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Clearwater Analytics Holdings, Inc. (CWAN)·Q1 2025 Earnings Summary

Executive Summary

  • Clearwater delivered record Q1 revenue $126.9M (+23.5% y/y) and adjusted EBITDA $45.1M (+40% y/y); non-GAAP gross margin reached 78.9%, nearing the 80% long-term target .
  • Versus Wall Street consensus, Clearwater posted a revenue beat of $1.75M and an EPS beat of $0.0064 on Primary EPS; adjusted EBITDA also exceeded the Q1 guidance ($41.5M) by ~$3.6M, reflecting strong operational execution . Revenue/EPS consensus values from S&P Global.*
  • Consolidated 2025 guidance stepped up materially after closing Enfusion (Apr 21) and Beacon (Apr 30): revenue $720–$728M and EBITDA $230–$235M; margins will reset lower near term given acquired mix, with notable increases in equity comp and D&A .
  • Near-term stock reaction catalysts: Q2 one-time integration costs ($6M cash, $16M equity comp) and higher interest expense ($15M) may dampen GAAP EPS, while cross-sell momentum and margin expansion plans underpin medium-term thesis .

What Went Well and What Went Wrong

What Went Well

  • Strong top-line and profitability: Revenue $126.9M (+23.5% y/y), adjusted EBITDA $45.1M (+40% y/y), non-GAAP gross margin 78.9% (+80 bps y/y) .
  • Cash generation inflected: Free cash flow $23.0M (+168% y/y) on operating cash flow $24.5M, demonstrating improved working capital discipline .
  • Strategic execution and positioning: “This is the last quarterly call focused almost entirely on Clearwater before these acquisitions…gross margins reaching 78.9%…R&D spend…21.6% of revenue…We’ve delivered growth at a significantly faster pace” – CEO S. Sahai .

What Went Wrong

  • Net revenue retention slipped to 114% from 116% in Q4, as AUM tailwinds faded; management emphasized churn remains low and pricing/cross-sell intact .
  • GAAP diluted EPS ($0.03) modest despite strong operations; Q4’s $1.63 GAAP diluted EPS was inflated by the deferred tax allowance release, underscoring volatility in GAAP comparables .
  • Q2 integration headwinds flagged: ~$6M one-time cash transition costs and ~$16M one-time equity comp due to double-trigger awards; acquired EBITDA margin ~18% dilutes near-term consolidated margin .

Financial Results

MetricQ1 2024Q4 2024Q1 2025
Revenue ($USD Millions)$102.719 $126.465 $126.864
GAAP Diluted EPS ($)$0.01 $1.63 $0.03
Adjusted EBITDA ($USD Millions)$32.202 $41.683 $45.070
Adjusted EBITDA Margin %31% 33.0% 35.5%
Gross Margin % (GAAP)72.6% 73.5% 73.3%
Gross Margin % (Non-GAAP)78% 78.8% 78.9%
Free Cash Flow ($USD Millions)$8.599 $(29.762) $23.032

KPIs

KPIQ3 2024Q4 2024Q1 2025
ARR ($USD Millions)$456.9 $474.9 $493.9
Gross Revenue Retention (GRR)99% 98% 98%
Net Revenue Retention (NRR)114% 116% 114%
Cash, Cash Equivalents & Investments ($USD Millions)$336.7 $285.8 $282.9

Estimates vs Actual (Q1 2025)

MetricConsensus*ActualSurprise
Revenue ($USD Millions)125.114*126.864 +1.750*
EPS (Primary)* ($)0.1236*0.13 (non-GAAP diluted) +0.0064*

Values retrieved from S&P Global.*

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue (Core CWAN)Q2 2025N/A$129M New
Adjusted EBITDA (Core CWAN)Q2 2025N/A$45M (~35% margin) New
Acquired Contribution (Enfusion+Beacon)Q2 2025N/A+$45M revenue; +$8M EBITDA (~18% margin) New
Revenue (Consolidated)FY 2025$535.5–$542M (stand-alone) $720–$728M Raised (M&A)
Adjusted EBITDA (Consolidated)FY 2025$182–$185M (stand-alone) $230–$235M (~32% margin) Raised (M&A)
Non-GAAP tax rateFY 202525% 25% Maintained
Diluted non-GAAP share countFY 2025~263M ~303M Raised
Equity-based comp & related taxesFY 2025~$106M ~$139M (incl. $16M one-time in Q2) Raised
Depreciation & amortizationFY 2025~$13M ~$100–$120M Raised significantly
Interest expenseQ2 2025 / FY 2025N/A~$15M in Q2; ~$40M FY net interest expense New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
AI/technology & efficiencyQ3: single-instance, multi-tenant advantage; gen AI to boost efficiency . Q4: gross margin target north of 80% aided by gen AI; consistent margin expansion .Helios reconciliation, single data ingestion; piloting efficiencies across acquired ops; gross margin 78.9% .Strengthening
Regulatory/NAIC tailwindsQ4: ~$3M NAIC services pulled into Q4; clients benefited from platform changes .AUM tailwind lighter; revenue resilient due to pricing and model; April trends stable .Mixed near term
M&A integration roadmapQ4: Enfusion acquisition announced with front-to-back strategy .Closed Enfusion (Apr 21) and Beacon (Apr 30); Bistro acquired; phased execution: stand-alone growth, cross-sell, unified platform .Accelerating
NRR trajectoryQ3: 114% . Q4: 116%, a year ahead of target .114%; aim to sustain ~115% via churn discipline, price, cross-sell .Slight dip; aiming to normalize
Enfusion pricing model—Plans to evolve commercial model for durability; expect Q4 bookings impact; revenue impact more in 2026 .Under development
Hedge fund market dynamics—Enfusion churn stabilized; shift away from very small funds; conversions progressing .Stabilizing

Management Commentary

  • “Gross margins reaching 78.9%, approaching our 80% target ahead of schedule, and R&D spend decreasing…to 21.6% of revenue…we’ve delivered growth at a significantly faster pace.” – CEO S. Sahai .
  • “We’re very pleased with Clearwater’s first quarter results…free cash flow generation…increased 168% year-over-year…Enfusion’s Q1 2025 preliminary revenue was $54.5 million, or 13% y/y growth.” – CFO J. Cox .
  • “Phase 1…maximize stand-alone performance; Phase 2…robust cross-sell; Phase 3…build a single security master and unified data plane—industry’s most comprehensive front-to-back platform.” – CEO S. Sahai .
  • “Q2 will include ~$6M one-time cash transition costs and ~$16M one-time equity-based comp; we expect FY net interest expense ~$40M.” – CFO J. Cox .

Q&A Highlights

  • Long-term growth pacing: Clearwater expects Enfusion to re-accelerate to ~20% growth within two years; consolidated EBITDA margin expansion of ~200 bps per year remains the mantra .
  • Bistro and Beacon role: Bistro as horizontal visualization for alternatives; Beacon risk analytics cross-sold across 1,400+ CWAN and 900+ Enfusion clients .
  • Macro/AUM tailwinds: NRR down slightly due to less AUM tailwind; churn, pricing, cross-sell remain strong; April showed no deterioration .
  • Synergies execution: Gross margin improvements targeted with Helios; $20M G&A synergies already initiated to play out over Q3–Q4 .
  • Enfusion pricing: Building a durable model (consistent 4–5% annual price uplift targeted), with bookings impact potentially in Q4 and revenue in 2026 .

Estimates Context

  • Q1 2025 beat: Revenue $126.9M vs $125.1M consensus*; Primary EPS $0.13 vs $0.1236 consensus*; Clearwater also beat its own Q1 adjusted EBITDA guidance ($41.5M) with $45.1M actual .
  • Street outlook: Consensus implies continued sequential growth through 2H 2025 and into 2026 as consolidation effects materialize; management’s consolidated 2025 guide aligns with higher top-line but lower near-term margins due to acquired mix *.

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Q1 print: Strong revenue, margin, and FCF; Clearwater’s non-GAAP gross margin is nearing the 80% target, highlighting durable unit economics .
  • Beat vs consensus: Revenue and Primary EPS beat; adjusted EBITDA beat internal guidance, reinforcing execution quality; consider emphasizing non-GAAP EPS in comps given GAAP EPS volatility *.
  • Integration overhang in Q2: Expect one-time costs and higher interest expense to pressure GAAP EPS; track consolidated margin reset and cadence of synergy realization .
  • NRR normalization: Slight dip to 114% on lower AUM tailwind; management targets ~115% sustainably via churn control, pricing, and cross-sell .
  • Guidance reset: FY 2025 consolidated revenue and EBITDA materially higher post M&A; equity comp and D&A step up; diluted share count ~303M – all relevant for modeling .
  • Strategic narrative: Front-to-back, single security master, unified data plane roadmap positions Clearwater as a category consolidator; cross-sell across 2,300+ combined clients is a key growth lever .
  • Trading implications: Near-term volatility likely around Q2 integration charges and interest expense; medium-term thesis supported by ARR growth, margin expansion programs, and synergy capture .
Notes:
* Values retrieved from S&P Global.