Clearwater Analytics (US:CWAN)2022-08-07 05:39Financial Data and Key Metrics Changes - Revenue for Q2 2022 reached $73.4 million, representing a 21% year-on-year growth and an increase from $70.8 million in Q1 2022 [6][28] - Gross margin was reported at 75.7%, with adjusted EBITDA of $19.1 million, translating to a 26% margin, up from $17.4 million in Q2 2021 [7][39] - Free cash flow generation was strong at $16.5 million, with an 87% conversion of adjusted EBITDA to free cash flow [8][43] Business Line Data and Key Metrics Changes - Annualized recurring revenue (ARR) grew to $290.4 million, an 18.5% increase year-over-year, although growth was tempered by a decline in asset values [14][30] - New client acquisition was robust, with 45 new clients going live on the platform in Q2 [13][29] - Gross revenue retention rate remained high at 98% for the 14th consecutive quarter [12] Market Data and Key Metrics Changes - The decline in asset values across various asset classes negatively impacted net revenue retention, which decreased from 107% to 104% [14][31] - The company is addressing a $10 billion market opportunity while expanding in Europe and Asia [21] Company Strategy and Development Direction - The company is evolving its pricing model to a fixed annual fee for new clients, aiming to reduce revenue volatility and improve predictability [10][11] - Clearwater Analytics is focused on five core pillars: consistent durable growth, high-quality business model, disruptive technology, multiple growth drivers, and client focus [15][16][21][23] - The company continues to invest in R&D to enhance its platform and maintain a competitive edge [19][35] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's resilience despite market downturns, emphasizing strong client relationships and ongoing investments [47][48] - The management team anticipates that changes to the pricing model will lead to more predictable revenue and improved client engagement [90][92] Other Important Information - The company ended Q2 with $281.6 million in cash and cash equivalents, resulting in net cash holdings of approximately $230 million [42] - The company plans to host its annual user conference, Clearwater Connect, in September 2022 [26] Q&A Session Summary Question: How is the transition to a fixed recurring subscription fee expected to impact revenue growth? - Management acknowledged that the transition may initially drag on revenue growth but emphasized the long-term benefits of a more stable pricing model [50][51] Question: Are there any signs of slowdown in new procurements or decision cycles? - Management noted that while some regions, like Europe, showed slower activity, overall bookings were strong, and the pipeline remains healthy [53][56] Question: Will the contract duration or renewal timeline change with the new pricing model? - Management confirmed that while the approach remains consistent, larger clients may prefer longer-term contracts [59] Question: Can you provide insights on segment performance in Q2? - Management highlighted strong performance in the insurance segment and noted significant wins in both insurance and asset management [65][66] Question: What has been the initial feedback on the new pricing model? - Management reported little resistance from new clients and a cooperative approach from existing clients during the transition [72][73] Question: How should we think about the pace of free cash flow margin expansion longer term? - Management indicated that free cash flow conversion is expected to stabilize around 70% of EBITDA, with potential for growth as the business scales [84] Question: How does the pricing change impact long-term growth? - Management believes the new pricing model will provide better predictability and maintain growth potential despite recent market fluctuations [88][90]