |
|
|
(214 |
) |
|
|
(400 |
) |
Net cash provided by (used in) financing activities |
|
|
7,196 |
|
|
|
(1,341 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
(1,346 |
) |
|
|
(133 |
) |
Net change in cash and cash equivalents during the period |
|
|
24,049 |
|
|
|
(20,057 |
) |
Cash and cash equivalents, beginning of period |
|
|
254,597 |
|
|
|
61,088 |
|
Cash and cash equivalents, end of period |
|
$ |
278,646 |
|
|
$ |
41,031 |
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
615 |
|
|
$ |
15,769 |
|
Cash paid for income taxes |
|
$ |
486 |
|
|
$ |
57 |
|
NON-CASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
||
Direct costs incurred with the IPO included in other assets and accrued expenses |
|
$ |
— |
|
|
$ |
1,172 |
|
Tax distributions to unitholders included in accrued expense |
|
$ |
976 |
|
|
$ |
— |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Clearwater Analytics Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Organization and Description of Business
Clearwater Analytics Holdings, Inc. was incorporated as a Delaware corporation on May 18, 2021, as a holding company for the purpose of facilitating the IPO and other related transactions in order to carry on the business of the Company. Prior to the IPO, all business operations were conducted through Carbon Analytics Holdings, LLC, which changed its name to CWAN Holdings, LLC (“CWAN Holdings”) in connection with the IPO. Clearwater provides a SaaS solution for automated investment data aggregation, reconciliation, accounting and reporting services to insurers, investment managers, corporations, institutional investors and government entities. Following the IPO, Clearwater Analytics Holdings, Inc.'s principal asset consists of ownership of common units in CWAN Holdings. As the sole managing member of CWAN Holdings, Clearwater Analytics Holdings, Inc. operates and controls all the business operations of Clearwater. Our corporate structure following the IPO, as described above, is commonly referred to as an “Up-C” structure.
The Company headquarters are located in Boise, ID, and we operate in four offices throughout the U.S. and six offices internationally.
Initial Public Offering
On September 28, 2021, the Company completed its IPO, in which it sold 34,500,000 shares of Class A common stock (including shares issued pursuant to the exercise in full of the underwriters’ option to purchase additional shares) at a public offering price of $18.00 per share for net proceeds of $582.2 million, after deducting underwriting discounts of $38.8 million (but excluding other offering expenses of $5.3 million). The Company used proceeds from the IPO to (i) purchase 34,500,000 common units of CWAN Holdings (“LLC interests”); (ii) repay approximately $437.4 million of outstanding borrowings under the Previous Credit Agreement including prepayment premiums and accrued interest; (iii) pay $5.3 million of expenses related to the IPO; with the remaining proceeds intended to be used for general corporate purposes.
Transactions
In connection with the IPO, the Company completed the following organizational transactions (the “Transactions”):
7
As of June 30, 2022, the Company owns 78.9% of the interests in CWAN Holdings. Continuing Equity Owners which hold Class B and Class C common stock own the remaining 21.1% of the interests in CWAN Holdings. The attributes of the Company's classes of common stock are summarized in the following table:
Class of Common Stock |
|
Votes per Share |
|
Economic Rights |
Class A common stock |
|
1 |
|
Yes |
Class B common stock |
|
1 |
|
No |
Class C common stock |
|
10 |
|
No |
Class D common stock |
|
10 |
|
Yes |
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the SEC and, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of results for the unaudited interim periods presented. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The results of operations for the interim period are not necessarily indicative of the results to be obtained for the full fiscal year.
Principles of consolidation
The condensed consolidated financial statements include the accounts of the Company and its directly and indirectly wholly-owned or controlled subsidiaries. As the Transactions are considered transactions between entities under common control, the financial statements for periods prior to the IPO and the Transactions have been adjusted to combine the previously separate entities for presentation purposes. All intercompany balances and transactions have been eliminated through consolidation. Clearwater Analytics Holdings, Inc. consolidated the financial results of CWAN Holdings as a Variable Interest Entity (“VIE”). Clearwater Analytics Holdings, Inc. owns the majority economic interest and has the power to control all the business and affairs of CWAN Holdings.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Actual results could differ materially from those estimates.
Items subject to estimates and assumptions include the useful lives and recoverability of long-lived assets, the average period of benefit associated with deferred contract costs, sales reserves, the incremental borrowing rate applied in lease accounting, accruals for sales tax liabilities, the fair value of equity awards, tax valuation allowance and probability of making payments under the TRA, among others. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the result of which forms the basis for making judgments about the carrying values of assets and liabilities, and measurement of revenues and expenses. To the extent there are material differences between these estimates, judgments, or assumptions and actual results, the Company’s condensed consolidated financial statements will be affected.
Significant Accounting Policies
The Company's significant accounting policies are discussed in Note 2 – Basis of Presentation and Summary of Significant Accounting Policies in the Annual Report. There have been no significant changes to these policies that have had a material impact on the Company's unaudited condensed consolidated financial statements and related notes during the three and six months ended June 30, 2022, except as noted below.
Short-term Investments
We classify our investments with an original maturity of greater than three months, but less than one year, as short-term investments. Investments in debt securities that we have the positive intent and ability to hold until maturity are classified as held-to-maturity debt securities. Our held-to-maturity debt securities consist of short term certificates of deposit which mature in less than one year. Held-to-maturity debt investments are recorded at amortized cost, which approximates fair value, and realized gains or losses are reported in earnings. The Company does not hold any other short-term investments.
8
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”). In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which provides clarification to ASU 2016-02. These ASU's (collectively, the “new lease standard”) requires lessees to recognize on the balance sheet the assets and liabilities for the assets and obligations created by those leases. The standard was effective for public companies for annual periods beginning after December 15, 2018, including interim periods therein. The Company is allowed to use the private company adoption timelines, and therefore the standard is effective for the Company for its annual period beginning January 1, 2022, and interim periods therein.
On January 1, 2022, the Company adopted ASU No. 2016-02, and its associated amendments using the modified retrospective transition method by applying the new standard to all leases existing at the date of initial application and not restating comparative periods. There was no cumulative-effect adjustment recorded to stockholders' equity upon adoption. The Company elected the package of practical expedients permitted under the transition guidance, which allowed the Company to carry forward its historical lease classification, assessment on whether a contract was or contains a lease, and initial direct costs for leases that existed prior to January 1, 2022. The Company also elected to combine its lease and non-lease components and not recognize right-of-use (“ROU”) assets and lease liabilities for leases with an initial term of 12 months or less. The Company did not elect to apply the hindsight practical expedient when determining lease term and assessing impairment of ROU assets.
At the date of adoption, the Company derecognized a deferred rent liability of approximately $1.5 million, and recognized a $23.1 million ROU asset and $24.6 million lease liability based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.
Note 3. Revenue Recognition
The Company is applying the optional exemption to not disclose transaction price allocated to the remaining performance obligations as the Company’s performance obligations are part of contracts that have an expected original duration of one year or less.
Of the total revenue recognized for the three and six months ended June 30, 2022, $0.2 million and $0.3 million was included in the deferred revenue balance as of December 31, 2021, respectively. Revenues recognized from performance obligations satisfied (or partially satisfied) in previous periods were not material.
The following table presents the Company’s revenue disaggregated by geography, based on billing address of the customer (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
United States |
|
$ |
62,116 |
|
|
$ |
55,801 |
|
|
$ |
123,893 |
|
|
$ |
107,346 |
|
Rest of World |
|
|
11,293 |
|
|
|
5,075 |
|
|
|
20,294 |
|
|
|
10,424 |
|
Total revenue |
|
$ |
73,409 |
|
|
$ |
60,876 |
|
|
$ |
144,187 |
|
|
$ |
117,770 |
|
Note 4. Fair Value Measurements
The following tables set forth the fair value of the Company’s financial assets measured at fair value as of June 30, 2022 and December 31, 2021 in accordance with the fair value hierarchy (in thousands):
|
|
June 30, 2022 |
|
|||||||||||||
|
|
Level I |
|
|
Level II |
|
|
Level III |
|
|
Total |
|
||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
267,069 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
267,069 |
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Certificates of deposit |
|
|
— |
|
|
|
3,000 |
|
|
|
— |
|
|
|
3,000 |
|
Total assets measured at fair value |
|
$ |
267,069 |
|
|
$ |
3,000 |
|
|
$ |
— |
|
|
$ |
270,069 |
|
9
|
|
December 31, 2021 |
|
|||||||||||||
|
|
Level I |
|
|
Level II |
|
|
Level III |
|
|
Total |
|
||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
248,744 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
248,744 |
|
Total assets measured at fair value |
|
$ |
248,744 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
248,744 |
|
During the six months ended June 30, 2022 and year ended December 31, 2021, there were no transfers of assets or liabilities between Level 1, Level 2 and Level 3 of the fair value hierarchy.
Note 5. Supplemental Consolidated Balance Sheet Information
Accounts Receivable, net
Accounts receivable, net consisted of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Unbilled accounts receivable |
|
$ |
27,384 |
|
|
$ |
27,086 |
|
Billed accounts receivable |
|
|
28,269 |
|
|
|
23,227 |
|
Allowance for doubtful accounts and reserves |
|
|
(60 |
) |
|
|
(123 |
) |
Accounts receivable, net |
|
$ |
55,593 |
|
|
$ |
50,190 |
|
The majority of invoices included within the unbilled accounts receivable balance are issued within the first few days of the month directly following the period of service.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Prepaid expenses |
|
$ |
11,531 |
|
|
$ |
11,722 |
|
Deferred contract costs, current portion |
|
|
3,735 |
|
|
|
3,573 |
|
Other current assets |
|
|
1,957 |
|
|
|
1,256 |
|
Prepaid expense and other current assets |
|
$ |
17,223 |
|
|
$ |
16,551 |
|
Property and equipment, net
Depreciation and amortization expense for the three months ended June 30, 2022 and 2021 was $1.2 million and $0.7 million, respectively, and for the six months ended June 30, 2022 and 2021 was $2.1 million and $1.4 million, respectively. Accumulated depreciation and amortization as of June 30, 2022 and December 31, 2021 was $14.3 million and $12.2 million, respectively.
10
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Accrued sales tax exposure |
|
$ |
987 |
|
|
$ |
1,444 |
|
Accrued bonus |
|
|
4,569 |
|
|
|
8,295 |
|
Accrued vendor liabilities |
|
|
4,972 |
|
|
|
4,756 |
|
Accrued benefits and retirement |
|
|
3,264 |
|
|
|
4,368 |
|
Deferred revenue |
|
|
1,091 |
|
|
|
795 |
|
Accrued commissions |
|
|
1,710 |
|
|
|
2,350 |
|
Deferred rent |
|
|
— |
|
|
|
1,514 |
|
Income tax payable |
|
|
1,358 |
|
|
|
771 |
|
Tax distributions payable to Continuing Equity Owners |
|
|
130 |
|
|
|
169 |
|
Other current liabilities |
|
|
2,835 |
|
|
|
2,570 |
|
Accrued expenses and other liabilities |
|
$ |
20,916 |
|
|
$ |
27,032 |
|
11
Note 6. Leases
The Company adopted ASC 842 as of January 1, 2022. The Company leases facilities under non-cancelable operating lease agreements with varying terms that range from to 10 years. In addition, some of these leases have renewal options for up to five years. The Company determines if an arrangement contains a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, and operating lease liabilities on the Company's condensed consolidated balance sheets. The Company does not have any finance leases.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company does not account for lease components (e.g., fixed payments including rent) separately from the non-lease components (e.g., common-area maintenance costs).
Rent expense was $0.9 million and $1.8 million for the three and six months ended June 30, 2021, respectively, which the Company recognized on a straight-line basis over the non-cancellable lease term.
Future minimum lease payments at December 31, 2021 under the Company’s non-cancellable leases were as follows (in thousands):
2022 |
|
$ |
3,927 |
|
2023 |
|
|
3,843 |
|
2024 |
|
|
3,649 |
|
2025 |
|
|
3,434 |
|
2026 |
|
|
3,007 |
|
Thereafter |
|
|
809 |
|
Total minimum lease payments |
|
$ |
18,669 |
|
Operating lease cost was $1.5 million and $2.9 million for the three and six months ended June 30, 2022, respectively. Variable lease cost and short-term lease cost were immaterial during the three and six months ended June 30, 2022. Future minimum lease payments at June 30, 2022 under the Company’s non-cancellable leases were as follows (in thousands):
2022 (remaining six months) |
|
$ |
2,949 |
|
2023 |
|
|
5,779 |
|
2024 |
|
|
5,372 |
|
2025 |
|
|
5,125 |
|
2026 |
|
|
4,456 |
|
Thereafter |
|
|
965 |
|
Total future minimum lease payments |
|
|
24,646 |
|
Less: Imputed interest |
|
|
(1,672 |
) |
Present value of future minimum lease payments |
|
|
22,974 |
|
Less: Current portion of operating lease liability |
|
|
(5,185 |
) |
Operating lease liabilities - noncurrent |
|
$ |
17,789 |
|
12
The following table presents supplemental information for the Company's non-cancellable operating leases for the six months ended June 30, 2022 (in thousands, except for weighted average and percentage data):
Weighted average remaining lease term |
|
4.42 |
|
|
Weighted average discount rate |
|
|
3.33 |
% |
Cash paid for amounts included in the measurement of lease liabilities |
|
$ |
2,910 |
|
Noncash right-of-use assets obtained in exchange for operating lease obligations(1) |
|
$ |
24,522 |
|
13
Note 7. Non-controlling Interest
In connection with the Transactions, the Company became the sole managing member of CWAN Holdings, and has the sole voting interest in, and control of the management of, CWAN Holdings. As a result, the Company consolidates the financial results of CWAN Holdings. The non-controlling interest on our consolidated balance sheet relates to the interests of CWAN Holdings held by the Continuing Equity Owners. The ownership of the LLC interests is summarized as follows:
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||
|
|
Shares |
|
|
Ownership % |
|
|
Shares |
|
|
Ownership % |
|
||||
Clearwater Analytics Holdings, Inc. interest in CWAN Holdings |
|
|
187,743,836 |
|
|
|
78.9 |
% |
|
|
178,032,643 |
|
|
|
75.3 |
% |
Continuing Equity Owners' interest in CWAN Holdings |
|
|
50,074,372 |
|
|
|
21.1 |
% |
|
|
58,528,697 |
|
|
|
24.7 |
% |
|
|
|
237,818,208 |
|
|
|
100.0 |
% |
|
|
236,561,340 |
|
|
|
100.0 |
% |
Note 8. Loss Per Share
The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted net loss per share of Class A and Class D common stock for the periods following the Transactions (in thousands):
|
|
Three Months Ended June 30, 2022 |
|
|
Six Months Ended June 30, 2022 |
|
||
Numerator: |
|
|
|
|
|
|
||
Net loss |
|
$ |
(2,230 |
) |
|
$ |
(1,702 |
) |
Less: Net income attributable to non-controlling interests |
|
|
198 |
|
|
|
329 |
|
Net loss attributable to Clearwater Analytics Holdings, Inc. - basic |
|
|
(2,428 |
) |
|
|
(2,031 |
) |
Reallocation of net income attributable to non-controlling interests from the assumed exchange of Class B and Class C stock for Class A and Class D stock |
|
|
198 |
|
|
|
329 |
|
Net loss attributable to Clearwater Analytics Holdings, Inc. - diluted |
|
$ |
(2,230 |
) |
|
$ |
(1,702 |
) |
The following tables sets forth the computation of basic and diluted net loss per share of Class A and Class D common stock (in thousands, except share amounts and per share amounts):
|
|
Three Months Ended June 30, 2022 |
|
|
Six Months Ended June 30, 2022 |
|
||||||||||
|
|
Class A |
|
|
Class D |
|
|
Class A |
|
|
Class D |
|
||||
Basic net loss attributable to Class A and Class D common stockholders |
|
|
|
|||||||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Allocation of net loss attributable to Clearwater Analytics, Inc. |
|
$ |
(728 |
) |
|
$ |
(1,700 |
) |
|
$ |
(580 |
) |
|
$ |
(1,451 |
) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of shares of Class A and Class D common stock outstanding - basic |
|
|
55,697,507 |
|
|
|
130,083,755 |
|
|
|
52,001,793 |
|
|
|
130,083,755 |
|
Basic net loss per share attributable to Class and Class D common stockholders |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
14
|
|
Three Months Ended June 30, 2022 |
|
|
Six Months Ended June 30, 2022 |
|
||||||||||
|
|
Class A |
|
|
Class D |
|
|
Class A |
|
|
Class D |
|
||||
Diluted net loss attributable to Class A and Class D common stockholders |
|
|
|
|||||||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Undistributed loss for basic computation |
|
$ |
(728 |
) |
|
$ |
(1,700 |
) |
|
$ |
(580 |
) |
|
$ |
(1,451 |
) |
Reallocation of earnings as a result of conversion of Class B to Class A shares and conversion Class C to Class D shares |
|
|
163 |
|
|
|
35 |
|
|
|
150 |
|
|
|
179 |
|
Reallocation of earnings as a result of conversion of Class D to Class A shares |
|
|
(1,665 |
) |
|
|
— |
|
|
|
(1,272 |
) |
|
|
— |
|
Allocation of undistributed loss |
|
$ |
(2,230 |
) |
|
$ |
(1,665 |
) |
|
$ |
(1,702 |
) |
|
$ |
(1,272 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of shares of Class A and Class D common stock outstanding - basic |
|
|
55,697,507 |
|
|
|
130,083,755 |
|
|
|
52,001,793 |
|
|
|
130,083,755 |
|
Add: weighted-average effect of dilutive securities exchangeable for Class A common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Conversion of Class B stock to Class A stock, and conversion of Class C stock to Class D stock |
|
|
4,386,725 |
|
|
|
47,377,587 |
|
|
|
7,750,231 |
|
|
|
47,377,587 |
|
Conversion of Class D to Class A common shares outstanding |
|
|
177,461,342 |
|
|
|
— |
|
|
|
177,461,342 |
|
|
|
— |
|
Weighted average number of shares of Class A and Class D common stock outstanding - diluted |
|
|
237,545,574 |
|
|
|
177,461,342 |
|
|
|
237,213,366 |
|
|
|
177,461,342 |
|
Diluted net loss per share attributable to Class A and Class D common stockholders |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
Shares of the Company's Class B and Class C common stock do not participate in the earnings or losses of Clearwater Analytics Holdings, Inc. and are therefore not participating securities. As such, separate presentation of basic and diluted earnings per share of Class B and Class C common stock under the two-class method has not been presented.
Note 9. Equity-Based Compensation
In September 2021, the Board of Directors of the Company (the “Board”) adopted the Clearwater Analytics Holdings, Inc. 2021 Omnibus Incentive Plan (the “2021 Plan”), pursuant to which employees, consultants and directors of our Company and our affiliates performing services for us, including our executive officers, are eligible to receive awards. The 2021 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), bonus stock, dividend equivalents, other stock-based awards, substitute awards, annual incentive awards and performance awards intended to align the interests of participants with those of our shareholders. A total of 57,197,804 shares of common stock are authorized for issuance under the 2021 Plan. In connection with the approval of the 2021 Plan, the 2017 Equity Incentive Plan (the “2017 Plan”) was terminated and all outstanding stock options and RSUs were transferred to the 2021 Plan.
Options
The following table summarizes the stock option activity for the six months ended June 30, 2022 (in thousands, except per share data):
15
|
Stock Options |
|
|
|
Weighted Average Exercise Price |
|
|
|
Weighted Average Remaining Contractual Life (Years) |
|
|
Aggregate Intrinsic Value |
|
||||||
Balance - December 31, 2021 |
|
22,315,171 |
|
|
|
|
$ |
8.52 |
|
|
|
|
|
|
|
|
|
||
Granted |
|
43,986 |
|
|
|
|
18.19 |
|
|
|
|
|
|
|
|
||||
Exercised |
|
(962,898 |
) |
|
|
|
6.63 |
|
|
|
|
|
|
$ |
11,819 |
|
|||
Forfeited |
|
(742,744 |
) |
|
|
|
10.04 |
|
|
|
|
|
|
|
|
||||
Balance - June 30, 2022 |
|
20,653,515 |
|
|
|
$ |
8.57 |
|
|
|
|
7.56 |
|
|
$ |
86,343 |
|
||
Options vested - June 30, 2022 |
|
10,176,248 |
|
|
|
$ |
6.29 |
|
|
|
|
|
|
$ |
60,748 |
|
|||
The weighted-average grant-date fair value of stock options granted during the six months ended June 30, 2022 was $7.74 per share. The aggregate intrinsic value as of June 30, 2022 disclosed in the above table is based on the difference between the exercise price of the stock option and the closing stock price on the NYSE on June 30, 2022. As of June 30, 2022, the total unrecognized compensation expense related to unvested options was $58.8 million, which is expected to be recognized over a weighted average period of 2.6 years.
RSUs
During June 2021, the Company began to grant RSUs to employees. The summary of RSU activity for the six months ended June 30, 2022 is as follows (in thousands, except per share data):
|
Units Activity |
|
|
Weighted Average Grant Date Fair Value |
|
|
Aggregate Intrinsic Value |
|
|||
Unvested units as of December 31, 2021 |
|
6,070,668 |
|
|
$ |
— |
|
|
|
|
|
Granted |
|
1,161,813 |
|
|
|
17.04 |
|
|
|
|
|
Released |
|
(93,750 |
) |
|
|
— |
|
|
|
|
|
Cancelled |
|
(374,558 |
) |
|
|
— |
|
|
|
|
|
Unvested units as of June 30, 2022 |
|
6,764,173 |
|
|
|
|
|
$ |
81,441 |
|
|
The aggregate intrinsic value disclosed in the above table is based on the closing stock price on the NYSE on June 30, 2022. As of June 30, 2022, there was $97.6 million of unrecognized equity-based compensation expense related to RSUs, which is expected to be recognized over a weighted average period of 3.1 years.
Determination of Fair Value
The Company estimated the fair value of each stock option awarded on the date of grant using the Black-Scholes option-pricing model utilizing the assumptions noted below:
Fair Value of Units – prior to the IPO, the fair value of the common stock underlying the equity-based awards was determined by the Company’s Board of Directors, with input from management and third-party valuations. Subsequent to the IPO, the fair value of the common stock underlying equity-awards was determined using the closing price on the date of the award being granted.
Expected Term – the expected term represents the period that the awards are expected to be outstanding. The Company issues “plain vanilla,” awards and the Company determines the expected term using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the equity-based awards.
Expected Volatility – the stock price volatility is estimated based on the volatility of a set of publicly traded comparable companies with a look back period consistent with the expected life.
Risk-Free Interest Rate – the risk-free interest rate is calculated using the average of the published interest rates of U.S. Treasury zero-coupon issues with maturities that approximate the expected term of the equity-based awards.
Dividend Rate – the dividend yield assumption is zero. Although the Company made a special one-time dividend in conjunction with the November 2020 recapitalization transaction, the Company has no history of making regular dividends, nor plans to make future dividend payments.
16
The following assumptions were used to calculate the fair value of options granted to employees on the date of grant using the Black-Scholes option-pricing model:
|
Six Months Ended June 30, |
|
|||||
|
2022 |
|
|
2021 |
|
||
Weighted-average grant date fair value per option |
$ |
7.74 |
|
|
$ |
5.08 |
|
Fair value of units |
$17.72 - $18.68 |
|
|
$12.40 - $14.28 |
|
||
Expected term (in years) |
|
5.50 |
|
|
6.00 - 6.25 |
|
|
Expected volatility |
|
44 |
% |
|
|
40 |
% |
Risk-free interest rates |
1.8 - 2.0% |
|
|
0.6 - 1.1% |
|
||
In addition to the Black-Scholes assumptions discussed immediately above, forfeitures may also have a significant impact on the related equity-based compensation. The forfeiture of options and RSUs is recognized as forfeitures occur.
In the period subsequent to the IPO, the Company estimated the fair value of each RSU awarded using the closing price on the date of the award being granted.
Employee Stock Purchase Plan
In September 2021, the Board adopted the Clearwater Analytics Holdings, Inc. 2021 Employee Stock Purchase Plan (“ESPP”). As of January 1, 2022, a total of 5,837,791 shares of Class A common stock were available for issuance under the ESPP. The offering periods are scheduled to start on June 1 and December 1 of each year. Eligible employees may purchase the Company's common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods. An employee's payroll deductions under the ESPP are limited to 10% of the employee's compensation and an employee may not purchase more than $25,000 of stock during any calendar year in which the employee’s option to purchase stock under the ESPP is outstanding at any time.
On May 31, 2022, a total of 200,220 shares were issued to employees for the offering period ended May 31, 2022. As of June 30, 2022, total unrecognized equity-based compensation costs related to ESPP were $0.7 million, which is expected to be recognized over the remaining current offering period ending November 30, 2022.
ESPP payroll contributions accrued at June 30, 2022 totaled $0.4 million and are included within accrued expenses in the consolidated balance sheets. Employee payroll contributions used to purchase shares under the ESPP will be reclassified to stockholders' equity at the end of the offering period.
Note 10. Income Taxes
As a result of the IPO, Clearwater Analytics Holdings, Inc. owns a portion of CWAN Holdings, which contains all operations of the business and is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, CWAN Holdings is generally not subject to U.S. federal, state, and local income taxes. Any taxable income or loss generated by CWAN Holdings is passed through to and included in the taxable income or loss of its members in accordance with the terms of the operating agreement of CWAN Holdings. Before the IPO, the majority of CWAN Holdings’ income was passed through to its members and nontaxable to the entity. CWAN Holdings’ international wholly-owned subsidiaries are subject to taxes in foreign jurisdictions.
Clearwater Analytics Holdings, Inc. is taxed as a corporation and pays corporate federal, state, and local taxes on income allocated to it from CWAN Holdings based on Clearwater Analytics Holdings, Inc.’s economic interest held in CWAN Holdings. While the Company consolidates CWAN Holdings for financial reporting purposes, the Company will not be taxed on the earnings attributed to the non-controlling interests. As a result, the income tax burden on the earnings taxed to the non-controlling interests is not reported by the Company in its condensed consolidated financial statements.
Our tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in the applicable quarter. In each quarter, we update the estimated annual effective tax rate and make a year-to-date adjustment to the provision. The estimated annual effective tax rate may be subject to significant volatility due to several factors, including our ability to accurately predict the proportion of our pretax income in multiple jurisdictions, certain book-tax differences, and exchanges from non-controlling interests.
The following table provides details of the provision for income taxes:
17
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Income before provision for income taxes |
|
$ |
(1,932 |
) |
|
$ |
65 |
|
|
$ |
(1,167 |
) |
|
$ |
3,520 |
|
Provision for income taxes |
|
|
298 |
|
|
|
276 |
|
|
|
535 |
|
|
|
320 |
|
Effective tax rate |
|
|
(15.4 |
%) |
|
|
424.6 |
% |
|
|
(45.8 |
%) |
|
|
9.1 |
% |
For the three months and six months ended June 30, 2022, the Company’s effective tax rate was different than the statutory rate primarily because of foreign taxes, equity-based compensation and the valuation allowance on the U.S. deferred tax assets. In addition, the Company is not liable for income taxes on the portion of CWAN Holdings earnings that are attributable to non-controlling interests.
For the three months ended June 30, 2021, CWAN Holdings' effective tax rate was different than the statutory rate primarily because of true-ups related to foreign taxes. For the six months ended June 30, 2021, CWAN Holdings' effective tax rate was different than the statutory rate primarily because its earnings were exempt from federal corporate income taxation due to its status as a partnership.
The Company regularly monitors its uncertain tax benefits, and as of June 30, 2022, there were no material uncertain tax benefits that, if realized, would affect the estimated annual effective tax rate, nor do we expect any significant changes within the next 12 months.
We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. The realization of tax benefits of net deferred tax assets is dependent upon future levels of taxable income, of an appropriate character, in the periods the items are expected to be deductible or taxable. Based on the available objective evidence as of June 30, 2022, we believe that it is more likely than not that the tax benefits of the U.S. losses incurred may not be realized. Accordingly, we have recorded a full valuation allowance against the tax benefits of the U.S. losses incurred. We intend to maintain the full valuation allowance on the U.S. net deferred tax assets until sufficient positive evidence exists to support a reversal of, or decrease in, the valuation allowance.
On March 16, 2022, Idaho enacted House Bill 563 that amended portions of relevant tax laws. Due to our valuation allowance in the U.S., this legislation did not have a significant impact on the provision for income taxes for the three and six months ended June 30, 2022. However, we expect our blended state tax rate to decrease due to the new law.
Tax Receivable Agreement Liability
Pursuant to our election under Section 754 of the Internal Revenue Code (the “Code”), we expect to obtain an increase in our share of the tax basis in the net assets of CWAN Holdings when its units are redeemed or exchanged. We intend to treat any redemptions and exchanges of CWAN Holdings units as direct purchases of the units for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that we would otherwise pay in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent the tax basis is allocated to those capital assets.
In connection with the IPO and related transactions, we entered into a TRA that provides for the payment by us of 85% of the amount of any tax benefits that we actually realize, or in some cases are deemed to realize, as a result of (i) increases in our share of the tax basis in the net assets of CWAN Holdings resulting from any redemptions or exchanges of CWAN Holdings units, (ii) tax basis increases attributable to payments made under the TRA, and (iii) deductions attributable to imputed interest and TRA bonus payments pursuant to the TRA (the “TRA Payments”). We expect to benefit from the remaining 15% of any tax benefits that we may actually realize. The TRA Payments are not conditioned upon any continued ownership interest in CWAN Holdings or the Company. The rights of each member of CWAN Holdings, that is a party to the TRA, are assignable to transferees of their respective CWAN Holdings units.
The estimation of a liability under the TRA is, by its nature, imprecise and subject to significant assumptions regarding a number of factors, including (but not limited to) the amount and timing of taxable income generated by the Company each year as well as the tax rate then applicable. The future tax benefits related to ownership exchanges as of June 30, 2022 are estimated to be $372 million, of which $317 million is estimated to be the associated TRA liability.
As noted above, the Company evaluated the realizability of its U.S. deferred tax assets and has recorded a full valuation against those benefits. As a result, the Company determined that payments to TRA holders are not probable and no TRA liability related to future years has been recorded as of June 30, 2022. We are projecting taxable income for the current year and have recorded a TRA liability of $3.1 million as of June 30, 2022. There are many assumptions and considerations that impact our taxable income position in the current year, some of which are out of our direct control. As such, the estimate of our taxable income position (and thus, the TRA liability recognized) for the current year could change significantly.
18
As non-controlling interest holders exercise their right to exchange their units in CWAN Holdings, a TRA liability may be recorded based on 85% of the estimated future tax benefits that the Company may realize as a result of increases in the tax basis of CWAN Holdings. The amount of the increase in the tax basis, the related estimated tax benefits, and the related TRA liability to be recorded will depend (among other things) on the price of the Company’s Class A stock at the time of the relevant redemption or exchange.
Note 11. Transactions with Related Parties
During January 2021, the Company paid $9.6 million in relation to management fees to Principal Equity Owners which is recorded as prepaid management fees within prepaid expenses and other current assets and non-current assets. The prepaid management fees are being amortized over four years. In the three months ended June 30, 2022 and 2021, the Company recognized a management fee to Principal Equity Owners of $0.6 million and $0.5 million, respectively. In the six months ended June 30, 2022 and 2021, the Company recognized a management fee to Principal Equity Owners of $1.2 million and $1.1 million, respectively.
In connection with Marcus Ryu not standing for re-election to the Company’s board of directors at its annual meeting in June 2022, to retain Mr. Ryu’s valuable insights, in April 2022 we entered into an advisory agreement with Mr. Ryu. Pursuant to this agreement, Mr. Ryu will serve as a senior advisor to the Company with respect to our go-to-market strategy in the insurance sector for a period of 18 months following the 2022 annual meeting. In consideration for Mr. Ryu’s service as a senior advisor, the options to purchase our Class A shares already owned by Mr. Ryu were amended to provide for a half-yearly vesting period following the next annual vesting period of his options.
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Management’s Discussion and Analysis of Financial Condition and Results of Operations and financial statements included in the Annual Report. As discussed in the section titled “Special Note Regarding Forward-Looking Statements,” the following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and in the section titled “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q and those discussed in the section titled “Risk Factors” in the Annual Report.
Overview
Clearwater brings transparency to the opaque world of investment accounting and analytics with what we believe is the industry’s most trusted and innovative single instance, multi-tenant technology platform. Our cloud-native software allows clients to radically simplify their investment accounting operations, enabling them to focus on higher-value business functions such as asset allocation strategy and investment selection. Our platform provides comprehensive accounting, data and advanced analytics as well as highly-configurable reporting for global investment assets daily or on-demand, instead of weekly or monthly. We give our clients confidence that they are making the most informed decisions about investment performance, regulatory compliance and risk.
We provide investment accounting and reporting, performance measurement, compliance monitoring and risk analytics solutions for asset managers, insurance companies and large corporations. Every day, Clearwater’s powerful platform aggregates and normalizes data on over $5.9 trillion of global invested assets for over 1,100 clients. We bring modern software to an industry that has long been dominated by difficult-to-use, high cost legacy technologies and processes, which often lack data integrity and traceability, and often require significant manual intervention. The strength of our platform is demonstrated by our approximately 80% win rate for new clients over the prior four years in deals that reached the proposal stage.
We allow our clients to replace legacy systems with modern cloud-native software. Our platform helps clients reduce cost, time, errors and risk and allows them to reallocate resources to other value-creating activities. Our software aggregates, reconciles and validates data from more than 2,500 daily data feeds and more than four million securities that have been modeled across multiple currencies, asset classes and countries. This cleansed and validated data runs through our proprietary accounting, performance, compliance and risk solutions to provide clients with powerful analytics and daily or on-demand configurable reporting. We offer multi-asset class, multi-basis, multi-currency accounting and analytics that provide clients with a comprehensive view of their holdings and related performance. This allows our clients to make better, more timely decisions about their investment portfolios.
Clearwater benefits from powerful network effects. With our single instance, multi-tenant architecture, every client, whether new or existing, enriches our global data set by making it more complete and accurate. Our software continually sources, ingests, models, reconciles and validates the terms, conditions and features of every investment security held by all of our clients. This continuous process helps to create a single repository of comprehensive, accurate investment data (often referred to within the industry as a “Golden Copy” of data) that benefits all our clients to the extent they otherwise have rights to the data. Through this continuous process, we are able to identify and adjudicate data discrepancies that otherwise could introduce error and risk into our clients’ investment portfolios. We believe that a meaningful competitive advantage of this network effect is that we are increasingly seen as the best and most accurate source of investment accounting data and analytics in the industry.
We have a 100% recurring revenue model. We charge our clients a fee that is primarily based on the amount of assets they manage on our platform, subject to contracted minimums. A majority of the assets on our platform are high-grade fixed income assets, leading to relatively low levels of volatility and highly predictable revenue streams. When applicable, we charge additional transaction fees for certain alternative asset classes (e.g., derivatives and other financial instruments).
Key Factors Affecting Our Performance
The growth and future success of our business depends on many factors, including those described below.
20
Key Components of Results of Operations
The following discussion describes certain line items in our condensed consolidated statements of operations.
Revenue
We generate revenue from fees derived from providing clients with access to the solutions and services on our software-as-a-service platform. Sales of our offering include a right to use our software in a hosted environment without taking possession of the software. Our contracts are generally cancellable with 30 days’ notice without penalty. We invoice clients monthly in arrears based on a percentage of the average daily value of assets within a client’s accounts on our platform during that month, or a fixed monthly fee. Payment terms may vary by contract but generally include a requirement of payment within 30 days following the month in which services are provided. Fees invoiced in advance of the delivery of the Company’s performance obligations are deemed set-up activities and are deferred as a material right and recognized over time, typically 12 months.
21
Cost of Revenue
Cost of revenue consists of expenses related to delivery of revenue-generating services, including expenses associated with client services, onboarding, reconciliation and agreements related to the purchase of data used in the provision of our services. Salary and benefits for certain personnel associated with supporting these functions, in addition to allocated overhead and depreciation for facilities, are also included in cost of revenue.
Operating Expenses
Research and development expense consists primarily of salary and benefits for our development staff as well as contractors’ fees and other costs associated with the enhancement of our offering, ensuring operational stability and performance and development of new offerings.
Sales and marketing expense consists of the costs of personnel involved in the sales and marketing process, sales commissions, advertising and promotional materials, sales facilities expenses, and the cost of trade shows and seminars.
General and administrative expense consists primarily of personnel costs for information technology, finance, administration, human resources and general management, as well as expenses from legal, corporate technology and accounting service providers.
Interest Expense, Net
Interest expense, net primarily relates to interest expense and reflects interest accrued on our outstanding term loan during the course of the applicable period. The accrual of interest varies depending on the timing and amount of borrowings and repayments during the period as well as fluctuations in interest rates. Interest income is also included in interest expense, net.
Tax Receivable Agreement Expense
In connection with the IPO and related transactions, we entered into a TRA that provides for the payment by us of 85% of certain tax benefits that we realize as a result of increases in our tax basis of CWAN Holdings resulting from redemptions or exchanges of CWAN Holdings units. Tax receivable agreement expense relates to payments we anticipate making under the TRA.
Other Expense, Net
Other expense, net consists of foreign currency gains and losses.
Provision for Income Taxes
Provision for income taxes consists of income taxes related to federal, state, and foreign jurisdictions where we conduct our business. Our effective tax rate may increase in the future as our ownership in CWAN Holdings increases via exchanges from historical partners. In addition, our discrete items may not be consistent from period to period and could cause volatility in our effective tax rate.
Key Operating Measures
We consider certain operating measures, such as annualized recurring revenue, gross retention rates and net retention rates, in measuring the performance of our business. The following table summarizes these operating measures for the dates presented:
|
|
Six Months Ended June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Annualized recurring revenue (in thousands) |
|
$ |
290,354 |
|
|
$ |
245,033 |
|
Gross revenue retention rate |
|
|
98 |
% |
|
|
98 |
% |
Net revenue retention rate |
|
|
104 |
% |
|
|
109 |
% |
Annualized Recurring Revenue
Annualized recurring revenue is calculated at the end of a period by dividing the recurring revenue in the last month of such period by the number of days in the month and multiplying by 365.
Because a substantial majority of the assets on our platform typically have low levels of volatility with respect to their market value, the growth in annualized recurring revenue is generally not attributable to the fluctuating market value of the assets on our platform. Rather, the growth in annualized recurring revenue is due to an increase in the number of clients using our offering as well as from onboarding more assets of our existing clients onto our platform.
Annualized recurring revenue increased 18% on account of growth in our client base as we brought new clients onto our platform and also added additional assets onto our platform from existing clients.
22
Gross Revenue Retention Rate
Gross revenue retention rate represents annual contract value (“ACV”) at the beginning of the 12-month period ended on the reporting date less client attrition over the prior 12-month period, divided by ACV at the beginning of the 12-month period, expressed as a percentage. ACV is comprised of annualized recurring revenue plus contracted-not-billed revenue, which represents the estimated annual contracted revenue for new and existing client opportunities prior to revenue recognition. In order to arrive at total ACV, we include contracted-not-billed revenue, as it is contracted revenue that has not been recognized but that we expect to produce recognized revenue in the future. Client attrition occurs when a client provides a contract termination notice. The amount of client attrition is calculated as the reduction in annualized revenue of the client at the time of the notice and is recorded in the month the final billing occurs. In the case of client attrition where contracted-not-billed revenue is still present for a client, both annualized recurring revenue and contracted-not-billed revenue associated with such client are deducted from ACV.
Gross revenue retention rates have remained consistent at approximately 98% since 2019. We believe the consistent and high gross revenue retention rate is a testament to the value proposition that our leading solution offers.
Net Revenue Retention Rate
Net revenue retention rate is the percentage of recurring revenue retained from clients on the platform for 12 months and includes changes from the addition, removal or value of assets on our platform, contractual changes that have an impact to annualized recurring revenues and lost revenue from client attrition. We calculate net revenue retention rate as of a period end by starting with the annualized recurring revenue from clients as of the 12 months prior to such period end. We then calculate the annualized recurring revenue from these clients as of the current period end. We then divide the total current period end annualized recurring revenue by the 12-month prior period end annualized recurring revenue to arrive at the net revenue retention rate.
Net revenue retention rate as of June 30, 2022 was 104% which represents growth in clients on our platform of 4% year over year. Net revenue retention rate as of June 30, 2022 decreased compared to net revenue retention rate as of June 30, 2021 primarily due to fluctuations in the market value of assets which clients maintain on our platform and decreased pricing of our clients’ fixed income securities.
Non-GAAP Financial Measures
We also consider certain non-GAAP financial measures that are not prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), such as adjusted EBITDA and adjusted EBITDA Margin, in measuring the performance of our business. The non-GAAP measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies. However, we believe that this non-GAAP information is useful as an additional means for investors to evaluate our operating performance, when reviewed in conjunction with our GAAP financial statements. These measures should not be considered in isolation or as a substitute for measures prepared in accordance with GAAP, and because these amounts are not determined in accordance with GAAP, they should not be used exclusively in evaluating our business and operations. In addition, undue reliance should not be placed upon non-GAAP or operating information because this information is neither standardized across companies nor subjected to the same control activities and audit procedures that produce our GAAP financial results.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA and Adjusted EBITDA Margin are supplemental performance measures that our management uses to assess our operating performance. We define Adjusted EBITDA as net income (loss) plus (i) interest expense, net, (ii) depreciation and amortization, (iii) equity-based compensation, (iv) tax receivable agreement expense, and (v) other expenses. We define Adjusted EBITDA Margin as Adjusted EBITDA (as defined above) divided by revenue.
23
The following tables reconcile net income (loss) to Adjusted EBITDA and include amounts expressed as a percentage of revenue for the periods indicated.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||||||||||||||||||
|
|
(in thousands, except percentages) |
|
|||||||||||||||||||||||||||||
Net income (loss) |
|
$ |
(2,230 |
) |
|
|
(3 |
%) |
|
$ |
(211 |
) |
|
|
(0 |
%) |
|
$ |
(1,702 |
) |
|
|
(1 |
%) |
|
$ |
3,200 |
|
|
|
3 |
% |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest expense, net |
|
|
403 |
|
|
|
1 |
% |
|
|
8,510 |
|
|
|
14 |
% |
|
|
832 |
|
|
|
1 |
% |
|
|
16,959 |
|
|
|
14 |
% |
Depreciation and amortization |
|
|
1,159 |
|
|
|
2 |
% |
|
|
735 |
|
|
|
1 |
% |
|
|
2,118 |
|
|
|
1 |
% |
|
|
1,412 |
|
|
|
1 |
% |
Equity-based compensation |
|
|
16,191 |
|
|
|
22 |
% |
|
|
6,691 |
|
|
|
11 |
% |
|
|
32,067 |
|
|
|
22 |
% |
|
|
11,556 |
|
|
|
10 |
% |
Tax receivable agreement expense |
|
|
3,100 |
|
|
|
4 |
% |
|
|
— |
|
|
|
0 |
% |
|
|
3,100 |
|
|
|
2 |
% |
|
|
— |
|
|
|
0 |
% |
Other expenses(1) |
|
|
451 |
|
|
|
1 |
% |
|
|
1,682 |
|
|
|
3 |
% |
|
|
1,522 |
|
|
|
1 |
% |
|
|
2,394 |
|
|
|
2 |
% |
Adjusted EBITDA |
|
|
19,074 |
|
|
|
26 |
% |
|
|
17,407 |
|
|
|
29 |
% |
|
|
37,937 |
|
|
|
26 |
% |
|
|
35,521 |
|
|
|
30 |
% |
Revenue |
|
$ |
73,409 |
|
|
|
100 |
% |
|
$ |
60,876 |
|
|
|
100 |
% |
|
$ |
144,187 |
|
|
|
100 |
% |
|
$ |
117,770 |
|
|
|
100 |
% |
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Up-C structure expenses |
|
$ |
— |
|
|
$ |
926 |
|
|
$ |
158 |
|
|
$ |
926 |
|
Management fees and reimbursed expenses |
|
|
597 |
|
|
|
493 |
|
|
|
1,188 |
|
|
|
1,083 |
|
Provision for income tax expense |
|
|
298 |
|
|
|
276 |
|
|
|
535 |
|
|
|
320 |
|
Miscellaneous |
|
|
(444 |
) |
|
|
(13 |
) |
|
|
(359 |
) |
|
|
65 |
|
Total other expenses |
|
$ |
451 |
|
|
$ |
1,682 |
|
|
$ |
1,522 |
|
|
$ |
2,394 |
|
24
Results of Operations
The following tables set forth our results of operations for the three and six months ended June 30, 2022 and 2021:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Revenue |
|
$ |
73,409 |
|
|
$ |
60,876 |
|
|
$ |
144,187 |
|
|
$ |
117,770 |
|
Cost of revenue(1) |
|
|
20,919 |
|
|
|
15,576 |
|
|
|
42,091 |
|
|
|
29,898 |
|
Gross profit |
|
|
52,490 |
|
|
|
45,300 |
|
|
|
102,096 |
|
|
|
87,872 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development(1) |
|
|
22,836 |
|
|
|
16,740 |
|
|
|
44,130 |
|
|
|
32,576 |
|
Sales and marketing(1) |
|
|
13,074 |
|
|
|
8,814 |
|
|
|
25,067 |
|
|
|
16,025 |
|
General and administrative(1) |
|
|
15,453 |
|
|
|
11,184 |
|
|
|
30,493 |
|
|
|
18,727 |
|
Total operating expenses |
|
|
51,363 |
|
|
|
36,738 |
|
|
|
99,690 |
|
|
|
67,328 |
|
Income from operations |
|
|
1,127 |
|
|
|
8,562 |
|
|
|
2,406 |
|
|
|
20,544 |
|
Interest expense, net |
|
|
403 |
|
|
|
8,510 |
|
|
|
832 |
|
|
|
16,959 |
|
Tax receivable agreement expense |
|
|
3,100 |
|
|
|
— |
|
|
|
3,100 |
|
|
|
- |
|
Other (income) expense, net |
|
|
(444 |
) |
|
|
(13 |
) |
|
|
(359 |
) |
|
|
65 |
|
Income (loss) before income taxes |
|
|
(1,932 |
) |
|
|
65 |
|
|
|
(1,167 |
) |
|
|
3,520 |
|
Provision for income taxes |
|
|
298 |
|
|
|
276 |
|
|
|
535 |
|
|
|
320 |
|
Net income (loss) |
|
|
(2,230 |
) |
|
|
(211 |
) |
|
|
(1,702 |
) |
|
|
3,200 |
|
Less: Net income attributable to noncontrolling interests |
|
|
198 |
|
|
|
— |
|
|
|
329 |
|
|
|
— |
|
Net loss attributable to Clearwater Analytics Holdings, Inc. |
|
$ |
(2,428 |
) |
|
$ |
— |
|
|
$ |
(2,031 |
) |
|
$ |
— |
|
Cost of revenue |
|
$ |
2,376 |
|
|
$ |
749 |
|
|
$ |
4,687 |
|
|
$ |
1,272 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
|
4,565 |
|
|
|
2,034 |
|
|
|
8,870 |
|
|
|
3,686 |
|
Sales and marketing |
|
|
3,215 |
|
|
|
1,295 |
|
|
|
6,511 |
|
|
|
2,127 |
|
General and administrative |
|
|
6,035 |
|
|
|
2,613 |
|
|
|
11,999 |
|
|
|
4,471 |
|
Total equity-based compensation expense |
|
$ |
16,191 |
|
|
$ |
6,691 |
|
|
$ |
32,067 |
|
|
$ |
11,556 |
|
The following table sets forth our consolidated statements of operations data expressed as a percentage of revenue for the periods indicated.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Revenue |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
Cost of revenue |
|
|
28 |
% |
|
|
26 |
% |
|
|
29 |
% |
|
|
25 |
% |
Gross profit |
|
|
72 |
% |
|
|
74 |
% |
|
|
71 |
% |
|
|
75 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
|
31 |
% |
|
|
27 |
% |
|
|
31 |
% |
|
|
28 |
% |
Sales and marketing |
|
|
18 |
% |
|
|
14 |
% |
|
|
17 |
% |
|
|
14 |
% |
General and administrative |
|
|
21 |
% |
|
|
18 |
% |
|
|
21 |
% |
|
|
16 |
% |
Total operating expenses |
|
|
70 |
% |
|
|
60 |
% |
|
|
69 |
% |
|
|
57 |
% |
Income from operations |
|
|
2 |
% |
|
|
14 |
% |
|
|
2 |
% |
|
|
17 |
% |
Interest expense, net |
|
|
1 |
% |
|
|
14 |
% |
|
|
1 |
% |
|
|
14 |
% |
Tax receivable agreement expense |
|
|
4 |
% |
|
|
0 |
% |
|
|
2 |
% |
|
|
0 |
% |
Other (income) expense, net |
|
|
(1 |
%) |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Income (loss) before income taxes |
|
|
(3 |
%) |
|
|
0 |
% |
|
|
(1 |
%) |
|
|
3 |
% |
Provision for income taxes |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Net income (loss) |
|
|
(3 |
%) |
|
|
0 |
% |
|
|
(1 |
%) |
|
|
3 |
% |
25
Comparison of the Three Months and Six Months Ended June 30, 2022 and 2021 (unaudited)
Revenue
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
||||||||||||||
(In thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||||||
Revenue |
|
$ |
73,409 |
|
|
$ |
60,876 |
|
|
$ |
12,533 |
|
|
|
21 |
% |
|
$ |
144,187 |
|
|
$ |
117,770 |
|
|
$ |
26,417 |
|
|
|
22 |
% |
Revenue increased $12.5 million and $26.4 million for the three and six months ended June 30, 2022, respectively, compared to the same periods of 2021. The increase was on account of growth in our client base as we brought new clients onto our platform, as well as changes to our existing clients’ assets on our platform. Average assets on our platform that were billed to new and existing clients increased 16% and 18% for the three and six months ended June 30, 2022, respectively, compared to the same periods of 2021. Average basis point rate billed to clients increased by 4.0% and 3.3% for the three and six months ended June 30, 2022, respectively, compared to the same periods of 2021.
Cost of Revenue
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
||||||||||||||
(In thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||||||
Equity-based compensation |
|
$ |
2,376 |
|
|
$ |
749 |
|
|
$ |
1,627 |
|
|
|
217 |
% |
|
$ |
4,687 |
|
|
$ |
1,272 |
|
|
$ |
3,415 |
|
|
|
268 |
% |
All other cost of revenue |
|
|
18,543 |
|
|
|
14,827 |
|
|
|
3,716 |
|
|
|
25 |
% |
|
|
37,404 |
|
|
|
28,626 |
|
|
|
8,778 |
|
|
|
31 |
% |
Total cost of revenue |
|
$ |
20,919 |
|
|
$ |
15,576 |
|
|
$ |
5,343 |
|
|
|
34 |
% |
|
$ |
42,091 |
|
|
$ |
29,898 |
|
|
$ |
12,193 |
|
|
|
41 |
% |
Percent of revenue |
|
|
28 |
% |
|
|
26 |
% |
|
|
|
|
|
|
|
|
29 |
% |
|
|
25 |
% |
|
|
|
|
|
|
||||
Cost of revenue changed as follows:
|
|
Change From 2021 to 2022 QTD |
|
|
Change From 2021 to 2022 YTD |
|
||
|
|
|
|
|
|
|
||
Increased payroll and related |
|
$ |
2,440 |
|
|
$ |
6,107 |
|
Increased equity-based compensation |
|
|
1,627 |
|
|
|
3,415 |
|
Increased travel and entertainment |
|
|
361 |
|
|
|
486 |
|
Increased depreciation and amortization |
|
|
324 |
|
|
|
563 |
|
Increased facilities and infrastructure expenses |
|
|
276 |
|
|
|
402 |
|
Increased data costs |
|
|
267 |
|
|
|
606 |
|
Increased outside services and contractors |
|
|
109 |
|
|
|
393 |
|
(Decreased) increased technology |
|
|
(48 |
) |
|
|
240 |
|
Other items |
|
|
(13 |
) |
|
|
(19 |
) |
Total change |
|
$ |
5,343 |
|
|
$ |
12,193 |
|
The increase in cost of revenue for the three and six months ended June 30, 2022 was primarily due to increased payroll and related costs as a result of headcount growth of additional employees across our client services, onboarding and reconciliation teams to support a larger client base as well as increased equity-based compensation due to increased grant-date fair value of equity awards and higher headcount. Cost of revenue headcount grew at a faster rate than overall revenue growth as we continue to expand our scale to support our expected continued international expansion. International revenue grew to 15% and 14% of revenues in the three and six months ended June 30, 2022, respectively, compared to 8% and 9% in the three and six months ended June 30, 2021, respectively. In addition, cost of revenue increased due to increased travel and entertainment costs due to a reduction in travel restrictions related to
26
the COVID-19 pandemic, increased data costs to support a larger client base, higher utilization of third-party contractors on operational activities, and increased allocation of facilities cost and depreciation.
27
Operating Expenses
Research and Development
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
||||||||||||||
(In thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||||||
Equity-based compensation |
|
$ |
4,565 |
|
|
$ |
2,034 |
|
|
$ |
2,531 |
|
|
|
124 |
% |
|
$ |
8,870 |
|
|
$ |
3,686 |
|
|
$ |
5,184 |
|
|
|
141 |
% |
All other research and development |
|
|
18,271 |
|
|
|
14,706 |
|
|
|
3,565 |
|
|
|
24 |
% |
|
|
35,260 |
|
|
|
28,890 |
|
|
|
6,370 |
|
|
|
22 |
% |
Total research and development |
|
$ |
22,836 |
|
|
$ |
16,740 |
|
|
$ |
6,096 |
|
|
|
36 |
% |
|
$ |
44,130 |
|
|
$ |
32,576 |
|
|
$ |
11,554 |
|
|
|
35 |
% |
Percent of revenue |
|
|
31 |
% |
|
|
27 |
% |
|
|
|
|
|
|
|
|
31 |
% |
|
|
28 |
% |
|
|
|
|
|
|
||||
Research and development expenses changed as follows:
|
|
Change From 2021 to 2022 QTD |
|
|
Change From 2021 to 2022 YTD |
|
||
|
|
|
|
|
|
|
||
Increased equity-based compensation |
|
$ |
2,531 |
|
|
$ |
5,184 |
|
Increased payroll and related |
|
|
1,977 |
|
|
|
3,712 |
|
Increased technology |
|
|
1,091 |
|
|
|
2,067 |
|
Increased travel and entertainment |
|
|
214 |
|
|
|
261 |
|
Increased facilities and infrastructure expenses |
|
|
187 |
|
|
|
238 |
|
Other items |
|
|
96 |
|
|
|
92 |
|
Total change |
|
$ |
6,096 |
|
|
$ |
11,554 |
|
The increase in research and development expense for the three month and six months ended June 30, 2022 was primarily due to increased equity-based compensation due to increased grant-date fair value of equity awards and higher headcount, as well as increased payroll and related costs as a result of headcount growth of additional employees to focus on new offerings. In addition, research and development expense increased due to increased technology costs from higher utilization of third-party cloud computing services and other third-party IT services, increased travel and entertainment costs due to a reduction in travel restrictions related to the COVID-19 pandemic, and increased allocation of facilities costs.
Sales and Marketing
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
||||||||||||||
(In thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||||||
Equity-based compensation |
|
$ |
3,215 |
|
|
$ |
1,295 |
|
|
$ |
1,920 |
|
|
|
148 |
% |
|
$ |
6,511 |
|
|
$ |
2,127 |
|
|
$ |
4,384 |
|
|
|
206 |
% |
All other sales and marketing |
|
|
9,859 |
|
|
|
7,519 |
|
|
|
2,340 |
|
|
|
31 |
% |
|
|
18,556 |
|
|
|
13,898 |
|
|
|
4,658 |
|
|
|
34 |
% |
Total sales and marketing |
|
$ |
13,074 |
|
|
$ |
8,814 |
|
|
$ |
4,260 |
|
|
|
48 |
% |
|
$ |
25,067 |
|
|
$ |
16,025 |
|
|
$ |
9,042 |
|
|
|
56 |
% |
Percent of revenue |
|
|
18 |
% |
|
|
14 |
% |
|
|
|
|
|
|
|
|
17 |
% |
|
|
14 |
% |
|
|
|
|
|
|
||||
28
Sales and marketing expense changed as follows:
|
|
Change From 2021 to 2022 QTD |
|
|
Change From 2021 to 2022 YTD |
|
||
|
|
|
|
|
|
|
||
Increased equity-based compensation |
|
$ |
1,920 |
|
|
$ |
4,384 |
|
Increased payroll and related |
|
|
1,389 |
|
|
|
3,737 |
|
Increased marketing |
|
|
616 |
|
|
|
928 |
|
Increased travel and entertainment |
|
|
503 |
|
|
|
665 |
|
Increased facilities and infrastructure expenses |
|
|
106 |
|
|
|
151 |
|
Decreased outside services and contractors |
|
|
(287 |
) |
|
|
(887 |
) |
Other items |
|
|
13 |
|
|
|
64 |
|
Total change |
|
$ |
4,260 |
|
|
$ |
9,042 |
|
29
The increase in sales and marketing expense for the three and six months ended June 30, 2022 was primarily due to increased equity-based compensation due to increased grant-date fair value of equity awards and higher headcount, as well as increased payroll and related costs as a result of additional employees to expand sales coverage. In addition, sales and marketing expense increased from higher marketing costs due to increased focus on public relations, events and branding across the globe, increased travel and entertainment costs due to a reduction in travel restrictions related to the COVID-19 pandemic. These increases were partially offset by lower utilization of third-party consultants supporting marketing initiatives.
General and Administrative
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
||||||||||||||
(In thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||||||
Equity-based compensation |
|
$ |
6,035 |
|
|
$ |
2,613 |
|
|
$ |
3,422 |
|
|
|
131 |
% |
|
$ |
11,999 |
|
|
$ |
4,471 |
|
|
$ |
7,528 |
|
|
|
168 |
% |
All other general and administrative |
|
|
9,418 |
|
|
|
8,571 |
|
|
|
847 |
|
|
|
10 |
% |
|
|
18,494 |
|
|
|
14,256 |
|
|
|
4,238 |
|
|
|
30 |
% |
Total general and administrative |
|
$ |
15,453 |
|
|
$ |
11,184 |
|
|
$ |
4,269 |
|
|
|
38 |
% |
|
$ |
30,493 |
|
|
$ |
18,727 |
|
|
$ |
11,766 |
|
|
|
63 |
% |
Percent of revenue |
|
|
21 |
% |
|
|
18 |
% |
|
|
|
|
|
|
|
|
21 |
% |
|
|
16 |
% |
|
|
|
|
|
|
||||
General and administrative expenses changed as follows:
|
|
Change From 2021 to 2022 QTD |
|
|
Change From 2021 to 2022 YTD |
|
||
|
|
|
|
|
|
|
||
Increased equity-based compensation |
|
$ |
3,422 |
|
|
$ |
7,528 |
|
Increased outside services and contractors |
|
|
1,199 |
|
|
|
1,980 |
|
Increased insurance |
|
|
747 |
|
|
|
1,521 |
|
Increased payroll and related |
|
|
397 |
|
|
|
1,158 |
|
Increased travel and entertainment |
|
|
263 |
|
|
|
436 |
|
Increased facilities and infrastructure expenses |
|
|
102 |
|
|
|
327 |
|
Increased technology |
|
|
19 |
|
|
|
461 |
|
Decreased recruiting |
|
|
(751 |
) |
|
|
(781 |
) |
Decreased Up-C structure expenses |
|
|
(926 |
) |
|
|
(768 |
) |
Other items |
|
|
(203 |
) |
|
|
(96 |
) |
Total change |
|
$ |
4,269 |
|
|
$ |
11,766 |
|
The increase in general and administrative expense for the three and six months ended June 30, 2022 was primarily due to increased equity-based compensation expense due to increased grant-date fair value of equity awards and additional headcount, and higher utilization of accounting and legal professional services in connection with being a public company. In addition, general and administrative expenses increased due to insurance costs for our directors and officers, increased payroll and related costs as a result of headcount growth of additional employees, increased travel and entertainment expense due to a reduction in travel restrictions related to the COVID-19 pandemic, increased allocation of facility costs and increased technology costs. These increases were partially offset by decreased costs associated with creating the Up-C structure, including costs related to the Tax Receivable Agreement, and decreased third-party agency recruitment costs.
30
Non-Operating Expenses
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
||||||||||||||
(In thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||||||
Interest expense, net |
|
$ |
403 |
|
|
$ |
8,510 |
|
|
$ |
(8,107 |
) |
|
|
(95 |
%) |
|
$ |
832 |
|
|
$ |
16,959 |
|
|
$ |
(16,127 |
) |
|
|
(95 |
%) |
Tax receivable agreement expense |
|
$ |
3,100 |
|
|
|
— |
|
|
$ |
3,100 |
|
|
NMF |
|
|
$ |
3,100 |
|
|
|
— |
|
|
$ |
3,100 |
|
|
NMF |
|
||
Other (income) expense, net |
|
$ |
(444 |
) |
|
$ |
(13 |
) |
|
$ |
(431 |
) |
|
|
3315 |
% |
|
$ |
(359 |
) |
|
$ |
65 |
|
|
$ |
(424 |
) |
|
|
(652 |
%) |
The decrease in interest expense, net for the three and six months ended June 30, 2022 is due to lower borrowings under the New Credit Agreement compared with borrowings under the Previous Credit Agreement.
Tax receivable agreement expense relates to payments we anticipate making under the TRA. This expense is incurred in lieu of income tax expense when we utilize tax deductions subject to our TRA. Absent the utilization of these deductions we would be projecting to have taxable income in the current year, which would ordinarily incur income tax expense in our financial results. Absent the Up-C structure and TRA, income tax expense would have increased by $3.6 million and the TRA expense would be zero. Effectively, the Up-C structure and TRA are reducing total expenses for the Company by $500 thousand for the three and six months ended June 30, 2022. There are many assumptions and considerations that impact our taxable income position in the current year, some of which are out of our direct control. As such, the estimate of our taxable income position (and thus, the TRA expense we incur) for the current year could change significantly. Note that if our current estimates and assumptions do not change then the TRA liability related to this expense is expected to be paid in Q4 2023.
Other expense, net relates to foreign exchange gains and losses driven by fluctuations in exchange rates.
31
Provision for Income Taxes
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
||||||||||||||
(In thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||||||
Provision for income taxes |
|
$ |
298 |
|
|
$ |
276 |
|
|
$ |
22 |
|
|
|
8 |
% |
|
$ |
535 |
|
|
$ |
320 |
|
|
$ |
215 |
|
|
|
67 |
% |
The increase in provision for income taxes for the three and six months ended June 30, 2022 relates to change in mix of foreign jurisdiction taxable income in the period.
Liquidity and Capital Resources
To date, we have primarily financed our operations through cash flows from operations and financing activities.
As of June 30, 2022, we had cash and cash equivalents of $278.6 million. Cash and cash equivalents primarily consist of money market mutual funds, which are highly liquid investments purchased with an original or remaining maturity of 90 days or less at the date of purchase. We believe our existing cash and cash equivalents will be sufficient to meet our operating working capital and capital expenditure requirements over the next 12 months. Our future financing requirements will depend on many factors, including our growth rate, revenue retention rates, the timing and extent of spending to support development of our platform and any future investments or acquisitions we may make. Additional funds may not be available on terms favorable to us or at all, including as a result of disruptions in the credit markets. See “Risk Factors” in the Annual Report.
The following table shows our cash flows from operating activities, investing activities and financing activities for the stated periods:
|
Six Months Ended June 30, |
|
|||||
|
2022 |
|
|
2021 |
|
||
|
(In thousands) |
|
|||||
Net cash provided by (used in) operating activities |
$ |
25,167 |
|
|
$ |
(16,352 |
) |
Net cash used in investing activities |
|
(6,968 |
) |
|
|
(2,231 |
) |
Net cash provided by (used in) financing activities |
|
7,196 |
|
|
|
(1,341 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
(1,346 |
) |
|
|
(133 |
) |
Net change in cash and cash equivalents during the period |
$ |
24,049 |
|
|
$ |
(20,057 |
) |
Cash Flows from Operating Activities
Net cash provided by operating activities of $25.2 million during the six months ended June 30, 2022 was primarily the result of our net loss plus non-cash charges, including equity-based compensation, tax receivable agreement expense, operating lease expense and depreciation and amortization. Cash flows resulting from changes in assets and liabilities include an increase in accounts receivable, an increase in deferred commissions and a decrease in accrued expenses and other liabilities. Accounts receivable increased $5.4 million, which is comprised of $2.6 million from growth in revenues and $2.8 million from ageing of small receivable balances across several customers due to short-term deterioration in days sales outstanding which we continue to believe is collectible. The increase in deferred commissions is due to higher revenues during the period. Accrued expenses and other liabilities decreased $7.1 million primarily due to payment of fiscal year 2021 bonuses to employees.
Net cash used in operating activities of $16.4 million during the six months ended June 30, 2021 was primarily the result of changes in operating assets and liabilities that decreased operating cash flow by $35.0 million. Accounts receivable increased $12.2 million during the period, which is comprised of $7.7 million from growth in revenues and $4.5 million from aging of receivables due to certain clients changing their internal systems and processes which caused a delay in remittance of payment. Prepaid expenses and other assets increased by $11.4 million primarily from the prepayment of management fees to certain affiliates of the Principal Equity Owners in the amount of $9.6 million. Accrued expenses and other liabilities decreased $9.5 million primarily due to payment of sales tax liabilities of $5.4 million, and reimbursement of $4.9 million in excess contribution to investors as part of a recapitalization transaction performed in October 2020.
Cash Flows from Investing Activities
Net cash used in investing activities of $7.0 million during the six months ended June 30, 2022 was attributable to purchase of property and equipment and short-term investments, and internally developed software.
32
Net cash used in investing activities of $2.2 million during the six months ended June 30, 2021 was attributable to purchase of property and equipment, and internally developed software.
Cash Flows from Financing Activities
Net cash provided by financing activities during the six months ended June 30, 2022 was $7.2 million, of which $6.4 million was proceeds from the exercise of options and $2.4 million was proceeds from our employee stock purchase plan, which was partially offset by $1.4 million used in the repayment of borrowings and $0.2 million used in the repayment of costs associated with the IPO.
Net cash used in financing activities during the six months ended June 30, 2021 was $1.3 million, of which $1.5 million was used in the repayment of borrowings, $0.6 million was used in the repurchase of common units, $0.6 million was used to pay minimum tax withholding on behalf of employees for net unit settlement, and $0.4 million was used for the payment of costs associated with the IPO, which was partially offset by $1.6 million proceeds from the issuance of common units and $0.3 million proceeds from the exercise of options.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements and related notes, which have been prepared in accordance with GAAP. We review the accounting policies used in reporting our financial results on a regular basis. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities.
On an ongoing basis, we evaluate the process we use to develop estimates. We base our estimates on historical experience and on other information that we believe is reasonable for making judgments at the time the estimates are made. Actual results may differ from our estimates due to actual outcomes being different from those on which we based our assumptions.
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in the Annual Report under the caption “Critical Accounting Estimates” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, set forth in Part II, Item 7.
On January 1, 2022, we adopted Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which supersedes the lease accounting guidance under Topic 840, and generally requires lessees to recognize operating and financing lease liabilities and corresponding ROU assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. We adopted the new guidance using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application and not restating comparative periods. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases. See Note 2 — Basis of Presentation and Summary of Significant Accounting Policies and Note 6 — Leases in the notes to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information regarding the adoption.
JOBS Act Accounting Election
We meet the definition of an emerging growth company under the Jumpstart Our Business Startups Act of 2012, which permits us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. As a result, our condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements applicable to public companies.
Recent Accounting Pronouncements
A discussion of recent accounting pronouncements is included in Note 2, “Recently Adopted Accounting Pronouncements” in the accompanying unaudited condensed consolidated financial statements.
33
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
AUM Market Price Risk
Substantially all of our revenue is derived from fees that are primarily based on the amount of assets on our platform. These fees are stated in basis points, or 1/100th of 1%. Though in substantially all cases we charge a minimum fee regardless of the assets that are loaded onto our platform, our revenues fluctuate based on the value of the assets that our clients maintain on our platform. Movements in funds invested between different securities or fluctuations in securities prices or investment performance could cause the value of AUM to decline, which would result in lower fees we receive from our clients.
Interest Rate Risk
We have interest rate risk relating to debt and associated interest expense under the New Credit Agreement, which is indexed to LIBOR or LIBOR equivalent once LIBOR is phased out. At any time, a rise in interest rates could have a material adverse impact on our earnings and cash flows. Conversely, a decrease in interest rates could result in a material increase in earnings and cash flows. We estimate that a hypothetical increase or decrease in LIBOR of 100 basis points would increase or decrease, respectively, our interest expense by approximately $0.5 million on an annual basis, based on our $52.9 million debt balance under the New Credit Agreement at June 30, 2022.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rule 13a–15(e) and Rule 15d–15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2022. Based on the evaluation of our disclosure controls and procedures as of June 30, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost–effective control system, misstatements due to error or fraud may occur and not be detected.
34
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we are subject to certain legal proceedings and claims that arise in the normal course of business. In the opinion of our management, we are not involved in any litigation or proceedings with third parties that we believe could have a material adverse effect on our results of operations, financial condition or business.
Item 1A. Risk Factors.
For a discussion of potential risks and uncertainties, see the information in the section titled "Risk Factors" in the Annual Report.
Item 2. Unregistered Sales of Equity Securities.
Pursuant to the LLC Agreement, shares of the Company's Class B common stock may each be exchanged, together with a corresponding LLC Interest, at the option of the holder of such share of Class B common stock for one fully paid and non-assessable share of Class A common stock. There is no cash or other consideration paid by the holder converting such shares and, accordingly, there is no cash or other consideration received by the Company. The shares of Class A common stock common stock issued by the Company in such exchanges are exempt from registration pursuant to Section 4(a)(2) of the Securities Act.
On April 30, 2022, we issued to stockholders 172,790 shares of Class A common stock upon the exchange of the same number of shares of our Class B common stock and corresponding LLC Interests held by such stockholders.
On May 31, 2022, we issued to stockholders 15,000 shares of Class A common stock upon the exchange of the same number of shares of our Class B common stock and corresponding LLC Interests held by such stockholders.
On June 30, 2022, we issued to stockholders 1,622,921 shares of Class A common stock upon the exchange of the same number of shares of our Class B common stock and corresponding LLC Interests held by such stockholders.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
35
Item 6. Exhibits.
Exhibits filed or furnished herewith are designated by an asterisk (*); all exhibits not so designated are incorporated by reference to a prior filing as indicated.
Exhibit Number |
|
Description
|
Report or Registration Statement |
SEC File or Registration Number |
Exhibit Reference |
|
|
|
|
|
|
3.1 |
|
8-K filed September 28, 2021 |
001-40838 |
3.1 |
|
3.2 |
|
Amended and Restated Bylaws of Clearwater Analytics Holdings, Inc., dated September 27, 2021 |
8-K filed September 28, 2021 |
001-40838 |
3.2 |
10.1* |
|
|
|
|
|
31.1* |
|
|
|
|
|
31.2* |
|
|
|
|
|
32.1* |
|
|
|
|
|
32.2* |
|
|
|
|
|
|
|
|
|
|
|
+101.INS |
|
Inline XBRL Instance Document |
|
|
|
+101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
+101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
+101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
+101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
+101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
|
|
|
* Filed herewith.
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
|
|
Company Name |
|
|
|
|
|
Date: August 5, 2022 |
|
By: |
/s/ Jim Cox |
|
|
|
Jim Cox |
|
|
|
Chief Financial Officer |
|
|
|
(Principal Financial and Accounting Officer and Authorized Signatory) |
37