Clearwater Analytics (US:CWAN)2021-11-07 11:23Financial Data and Key Metrics Changes - Revenue in Q3 2021 was $64.5 million, representing a 21% year-over-year increase [48] - Annualized recurring revenue (ARR) reached $257 million, a $12 million increase from Q2 2021 and a 20% increase year-over-year [49] - Gross revenue retention rate was 98%, marking the 11th consecutive quarter at this level [49] - Net revenue retention rate improved to 111%, up 220 basis points from Q3 2020 [49] - Gross profit was $48.1 million with a gross margin of 74.5% [50] Business Line Data and Key Metrics Changes - The company has a 100% recurring revenue model with a strong focus on client retention and expansion [8][38] - Significant client wins included large asset management firms and insurers, indicating strong demand across various sectors [26][27] - The company added 82-year-old global investment management firm Neuberger Berman as a new client, showcasing its ability to replace legacy systems [29] Market Data and Key Metrics Changes - The total addressable market (TAM) is estimated at $10.1 billion, with core markets in North America and Europe comprising $4.7 billion [42] - The company operates in a competitive environment with a low market penetration, allowing for sustained growth opportunities [14] Company Strategy and Development Direction - Clearwater Analytics focuses on five core pillars: consistent growth, high-quality business model, disruptive technology, multiple growth drivers, and client focus [8][18] - The company aims to build a $1 billion business by leveraging its technology and expanding into adjacent markets [15][17] - Investments in R&D are targeted at 25% of revenue to maintain technological leadership and drive future growth [11][52] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's growth trajectory, citing a robust pipeline and strong client demand [57][58] - The company anticipates continued investments in operations and marketing to support growth, particularly in international markets [53][96] - Management highlighted the resilience of their business model, particularly in a volatile market environment, due to the nature of their client assets [68][109] Other Important Information - The company reported a $10.3 million loss on the extinguishment of debt related to its IPO [45] - Equity-based compensation expenses increased by $6 million year-over-year, reflecting the impact of the IPO [46] - The company ended the quarter with over $245 million in cash and cash equivalents [56] Q&A Session Summary Question: Is there any seasonality expected in terms of net new ARR? - Management indicated that while there is typically more contract signing in Q4, the onboarding of customers throughout the period has mitigated seasonality effects [63][64] Question: What resources are available in the APAC region for the new seven-figure client? - Management confirmed a small presence in Singapore and plans to accelerate resource allocation in the region following the new client win [65] Question: What is driving the improvement in retention rates? - Management attributed the increase to the AUM-based pricing model and the stability of fixed income assets on the platform [68][70] Question: How does the company view the potential risk to AUM in a rising rate environment? - Management noted that insurance companies are limited in their exposure and that the nature of their clients' investments tends to protect against volatility [107][109] Question: Are there notable wins in adjacent markets? - Management confirmed ongoing interest in state and local governments and highlighted a recent win in the REIT market [90]