S-1/A 1 d179113ds1a.htm S-1/A S-1/A
Table of Contents
Index to Financial Statements

As filed with the United States Securities and Exchange Commission on September 14, 2021.

Registration No. 333-259155

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 2

to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Clearwater Analytics Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   7372   87-1043711
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

777 W. Main Street

Suite 900

Boise, ID 83702

(208) 918-2400

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Alphonse Valbrune

Chief Legal Officer

777 W. Main Street

Suite 900

Boise, ID 83702

(208) 918-2400

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies of all communications, including communications sent to agent for service, should be sent to:

 

Joshua N. Korff, P.C.

Ross M. Leff, P.C.

Aslam A. Rawoof

Kirkland & Ellis LLP

601 Lexington Avenue

New York, New York 10022

(212) 446-4800

 

Ryan J. Dzierniejko

Michael J. Zeidel

Richard L. Oliver

Skadden, Arps, Slate, Meagher & Flom LLP

One Manhattan West

New York, New York 10001

(212) 735-3000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 Securities Exchange Act of 1934, as amended “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 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of
Securities to be Registered
 

Amount to be
Registered(1)

 

Proposed

Maximum

Offering Price

Per Share(2)

 

Proposed

Maximum

Aggregate

Offering Price(1)(2)

 

Amount of

Registration Fee(3)

Class A Common Stock, par value $0.001 per share

  34,500,000   $16.00   $552,000,000   $60,223.20

 

 

(1)

Includes 4,500,000 shares of Class A common stock that may be purchased by the underwriters upon the exercise of their option to purchase additional shares. See “Underwriting.”

(2)

Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.

(3)

$10,910 previously paid.

 

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents
Index to Financial Statements

LOGO

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED , 2021 Shares clearwater analytics CLASS A COMMON STOCK This is an initial public offering of shares of Class A common stock of Clearwater Analytics Holdings, Inc. We are offering shares of Class A common stock. Prior to this offering, there has been no public market for our Class A common stock. It is currently estimated that the initial public offering price per share of Class A common stock will be between $ and $. We have applied to list our Class A common stock on under the symbol "CWAN." We will have four classes of common stock outstanding after this offering: Class A common stock, Class B common stock, Class C common stock and Class D common stock. Each share of our Class A common stock and each share of our Class B common stock entitles its holder to one vote per share on all matters presented to our stockholders generally. Each share of our Class C common stock and each share of our Class D common stock entitles its holder to ten votes per share on all matters presented to our stockholders generally. The holders of our Class B common stock and our Class C common stock will not have any of the economic rights (including the rights to dividends) provided to holders of our Class A common stock and our Class D common stock. See "Description of Capital Stock." Upon the completion of this offering, all of our Class C common stock and Class D common stock will be held by the Principal Equity Owners (as defined below) and all of our Class C common stock held by such Principal Equity Owners will be held on a one-to-one basis with the number of LLC Interests (as defined herein) they hold. Upon the completion of this offering, all of our Class B common stock will be held by the Continuing Equity Owners (as defined herein), excluding the Principal Equity Owners (such Continuing Equity Owners, excluding the Principal Equity Owners, "Other Continuing Equity Owners"), on a one-to-one basis with the number of LLC Interests they hold. Immediately following this offering, (i) the holders of our Class A common stock issued in this offering will collectively hold % of the economic interest in us and % of the combined voting power in us, (ii) the Other Continuing Equity Owners, through their ownership of our Class A common stock and Class B common stock, will collectively hold % of the economic interest in us and % of the combined voting power in us and (iii) the Principal Equity Owners, through their ownership of Class C common stock and Class D common stock, will collectively hold % of the economic interest in us and % of the combined voting power in us. We will be a holding company, and upon consummation of this offering and the application of net proceeds therefrom, our principal asset will consist of LLC Interests, which we will acquire in part with the net proceeds from this offering, collectively representing an aggregate % economic interest in CWAN Holdings, LLC. The remaining % economic interest in CWAN Holdings, LLC will be owned by the Continuing Equity Owners through their ownership of LLC Interests. We will be the sole managing member of CWAN Holdings, LLC. As the sole managing member, we will operate and control all of the business and affairs of CWAN Holdings, LLC and its direct and indirect subsidiaries and, through CWAN Holdings, LLC and its direct and indirect subsidiaries, conduct our business. Upon completion of this offering, we will be a "controlled company" as defined under the corporate governance rules of See "Management-Controlled Company Exemption" and "Principal Stockholders." We are an "emerging growth company" as defined under the U.S. federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements for this and future filings. See "Risk Factors" beginning on page 26 to read about factors you should consider before investing in shares of our Class A common stock. Neither the Securities and Exchange Commission (the "SEC") nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. Per Share Total Initial public offering price Underwriting discounts and commissions(1) Proceeds to Clearwater Analytics Holdings, Inc., before expenses $ $ $ $ $ $ (1) We have agreed to reimburse the underwriters for certain expenses in connection with this offering. See "Underwriting" for a description of the compensation payable to the underwriters. We have granted the underwriters an option to purchase up to an additional shares of Class A common stock from us at the initial price to the public less the underwriting discounts and commissions within 30 days of the date of this prospectus. The underwriters expect to deliver the shares of Class A common stock against payment in New York, New York, on or about, 2021 through the book-entry facilities of the Depository Trust Company. Joint Bookrunners Prospectus dated , 2021. Joint Bookrunners Goldman Sachs & Co. LLC J.P. Morgan Morgan Stanley Wells Fargo Securities RBC Capital Markets Credit Suisse Piper Sandler William Blair Oppenheimer & Co. Co Managers BNP Paribas D.A. Davidson AmeriVet Securities Loop Capital Markets Penserra Securities LLC R. Seelaus & Co., LLC Siebert Williams Shank ^200F5WJqzuxXVsKt:S 200F5WJqzuxXVsKt:


Table of Contents
Index to Financial Statements

LOGO


Table of Contents
Index to Financial Statements

LOGO


Table of Contents
Index to Financial Statements

LOGO


Table of Contents
Index to Financial Statements

TABLE OF CONTENTS

 

     Page  

About This Prospectus

     ii  

Letter from the CEO

     1  

Prospectus Summary

     1  

The Offering

     17  

Summary Consolidated Financial and Other Data

     23  

Risk Factors

     26  

Cautionary Note Regarding Forward-Looking Statements

     56  

Use of Proceeds

     58  

Organizational Structure

     59  

Dividend Policy

     64  

Capitalization

     65  

Dilution

     67  

Unaudited Pro Forma Consolidated Financial Information

     69  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     79  

Business

     102  

Management

     120  

Executive Compensation

     127  

Principal Stockholders

     139  

Certain Relationships and Related Party Transactions

     143  

Description of Certain Indebtedness

     151  

Description of Capital Stock

     152  

Shares Eligible for Future Sale

     161  

Material U.S. Federal Income Tax Considerations for Non-U.S. Holders Of Class A Common Stock

     163  

Underwriting

     168  

Legal Matters

     176  

Experts

     176  

Where You Can Find Additional Information

     176  

Index to Financial Statements

     F-1  

 

i


Table of Contents
Index to Financial Statements

ABOUT THIS PROSPECTUS

We and the underwriters have not authorized anyone to provide you with information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by or on behalf of us or to which we have referred you. We and the underwriters take no responsibility for, and provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares of Class A common stock offered hereby and only under circumstances and in jurisdictions where it is lawful to do so. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date.

For investors outside the United States: we and the underwriters have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of the shares of Class A common stock and the distribution of this prospectus outside the United States.

Organizational Structure

In connection with the closing of this offering, we will undertake certain organizational transactions to reorganize our corporate structure. Unless otherwise stated or the context otherwise requires, all information in this prospectus reflects the consummation of the organizational transactions described in the section titled “Organizational Structure” and this offering, and the application of the proceeds therefrom, which we refer to, collectively, as the “Transactions.” See “Organizational Structure” for a diagram depicting our organizational structure after giving effect to the Transactions, including this offering.

Certain Definitions

As used in this prospectus, unless the context otherwise requires:

 

   

Company,” “we,” “us,” “our,” “Clearwater” and similar references refer, (1) following the consummation of the Transactions, including this offering, to Clearwater Analytics Holdings, Inc., and, unless otherwise stated, all of its direct and indirect subsidiaries, including CWAN Holdings, LLC, and (2) prior to the completion of the Transactions, including this offering, to CWAN Holdings, LLC and, unless otherwise stated, all of its direct and indirect subsidiaries.

 

   

Blocker Entities” refers to entities affiliated with certain of the Continuing Equity Owners, each of which is a direct or indirect owner of LLC Interests in CWAN Holdings, LLC prior to the Transactions and is taxable as a corporation for U.S. federal income tax purposes.

 

   

Blocker Shareholders” refers to entities affiliated with certain of the Continuing Equity Owners, each of which is an owner of one or more of the Blocker Entities prior to the Transactions, which will exchange their interests in the Blocker Entities for shares of our Class A common stock, in the case of Other Continuing Equity Owners, and for shares of our Class D common stock, in the case of the Principal Equity Owners, in connection with the consummation of the Transactions.

 

   

Continuing Equity Owners” refers collectively to direct or indirect holders of LLC Interests and/or our Class B common stock, Class C common stock and/or Class D common stock immediately following consummation of the Transactions, including the Principal Equity Owners and certain of our directors and officers and their respective Permitted Transferees who may, following the consummation of this offering, exchange at each of their respective options, in whole or in part from time to time, their LLC Interests (along with an equal number of shares of Class B common stock or Class C common stock, as the case may be (and such shares shall be immediately cancelled)) for newly issued shares of our Class A common stock or our Class D common stock, as the case may be, as described in “Certain

 

ii


Table of Contents
Index to Financial Statements
 

Relationships and Related Party Transactions—LLC Agreement,” and additionally holders of shares of our Class D common stock may convert such shares at any time for newly issued shares of our Class A common stock, on a one-for-one basis (in which case their shares of our Class D common stock will be cancelled on a one-for-one basis upon any such issuance).

 

   

LLC Agreement” refers to CWAN Holdings, LLC’s Third Amended and Restated Limited Liability Company Agreement, which will become effective substantially concurrently with or prior to the consummation of this offering.

 

   

LLC Interests refers to the common units of CWAN Holdings, LLC, including those that we purchase with a portion of the net proceeds from this offering.

 

   

NPS” refers to our net promoter score, which can range from a low of negative 100 to a high of positive 100, that we use to gauge customer satisfaction. NPS benchmarks can vary significantly by industry, but a score greater than zero represents a company having more promoters than detractors. Our methodology of calculating NPS reflects responses from customers who purchase investment accounting and reporting, performance measurement, compliance monitoring and risk analytics solutions from us and choose to respond to the survey question. In particular, it reflects responses given in the second quarter of 2021 and reflects a sample size of 134 responses over that period. NPS gives no weight to customers who decline to answer the survey question.

 

   

Other Continuing Equity Owners” refers to Continuing Equity Owners who are not also Principal Equity Owners.

 

   

Permira” refers to Permira Advisers LLC, one of our largest owners through holdings by its affiliates.

 

   

Permitted Transferee” refers to, subject to the provisions of the LLC Agreement, (a) with respect to any Principal Equity Owner, any of such Principal Equity Owner’s affiliates and (b) with respect to any Other Continuing Equity Owner, any such Other Continuing Equity Owner’s affiliates or, in the case of individuals, members of their immediate family.

 

   

Principal Equity Owners” refers to Welsh Carson, Warburg Pincus, Permira and their respective affiliates and Permitted Transferees.

 

   

Transactions refers to the organizational transactions as described in “Organizational Structure— Transactions” and this offering, and the application of the net proceeds therefrom.

 

   

Warburg Pincus” refers to Warburg Pincus LLC, one of our largest owners through holdings by its affiliates.

 

   

Welsh Carson” refers to Welsh, Carson, Anderson & Stowe, one of our largest owners through holdings by its affiliates.

Trademarks

This prospectus contains references to our trademarks, trade names and service marks, which are protected under applicable intellectual property laws and are our property. This prospectus also contains references to trademarks, trade names and service marks of other companies, which are the property of their respective owners. Solely for convenience, trademarks, trade names and service marks referred to in this prospectus may appear without the ®, or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of any applicable licensor to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

Market and Industry Data

Unless otherwise indicated, information contained in this prospectus concerning our industry, competitive position and the markets in which we operate is based on information from independent industry and research

 

iii


Table of Contents
Index to Financial Statements

organizations, other third-party sources and management estimates. Management estimates are derived from publicly available information released by independent industry analysts, subscription-based publications and other third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data, and our experience in, and knowledge of, such industry and markets, which we believe to be reasonable, but we have not independently verified the accuracy of this information. Any industry forecasts are based on data (including third-party data), models and experience of various professionals and are based on various assumptions, all of which are subject to change without notice. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

 

 

Through and including                , 2021 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

 

 

iv


Table of Contents
Index to Financial Statements

LETTER FROM THE CEO

Access to data should not be this hard. With the innovative technologies at our disposal today, data should be at our fingertips, available when and how we want it. The power, intellect, and energy of investment professionals should be focused on making confident decisions based on the data — not in collecting, collating, and reconciling it.

And yet, the financial industry has become mired in legacy, expensive, and inflexible infrastructure fueled by the pervasive misconception that the complexity of this industry is unique and unsolvable. Technology has solved many incredibly complex problems at scale, such that a single click can move supply chains across the globe and deliver a table lamp to your door, while intelligently suggesting the right lightbulbs for you. Similarly, technology now helps orchestrate an ever-growing fleet of cars to take you to the office or airport, on demand. Democratizing industry after industry.

But the perceived notion of the financial industry’s uniqueness ensured that industrywide and even companywide initiatives saw limited success. Businesses responded by giving up on those initiatives and focused on solving their narrow, usually country-specific, functional problems related to accounting, risk, regulatory reporting and compliance. That led to tens and even hundreds of purpose-built applications. And then came the data warehouses and armies of people resulting in incredibly slow, inflexible and inconsistent access to data. Many of us have seen the current state persist for so long that we have acquiesced to the present state of play.

A little company in Boise, Idaho decided not to play the incremental game but to completely revolutionize the approach—at Clearwater, we focused on addressing our client’s growing pains with an innovative approach combining next generation technology with deep industry expertise. Instead of client specific on-premises software, we built a single instance, multi-tenant platform in the cloud that all our clients use simultaneously. Instead of having a separate accounting engine for each asset class and each country, we built a platform that is multi-asset class, multi-currency and multi-basis. Instead of having a unique security master for each client, we have a single security master for all clients. Instead of relying on hundreds of clients for data and then manually reconciling it, we connect directly to the data source and let machines validate the data. Instead of delivering reports once a quarter, month, or even week, we deliver powerful and highly configurable reports every day, on demand.

And while we are a technology company first, what makes this Boise-based company truly unique is its approach to clients. Boise is a city where the hotel receptionist was genuinely concerned about my long flight in. A city where a colleague couldn’t get a taxi at the airport and a complete stranger dropped him off at his hotel. A city where our employees do not view our clients as arms-length transactional counterparties, but as deeply valued personal relationships that endure. As we grow globally and domestically, it is this high integrity, client-first culture that we want to protect and grow.

I am in awe of how our employees—80% of whom are millennials—consistently strive to do the right thing and create lasting impact. Not only do they care about clients, solutions and innovation, they care about the climate, the marginalized, the unjustly vilified and the underprivileged. We can all learn from them. Attracting, retaining and continuing to build an engaged workforce will ensure that our clients are successful, which, in turn, will ensure that Clearwater flourishes. This philosophy will continue to be at the core of how we are building our company.

Clearwater has much to do as a company—we want to accelerate growth in international markets, we want greater market awareness of how we help to solve some of our clients’ most painful challenges through innovation and outstanding client service, and we want to build adjacent solutions to replace other legacy technologies that our clients are forced to rely upon. Having clients give us a Net Promoter Score of 60+ and a gross retention rate of approximately 98% are testament to the sense of wonder we hope to drive with our technology.

 

1


Table of Contents
Index to Financial Statements

And finally, while we have started by disrupting the investment accounting space, over time we believe that we can truly be a force for good. We believe we can leverage our technology to revolutionize the broader world of investing. As the leading independent repository of fully aggregated, reconciled and validated investment data, we are uniquely situated to provide unprecedented transparency into investment performance and returns. We can therefore enable clients to better evaluate investment alternatives and understand performance at a very granular level.

By providing unprecedented transparency about investment performance, we will help catalyze a rush to meritocracy. Combined with providing digital access to an increasingly larger and more diverse set of users around the globe, we can help democratize the world of investing.

I hope you will join us on this journey.

Sincerely,

Sandeep

 

2


Table of Contents
Index to Financial Statements

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. It does not contain all of the information that may be important to you and your investment decision. Before investing in our Class A common stock, you should carefully read this entire prospectus, including the matters set forth under the sections of this prospectus captioned “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and our condensed consolidated interim financial statements and related notes included elsewhere in this prospectus.

Our Mission

Clearwater aspires to be the world’s most trusted and comprehensive technology platform for investment accounting and analytics. Starting by radically simplifying investment accounting, we intend to use the power of our platform to eventually revolutionize the world of investing.

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 $5.6 trillion of global invested assets for over 1,000 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.

The markets we serve are highly complex and changing rapidly. All asset owners and asset managers need timely, accurate and comprehensive information about their investment portfolios in order to effectively make capital allocation decisions, manage risk, measure performance, comply with regulations and communicate to various stakeholders internally and externally. This requires organizations to have a comprehensive, global view of their investment portfolio. A partial view of one asset class or one reporting regime is ineffective: delivering analysis on 95% of the portfolio is inadequate because, more often than not, the opaque final 5% of the portfolio creates disproportionate risk. A single client can invest in over 60 different asset classes, hold assets in over 40 different currencies, be governed by more than 10 accounting regimes and hold positions representing thousands of individual tax lots. These clients often have separate accounting, reporting, performance, compliance and risk management products for each asset class and each country. Furthermore, clients frequently require large teams of people to manually review, compare and enter data, correct errors and build custom reports across multiple disparate systems and spreadsheets. Our platform provides our clients with a single consolidated and transparent view of investment data and analytics.

We believe that client demand for Clearwater’s offering continues to grow not only in the United States, but also in financial centers around the world. Prior to 2008, institutions often invested in a narrower range of asset


 

1


Table of Contents
Index to Financial Statements

classes for which legacy solutions may have been able to provide adequate accounting, performance measurement, compliance monitoring and risk analytics. Over the past decade, however, clients’ needs have grown meaningfully as a result of industry-wide trends such as:

 

   

globalization;

 

   

increased regulatory requirements and complexity;

 

   

higher investment allocations in alternative assets (such as private equity, hedge funds, and derivatives and structured securities);

 

   

greater demand for timely risk management and transparency; and

 

   

pressure to increase speed and accuracy while reducing cost.

Clients no longer find it sufficient to review investment portfolios on a quarterly, monthly or even weekly basis. Their aged patchworks of on-premises software applications with multiple data warehouses and significant manual intervention exposes them to time delays, a lack of data integrity and traceability, and a significant increase in errors, cost and ultimately risk. For many clients, this has become increasingly untenable.

We allow our clients to replace these 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.

Our team members are passionate about client success. Our clients have direct access to a dedicated client service team, a specialized group of experts devoted to ensuring data is as accurate and current as possible and resolving any challenges our clients may encounter utilizing our platform. We take pride in our extremely high client satisfaction rating with a NPS of 60+, in contrast with competitors who typically score much lower. Our gross revenue retention rate has remained approximately 98% over the past ten quarters, which we believe is a testament to the strength of our offering, our ability to deliver operational efficiency for our clients and our focus on providing exceptional client service. We are able to deliver this service to our clients by attracting, retaining and engaging an outstanding team.

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


 

2


Table of Contents
Index to Financial Statements

are high-grade fixed income assets, leading to very low levels of volatility and highly predictable revenue streams. When applicable, we charge additional transaction fees for certain complex asset classes (e.g., derivatives and other financial instruments).

We have achieved significant organic growth in recent periods. Our revenues increased from $168 million in the year ended December 31, 2019 to $203 million in the year ended December 31, 2020, representing an increase of 21%. For the six months ended June 30, 2020 and 2021, our revenues were $95 million and $118 million, respectively, representing year-over-year growth of 24%. We had net income of $8 million and a net loss of $44 million in the years ended December 31, 2019 and 2020, respectively, representing net income margin of 5% and net loss margin of (22%), respectively. For the six months ended June 30, 2020 and 2021, we had net income of $14 million and $3 million, representing net income margin of 14% and 3%, respectively. Our adjusted EBITDA was $51 million and $57 million in the years ended December 31, 2019 and 2020, representing adjusted EBITDA margins of 30% and 28%, respectively. For the six months ended June 30, 2020 and 2021, we had adjusted EBITDA of $31 million and $36 million, representing adjusted EBITDA margins of 33% and 30%, respectively. For additional information on adjusted EBITDA, including a reconciliation of adjusted EBITDA to net income, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”

Our Industry

We operate in the investment accounting and analytics market, serving a range of clients that own or manage investment assets. Before the global financial crisis in 2008, the investment community generally invested in a relatively small number of asset classes that could be tracked with legacy software tools and processes. Over the ensuing years, the industry has faced several challenges that have strained and broken this fragmented and often manual approach to investment accounting operations. These new developments have included increasingly globalized holdings, growing regulatory complexities, the increasing prominence of complex alternative assets, and pressure to increase speed and accuracy while reducing cost. In light of these developments, asset owners and asset managers began to require a comprehensive, global view of their investment portfolios. These organizations initially reacted by buying dedicated products for each asset class, country and reporting regime, building proprietary data warehouses for different use cases, and increasing employee headcount in accounting and compliance functions. These practices resulted in investment accounting operations that were slow, expensive, inflexible and inconsistent, very often resulting in inaccurate data and reporting. We believe that our purpose-built single instance, multi-tenant technology platform provides clients with a vastly superior solution to their growing needs.

Increasingly Global Investment Portfolios

Investors today increasingly hold positions in globally diversified assets as they search for yield and diversification. As a result, they require a global platform that delivers a multi-asset class, multi-basis, multi-currency solution across different accounting, reporting and regulatory regimes.

High Regulatory Complexity

Increased regulatory requirements within the financial services and investment industries continue to proliferate in jurisdictions around the world. The spread of these new regulations has been accompanied by a nearly six-fold increase in global yearly regulatory alerts and SEC enforcement actions, from approximately 10,000 alerts and enforcement actions in 2008 to nearly 60,000 in 2018, according to SEC press releases and annual reports. Asset owners and asset managers need a robust and dynamic solution to help them achieve and maintain compliance in this complex and ever-evolving environment.


 

3


Table of Contents
Index to Financial Statements

Growing Importance of Alternative Assets

Investors are increasingly allocating capital to alternative assets and complex financial instruments as part of a search for higher investment returns in the low interest rate environment that has persisted over the past decade. Alternative assets are typically traded less broadly and frequently than traditional investment assets and often have less data readily available about them. This complicates reporting and risk management. Asset owners and asset managers need comprehensive, accurate and timely data regardless of the complexity of their investment holdings.

Rising Demand for Risk Management and Transparency

Investors are seeking the highest quality investment data and portfolio visibility in order to effectively make capital allocation decisions, manage risk and measure performance. Additionally, the rise of environmental, social and governance (ESG) initiatives in investing has increased the need for transparency in portfolio holdings as investors seek to measure compliance with ESG objectives. Asset owners and asset managers need a solution that provides on-demand transparency in order to optimize risk management and provide their stakeholders with the holdings-based visibility that they require.

Pressure to Increase Efficiency

The asset management industry is highly competitive and asset management firms must constantly improve operating efficiency to maintain profitability. Additionally, the growing prominence of passive investment strategies has compressed fees for active asset managers and led to a greater focus on managing overall organizational costs to maintain profitability and operational efficiency. In order to effectively compete, asset owners and asset managers need modern automated solutions that reduce the need for greater headcount, and ultimately lower costs.

Digital Transformation from Legacy Technologies

Many of the challenges that plague asset owners and asset managers result from their reliance upon legacy software products and outdated manual processes. Asset owners and asset managers are seeking cloud-based solutions that address the costly, manual and error-prone deficiencies of these legacy technologies.

Our Market Opportunity

We believe that Clearwater has a significant opportunity to disrupt the global investment accounting and analytics market. Our research suggests that this addressable market is an approximately $10 billion global revenue opportunity when combining Clearwater’s current solutions and client end-markets with new end-markets, geographies and products. From 2015 to 2020, the market growth rates within our current client end-markets were between 5-7% for asset management, 3-7% for insurance and 2-4% for corporations. Our clients tend to be larger entities in these end-markets and generally grow at the higher end of these ranges.


 

4


Table of Contents
Index to Financial Statements

Our Value Proposition

Clearwater’s purpose-built single instance, multi-tenant technology platform helps clients around the world radically simplify their investment accounting and reporting, performance measurement, compliance monitoring and risk analytics. Our solutions provide our clients with a comprehensive view and single source of truth for their investment portfolios and we believe our solutions deliver unmatched levels of speed, flexibility, traceability, repeatability and auditability, all with no manual labor required of our clients. Some key aspects of our value proposition include:

 

   

Single Instance, Multi-Tenant Platform: Our single instance, multi-tenant architecture allows for efficient and continuous upgrades, new features, and updates to adjust for rapidly evolving industry requirements and regulations. Each upgrade and update is made available worldwide.

 

   

Comprehensive View of Global Assets: Clients benefit from having a “single pane of glass” through which to holistically and accurately view their entire investment portfolios, with the flexibility to respond to unique reporting challenges across different regulatory regimes.

 

   

Single Source of Truth for All Accounting, Risk, Compliance and Regulatory Reporting: Our platform automates data aggregation, data reconciliation and data validation of each security in our clients’ investment portfolios. This allows us to deliver our clients data from a “Golden Copy” that is accurate, auditable and traceable.

 

   

Radical Simplification of Investment Accounting Operations: By eliminating the need for our clients to aggregate, reconcile and validate security data, we greatly simplify and expedite their operations, allowing them to quickly close their books, comply with regulatory reporting requirements, reduce costs and free their time to focus on managing their portfolios and performing other higher-value functions.

 

   

Accurate, Timely and Up-to-date Reporting: We offer transparent, on-demand and configurable views of our clients’ portfolios, accessible anytime from anywhere. Additionally, we are committed to frequent and seamless incorporation of new features and functionalities on our platform to meet the evolving business needs of our clients and the latest regulatory demands.

 

   

Powerful Network Effects: Every incremental data source from an additional client improves our global data set by making it more complete and accurate for other clients on our platform that are similarly entitled to access such data.

Our Platform

Our purpose-built single instance, multi-tenant technology platform radically simplifies our clients’ investment accounting and reporting, performance measurement, compliance monitoring and risk analytics infrastructure and workflow. Our software automates data aggregation, data reconciliation and data validation of each security in our clients’ investment portfolios. This creates a fully reconciled “Golden Copy” of investment portfolio data, which can be trusted for accurate reporting and analytics. Our clients benefit from having a comprehensive “single pane of glass” view for daily visibility into all investment data and analytics.

Purpose-Built Technology Stack

In order to deliver these powerful solutions and benefits, we purpose-built our technology stack to efficiently process millions of daily transactions in a highly scalable and efficient manner. Our platform is built on a single code base and eliminates the need for costly and time-consuming patches and upgrades across multiple, disparate software instances. As new features are developed and deployed, they are made available to all clients. Our system leverages the latest machine learning and artificial intelligence tools to ingest both structured and unstructured data that is transformed into a universal security model that enables network benefits for our clients.


 

5


Table of Contents
Index to Financial Statements

Our clients access the platform through a web-based interface that is highly configurable and provides a set of tools that enable our clients to derive actionable insights on a daily basis. This allows our clients to view their portfolio data from anywhere with an internet connection. Our intuitive, easy-to-use website allows users to view high-level portfolio information and quickly drill into portfolio specifics down to the most granular security level. Our platform also creates automated feeds to other client systems—such as trade order management systems, data warehouses, enterprise resource planning (ERP) systems and others—eliminating the need for clients to manually enter data from Clearwater’s solution into other client systems.

Our Solutions

Our solutions are offered through one unified Clearwater platform and are detailed below:

 

   

Investment Accounting and Reporting: Our accounting solution was built with the flexibility to offer operational and regulatory accounting, from the simple to the complex, on the same platform. Our solution is comprehensive in its capabilities:

 

   

Multi-asset class: We have differentiated global asset class coverage including fixed income, equities, bank loans, commercial and residential mortgages, private capital markets, derivatives and various other alternative assets;

 

   

Multi-basis: A single client can access 15 accounting bases, such as GAAP, Statutory, Tax and IFRS. Our platform has the flexibility to add new accounting bases as our clients’ needs require; and

 

   

Multi-currency: We support clients with more than 40 local currencies, 10 functional currencies and numerous reporting currencies.

Our platform offers flexible configurations and outputs, customized general ledger entries for multiple accounting bases, and regulatory completeness. A suite of standardized reports automates relevant investment-related disclosures such as Fair Value Hierarchy and Level 3 Roll-forward and can be easily configured to provide the detailed accounting information investment accountants and internal stakeholders need. Our daily reconciliation, flexible reporting and general ledger capabilities ensure that period-end close processes are efficient and accurate.

 

   

Performance Measurement: Our solution enables investors to compare separate accounts, set custom benchmarks and track the overall performance of their portfolios. Custom performance reports and return calculations are available and designed to meet applicable GIPS calculation standards for investment managers. Users can drill down into the underlying performance return data at the lot level and track performance attribution per portfolio.

 

   

Compliance Monitoring: Our users can set custom rules to monitor compliance according to their investment policies and standard applicable regulations. All investment activity is checked against those rules as often as a client requires and tracked at the security level. Compliance can be tracked across multiple policies, and notifications are automatically sent if there is a violation. Any compliance policy changes or resolutions can also be documented and referenced for internal audits.

 

   

Risk Analytics: We offer insightful risk analytics to ensure investors have access to their portfolios’ exposure every day. Our risk monitoring solution provides access to critical financial and investment portfolio risk information, so users are able to quickly answer pressing risk-related questions, including exposures by issuer, currency, country, duration, credit rating and more. Users can also view benchmark comparisons and analyze other risk factors, including cash flow forecasting, credit events, shock analysis, value at risk (VaR), and historical trends and exposures.


 

6


Table of Contents
Index to Financial Statements

Clearwater Prism

Large asset managers and insurance companies often have a constellation of point solutions and proprietary systems that are typically stitched together in a highly manual and inflexible fashion. Despite causing numerous friction points, our clients find that this legacy infrastructure is very difficult to replace at once. Our Clearwater Prism solution solves one of the most acute needs created by this heterogeneous infrastructure: the need for a single comprehensive view across systems with internally consistent data.

Our Clearwater Prism solution offers our clients a single security master and comprehensive reporting portal for all of their investment data. The Clearwater Prism solution feeds this data into our clients’ existing accounting, compliance, performance and risk systems, including those offered by both Clearwater and other third party software vendors. The outputs from each system are consolidated into one data store and reporting is provided through a single integrated portal with the same level of configurability as with Clearwater’s other solutions.

Our Clearwater Prism solution eliminates manual reconciliation of security data without the need to replace existing systems that are core to our clients’ operations and allows our clients to replace their disparate data warehouses with a single Golden Copy of all investment data and associated reports.

Our Clients

Clearwater serves a broad universe of institutional clients across multiple end-markets. Today, our largest client end-markets are asset management, insurance, and corporate treasury. We are also growing our client base in the public sector with numerous state and local governments. While these end-markets and their clients can be quite different from each other, ultimately all of our clients need timely, accurate and comprehensive information on their investments in order to effectively make capital allocation and portfolio decisions, manage risk, measure performance, comply with regulations, and communicate to various stakeholders both internally and externally. Chief Financial Officers, treasurers, controllers and Chief Operating Officers select our platform to deliver a holistic solution consisting of data aggregation, accounting book of record (ABOR), multi-basis reporting, powerful analytical tools and other key features.

As of June 30, 2021, we had over 1,000 clients across 29 countries. In addition, as of June 30, 2021, we had 50 clients that contributed at least $1,000,000 in annualized recurring revenue.

Our Growth Strategy

 

   

Deepen Our Relationships With Existing Clients. We believe our industry-leading NPS of 60+ evidences the depth of our integration into our clients’ investment operations workflows, and contributes to our ability to add incremental assets onto our platform from our existing clients. We believe our culture of client success, coupled with our leading solutions, will continue to generate differentiated levels of retention for the foreseeable future and allow us to grow as our clients grow.

 

   

Continue Expanding Within Our Core Client End-Markets. Our current core end-markets remain significantly unpenetrated today. We will continue to displace legacy products and add clients in these end-markets through our direct sales and marketing efforts and by helping our strategic asset manager clients to win new clients, which in turn brings more assets onto our platform.

 

   

Accelerate International Expansion. With new offices, leadership and sales teams now established in Europe and APAC, we are poised to reach more new clients globally moving forward. We have invested in these geographic markets, recognizing that the challenges international clients experience are very similar to those experienced by our North American clients.


 

7


Table of Contents
Index to Financial Statements
   

Continue Expanding Within Adjacent Client End-Markets. We believe there is a significant opportunity for growth by continuing to target adjacent end-markets. There is a large opportunity to tailor the regulatory reporting and performance management capabilities of our existing solutions to better serve the needs of a range of additional asset owners, such as state and local governments, pension funds, sovereign wealth funds and a variety of alternative asset managers. We believe our existing solutions are suitable to serve the needs of the clients in these end-markets. While we have onboarded our first clients in these end-markets and have built internal teams to service them, we do not currently derive a material amount of revenue from these end-markets.

 

   

Innovate and Develop Adjacent Solutions. We will continue to invest heavily in expanding our functional breadth and depth, improving user experience, increasing automation, and strengthening system performance. Historically, we have sold our solutions as one unified offering. As clients have continued to find innovative uses for our platform in other business functions, we expect to sell and price those newer modules separately.

 

   

Pursue Strategic Partnerships and Acquisitions. We may selectively pursue partnerships and acquisitions that complement our solutions, provide us access to new markets or improve our competitive positioning within existing and new markets, or that otherwise accelerate one or more of our growth objectives. For example, we will consider partnerships and acquisitions focused on improving our technology for complex assets data and our performance and risk management offerings, as well as expansion in Europe, the Middle East and Asia.

Recent Developments

As of June 30, 2021, we had $432.7 million outstanding under our existing credit agreement (as amended from time to time, the “Existing Credit Agreement”). We have entered into negotiations to enter into a new credit agreement arranged by JPMorgan Chase Bank, N.A. (the “New Credit Agreement”). It is anticipated that the New Credit Agreement will provide for a $55 million term loan facility (the “New Term Loan”) and a $125 million revolving facility (the “New Revolving Facility” and, together with the New Term Loan, the “New Facilities”). We expect to use the proceeds of the New Term Loan (and if necessary, cash on hand), to repay a portion of the indebtedness outstanding under our Existing Credit Agreement and to pay certain transaction expenses. The proceeds of the New Revolving Facility are expected to be used for working capital and other general corporate purposes. For a description of the New Credit Agreement, see “Description of Certain Indebtedness.”

Summary Risk Factors

Our business and our ability to execute our strategy are subject to many risks. Before making a decision to invest in our Class A common stock, you should carefully consider all of the risks and uncertainties described in the section of this prospectus captioned “Risk Factors” immediately following this Prospectus Summary and all of the other information in this prospectus. These risks include, but are not limited to, the following:

Risks Related to Our Business and Our Industry

 

   

We operate in a highly competitive industry, with many companies competing for business from insurance companies, asset managers, corporations and government entities on the basis of a number of factors, including the quality and breadth of solutions and services provided, ability to innovate, reputation and the prices of services, and this competition could hurt our financial performance and cash flows.

 

   

We have experienced rapid revenue growth over the past several years, which may be difficult to sustain, and we depend on attracting and retaining top talent to continue growing and operating our business, and if we are unable to hire, integrate, develop, motivate and retain our personnel, we may


 

8


Table of Contents
Index to Financial Statements
 

not be able to maintain or manage our growth, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

   

We are dependent on fees based on the value of the assets on our platform for the vast majority of our revenues, and to the extent market volatility, a downturn in economic conditions or other factors cause negative trends or fluctuations in the value of the assets on our platform, our fee-based revenue and earnings may decline.

 

   

Our clients may seek to negotiate a lower fee percentage or may cease using our services, which could limit the growth of, or decrease, our revenues.

 

   

The COVID-19 pandemic has caused, and is causing, significant harm to the global economy, which in turn could have a material adverse effect on our business, financial condition or results of operations.

 

   

If our investment accounting and reporting solutions, regulatory reporting solutions or risk management or performance analytics solutions fail to perform properly due to undetected errors or similar problems, our business, financial condition, reputation or results of operations could be materially adversely affected.

 

   

We could face liability or incur costs to remediate operational errors or to address possible client dissatisfaction.

 

   

We are substantially dependent on our intellectual property rights, and a failure to protect these rights could adversely affect our business, financial condition or results of operations.

 

   

Our business relies heavily on computer equipment, cloud-based services, electronic delivery systems, networks and telecommunications systems and infrastructure, the Internet and the information technology systems of third parties. Any failures or disruptions in any of the foregoing could result in reduced revenues, increased costs and the loss of clients and could harm our business, financial condition, reputation and results of operations.

 

   

If sources from which we obtain information limit our access to such information or institute or increase fees for accessing such information, our business could be materially and adversely harmed.

 

   

We could face liability for certain information we provide, including information based on data we obtain from other parties.

 

   

If we or our third-party service providers suffer a cybersecurity event, our reputation may be harmed, we may lose clients and we may incur significant liabilities, any of which would harm our business and results of operations.

 

   

Changes to the laws or regulations applicable to us or to our asset manager or insurance industry clients could adversely affect our business, financial condition or results of operations.

 

   

We invest significantly in growth and research and development, and to the extent our research and development investments do not translate into new solutions and services or material enhancements to our current solutions and services, or if we do not use those investments efficiently, our business and results of operations would be harmed.

 

   

As a global organization, our business is susceptible to risks associated with our international operations.

Risks Related to This Offering and Our Class A Common Stock

 

   

We will be a holding company and our principal asset after completion of the Transactions and this offering will be our interest in CWAN Holdings, LLC and, accordingly, we will depend on distributions from CWAN Holdings, LLC to pay our taxes and expenses, including payments under the


 

9


Table of Contents
Index to Financial Statements
 

Tax Receivable Agreement. CWAN Holdings, LLC’s ability to make such distributions may be subject to various limitations and restrictions.

 

   

Conflicts of interest could arise between our shareholders and the Principal Equity Owners, which may impede business decisions that could benefit our shareholders.

 

   

The Tax Receivable Agreement requires us to make cash payments to the Continuing Equity Owners and the Blocker Shareholders in respect of certain tax benefits to which we may become entitled, and we expect that the payments we will be required to make will be substantial.

 

   

The Principal Equity Owners will continue to have significant influence over us after this offering, including control over decisions that require the approval of stockholders, which could limit your ability to influence the outcome of matters submitted to stockholders for a vote.

 

   

Following the offering, we will be classified as a “controlled company,” and as a result, we qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.

Summary of the Transactions

Clearwater Analytics Holdings, Inc., a Delaware corporation, was formed on May 18, 2021 and is the issuer of the Class A common stock offered by this prospectus. Prior to this offering, all of our business operations have been conducted through Carbon Analytics Holdings, LLC and its direct and indirect subsidiaries. In connection with this offering, Carbon Analytics Holdings, LLC changed its name to CWAN Holdings, LLC. Prior to the Transactions, we expect there will initially be one holder of common stock of Clearwater Analytics Holdings, Inc. The following organizational transactions will be consummated in connection with this offering:

 

   

we will amend and restate the existing limited liability company agreement of CWAN Holdings, LLC, which will become effective substantially concurrently with or prior to the consummation of this offering, to, among other things, (1) recapitalize all existing ownership interests in CWAN Holdings, LLC into one class of LLC Interests, (2) appoint Clearwater Analytics Holdings, Inc. as the sole managing member of CWAN Holdings, LLC, (3) for strategic business and tax reasons, including to provide liquidity for certain holders of LLC Interests, provide that the Other Continuing Equity Owners are entitled to exchange LLC Interests, together with an equal number of shares of Class B common stock, for shares of Class A common stock on a one-for-one basis or, at our election, for an amount in cash representing the fair market value of shares of Class A common stock net of any underwriters’ discounts, commissions and brokers’ fees that would be payable in connection with a registered offering of such shares as calculated in accordance with the LLC Agreement and (4) for strategic business and tax reasons, including to provide liquidity for certain holders of LLC Interests, provide that Principal Equity Owners are entitled to exchange LLC Interests, together with an equal number of shares of Class C common stock, for shares of Class D common stock on a one-for-one basis or, at our election, for an amount in cash representing the fair market value of shares of Class A common stock net of any underwriters’ discounts, commissions and brokers’ fees that would be payable in connection with a registered offering of such shares as calculated in accordance with the LLC Agreement;

 

   

we will amend and restate Clearwater Analytics Holdings, Inc.’s certificate of incorporation to, among other things, provide (1) for Class A common stock, with each share of our Class A common stock entitling its holder to one vote per share on all matters presented to our stockholders generally, (2) for Class B common stock, with each share of our Class B common stock entitling its holder to one vote per share on all matters presented to our stockholders generally but without economic rights, and that shares of our Class B common stock may only be held by the Other Continuing Equity Owners and their respective Permitted Transferees as described in “Description of Capital Stock—Common Stock—Class B Common Stock,” (3) for Class C common stock, with each share of our Class C


 

10


Table of Contents
Index to Financial Statements
 

common stock entitling its holder to ten votes per share on all matters presented to our stockholders generally but without economic rights, and that shares of our Class C common stock may only be held by the Principal Equity Owners and their respective permitted transferees as described in “Description of Capital Stock—Common Stock—Class C Common Stock” and (4) for Class D common stock, with each share of our Class D common stock entitling its holder to ten votes per share on all matters presented to our stockholders generally, and that shares of our Class D common stock may only be held by the Principal Equity Owners and their respective permitted transferees as described in “Description of Capital Stock—Common Stock—Class D Common Stock”; The holders of Class B common stock and Class C common stock will have no economic interests in Clearwater Analytics Holdings, Inc. (where “economic interests” means the right to receive any dividends or distributions, whether cash or stock, in connection with common stock). Each share of our Class C common stock and Class D common stock will automatically convert into a share of our Class B common stock and our Class A common stock, respectively, upon the earlier of (i) the date that affiliates of Welsh Carson own less than 5% of our common stock and (ii) the date that is seven years following the closing of our initial public offering. The attributes of our 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  

 

   

we will acquire, by means of one or more mergers, the Blocker Entities (the “Blocker Mergers”), with Clearwater Analytics Holdings, Inc. remaining as the surviving corporation, and will (1) issue to the Blocker Shareholders 12,866,089 shares of our Class A common stock, in the case of Other Continuing Equity Owners, and 134,121,127 shares of our Class D common stock, in the case of the Principal Equity Owners, in exchange for all of the Blocker Shareholders’ equity interests in the Blocker Entities, which indirectly includes their LLC Interests, and (2) enter into a tax receivable agreement (the “Tax Receivable Agreement”), each as consideration for the Blocker Mergers;

 

   

we will issue 11,151,110 shares of our Class B common stock to the Other Continuing Equity Owners, which is equal to the number of LLC Interests held by such Other Continuing Equity Owners;

 

   

we will issue 43,340,216 shares of our Class C common stock to the Principal Equity Owners, which is equal to the number of LLC Interests held by such Principal Equity Owners;

 

   

we will issue 30,000,000 shares of our Class A common stock to the purchasers in this offering (or 34,500,000 shares if the underwriters exercise in full their option to purchase additional shares of Class A common stock) in exchange for net proceeds of approximately $412.4 million (or approximately $475.7 million if the underwriters exercise in full their option to purchase additional shares of Class A common stock) based upon an assumed initial public offering price of $15.00 per share (which is the midpoint of the estimated price range set forth on the cover page of this prospectus), less the underwriting discounts and commissions and estimated offering expenses payable by us;

 

   

we will use a portion of the net proceeds from this offering to purchase 30,000,000 LLC Interests (or 34,500,000 LLC Interests if the underwriters exercise in full their option to purchase additional shares of Class A common stock) from CWAN Holdings, LLC at a price per unit equal to the initial public offering price per share of Class A common stock in this offering less the underwriting discounts and commissions; and

 

   

Clearwater Analytics Holdings, Inc. will enter into (1) a second amended and restated registration rights agreement (the “Registration Rights Agreement”) with certain of the Continuing Equity Owners, (2) the Tax Receivable Agreement with certain of the Continuing Equity Owners and the Blocker


 

11


Table of Contents
Index to Financial Statements
 

Shareholders, (3) tax receivable bonus agreements with certain of our executive officers (the “TRA Bonus Agreements”) and (4) a stockholders’ agreement (the “Stockholders’ Agreement”) with the Principal Equity Owners. For a description of the terms of the Registration Rights Agreement, the Tax Receivable Agreement and the Stockholders’ Agreement, see “Certain Relationships and Related Party Transactions” and a description of the terms of the TRA Bonus Agreements, see “Executive Compensation—TRA Bonus Agreements.”

Immediately following the consummation of the Transactions (including this offering):

 

   

Clearwater Analytics Holdings, Inc. will be a holding company and its principal asset will consist of LLC Interests it acquires as a result of (i) the purchase of such LLC Interests with the net proceeds of this offering and (ii) the Blocker Mergers;

 

   

Clearwater Analytics Holdings, Inc. will directly own 176,987,215 LLC Interests of CWAN Holdings, LLC, representing approximately 76.5% of the economic interest in CWAN Holdings, LLC (or 181,487,215 LLC Interests, representing approximately 76.9% of the economic interest in CWAN Holdings, LLC if the underwriters exercise in full their option to purchase additional shares of Class A common stock);

 

   

Clearwater Analytics Holdings, Inc. will be the sole managing member of CWAN Holdings, LLC and will control the business and affairs of CWAN Holdings, LLC and its direct and indirect subsidiaries;

 

   

the Other Continuing Equity Owners will own (1) 11,151,110 LLC Interests of CWAN Holdings, LLC, representing approximately 4.8% of the economic interest in CWAN Holdings, LLC (or approximately 4.7% of the economic interest in CWAN Holdings, LLC if the underwriters exercise in full their option to purchase additional shares of Class A common stock), (2) 12,866,089 shares of Class A common stock of Clearwater Analytics Holdings, Inc., representing approximately 0.7% of the combined voting power of all of Clearwater Analytics Holdings, Inc.’s common stock and approximately 7.3% of the economic interest in Clearwater Analytics Holdings, Inc. (or approximately 0.7% of the combined voting power and approximately 7.0% of the economic interest if the underwriters exercise in full their option to purchase additional shares of Class A common stock), and (3) 11,151,110 shares of Class B common stock of Clearwater Analytics Holdings, Inc., representing in aggregate approximately 0.6% of the combined voting power of all of Clearwater Analytics Holdings, Inc.’s common stock (or approximately 0.6% of the combined voting power of all of Clearwater Analytics Holdings, Inc.’s common stock if the underwriters exercise in full their option to purchase additional shares of Class A common stock) and no economic interest in us;

 

   

the Principal Equity Owners will own (1) 43,340,216 LLC Interests of CWAN Holdings, LLC, representing approximately 18.7% of the economic interest in CWAN Holdings, LLC (or approximately 18.4% of the economic interest in CWAN Holdings, LLC if the underwriters exercise in full their option to purchase additional shares of Class A common stock), (2) 43,340,216 shares of Class C common stock of Clearwater Analytics Holdings, Inc., representing in aggregate approximately 23.7% of the combined voting power of all of Clearwater Analytics Holdings, Inc.’s common stock (or approximately 23.6% of the combined voting power of all of Clearwater Analytics Holdings, Inc.’s common stock if the underwriters exercise in full their option to purchase additional shares of Class A common stock) and no economic interest in us, and (3) 134,121,127 shares of Class D common stock, representing approximately 73.3% of the combined voting power of all of Clearwater Analytics Holdings, Inc.’s common stock and approximately 75.8% of the economic interest in Clearwater Analytics Holdings, Inc. (or approximately 73.2% of the combined voting power and approximately 73.9% of the economic interest if the underwriters exercise in full their option to purchase additional shares of Class A common stock); and

 

   

the purchasers in this offering will own (1) 30,000,000 shares of Class A common stock of Clearwater Analytics Holdings, Inc. (or 34,500,000 shares of Class A common stock of Clearwater Analytics Holdings, Inc. if the underwriters exercise in full their option to purchase additional shares of Class A


 

12


Table of Contents
Index to Financial Statements
 

common stock), representing approximately 1.6% of the combined voting power of all of Clearwater Analytics Holdings, Inc.’s common stock and approximately 17.0% of the economic interest in Clearwater Analytics Holdings, Inc. (or approximately 1.9% of the combined voting power and approximately 19.0% of the economic interest if the underwriters exercise in full their option to purchase additional shares of Class A common stock), and (2) through Clearwater Analytics Holdings, Inc.’s ownership of LLC Interests, indirectly will hold approximately 13.0% of the economic interest in CWAN Holdings, LLC (or approximately 14.6% of the economic interest in CWAN Holdings, LLC if the underwriters exercise in full their option to purchase additional shares of Class A common stock).

Immediately following this offering, we will be a holding company, and our principal asset will consist of LLC Interests of CWAN Holdings, LLC. As the sole managing member of CWAN Holdings, LLC, we will operate and control all of the business and affairs of CWAN Holdings, LLC. Accordingly, although we will have a minority economic interest in CWAN Holdings, LLC, we will have the sole voting interest in, and control the management of, CWAN Holdings, LLC. Our corporate structure following this offering, as described above, is commonly referred to as an “Up-C” structure, which is often used by partnerships and limited liability companies when they undertake an initial public offering of their business. The Up-C structure will allow the Continuing Equity Owners to retain their equity ownership in CWAN Holdings, LLC and to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership, or “passthrough” entity, for U.S. federal income tax purposes following the offering. For more information regarding our structure after the completion of the Transactions, including this offering, see “Organizational Structure” and “Risk Factors—Risks Related to Our Organizational Structure.”


 

13


Table of Contents
Index to Financial Statements

Ownership Structure

The diagram below depicts our organizational structure after giving effect to the Transactions, including this offering, assuming no exercise by the underwriters of their option to purchase additional shares of Class A common stock.

 

LOGO


 

14


Table of Contents
Index to Financial Statements

Our Principal Equity Owners

Welsh Carson

For over 40 years, Welsh Carson has partnered with outstanding management teams to build leading healthcare and technology companies. Welsh Carson has raised funds with aggregate commitments of approximately $27.0 billion. Welsh Carson targets business-to-business sectors with strong growth and minimal cyclicality and focuses on companies with recurring revenue, sustainable unit economics and quantifiable customer value propositions. Welsh Carson has invested in over 100 technology investments, representing more than $12.0 billion. Selected current and past investments include Avetta, Global Collect, Green Street, Paycom, Quickbase, SRS Indentifix and TransFirst.

Warburg Pincus

Warburg Pincus is a global private equity firm focused on growth investing. The firm’s active portfolio of more than 205 companies is highly diversified by stage, sector and geography, and the firm is an experienced partner to management teams seeking to build durable companies with sustainable value. Founded in 1966, Warburg Pincus has raised 19 private equity funds with capital commitments totaling $99 billion and has invested more than $94 billion in over 940 companies in more than 40 countries. The firm is headquartered in New York with offices in Beijing, Berlin, Hong Kong, Houston, London, Mumbai, San Francisco, São Paulo, Shanghai and Singapore.

Permira

Permira is a leading global investment firm founded in 1985 that invests in successful businesses with growth ambitions. The firm advises the Permira funds with total committed capital of approximately $50 billion (€44 billion) and makes long-term majority and minority investments. The Permira funds have made over 250 private equity investments in four key sectors: Technology, Consumer, Services and Healthcare. The Permira funds have an extensive track record in tech investing, having invested $13.4 billion in 52 companies across enterprise cloud, SaaS, fintech and online marketplaces. The Permira funds have previously backed and helped scale some of the largest and fastest-growing internet and technology businesses globally, including Informatica, Genesys, G2, Klarna, LegalZoom, Allegro, TeamViewer and Zwift. Permira employs over 350 people in 15 offices across Europe, North America, and Asia.

Stockholders’ Agreement

Effective upon the completion of the offering, we will enter into the Stockholders’ Agreement with the Principal Equity Owners (and their respective permitted transferees thereunder party thereto from time to time). Pursuant to the Stockholders’ Agreement, Welsh Carson, Permira and Warburg Pincus will have the right to designate certain of our directors from time to time. The Principal Equity Owners will each additionally agree to take all necessary action, including voting their respective shares of common stock, to cause the election of the directors nominated pursuant to the Stockholders’ Agreement, and will each be entitled to propose the replacement of any of its board nominees whose board service ceases for any reason for so long as such Principal Equity Owner continues to have the right to nominate an individual to such director position. See “Risk Factors—Risks Related to This Offering and Our Class A Common Stock—Provisions in our certificate of incorporation and bylaws, to be adopted upon the consummation of this offering, may have the effect of delaying or preventing a change of control or changes in our management” and “Certain Relationships and Related Party Transactions—Stockholders’ Agreement.”


 

15


Table of Contents
Index to Financial Statements

Corporate Information

Clearwater Analytics Holdings, Inc., the issuer of the Class A common stock in this offering, was incorporated as a Delaware corporation on May 18, 2021. Our principal executive offices are located at 777 W. Main Street, Suite 900, Boise, ID 83702 and our telephone number is (208) 918-2400. Our principal website address is https://clearwater-analytics.com. Information contained in, or accessible through, our website is not a part of, and is not incorporated into, this prospectus.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of relief from certain reporting requirements and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

   

presenting only two years of audited financial statements;

 

   

an exemption from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”);

 

   

reduced disclosure about our executive compensation arrangements in our periodic reports, proxy statements and registration statements; and

 

   

exemptions from the requirements of holding nonbinding advisory votes on executive compensation or golden parachute arrangements.

In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards, and therefore, we will not be subject to the same new or revised accounting standards at the same time as other public companies that are not emerging growth companies or those that have opted out of using such extended transition period, which may make comparison of our financial statements with such other public companies more difficult. We may take advantage of these reporting exemptions until we no longer qualify as an emerging growth company or, with respect to adoption of certain new or revised accounting standards, until we irrevocably elect to opt out of using the extended transition period.

We will remain an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; and (iv) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC.


 

16


Table of Contents
Index to Financial Statements

THE OFFERING

 

Issuer

Clearwater Analytics Holdings, Inc.

 

Class A Common Stock Offered by Us

30,000,000 shares (or 34,500,000 shares if the underwriters exercise in full their option to purchase additional shares).

 

Underwriters’ Option to Purchase Additional Shares of Class A Common Stock from Us

4,500,000 shares.

 

Shares of Class A Common Stock to Be Outstanding Immediately After This Offering

42,866,089 shares, representing approximately 2.3% of the combined voting power of all of Clearwater Analytics Holdings, Inc.’s common stock, 24.2% of the economic interest in Clearwater Analytics Holdings, Inc. and 18.5% of the indirect economic interest in CWAN Holdings, LLC.

 

Shares of Class B Common Stock to Be Outstanding Immediately After This Offering

11,151,110 shares of Class B common stock, representing approximately 0.6% of the combined voting power of all of Clearwater Analytics Holdings, Inc.’s common stock and no economic interest in Clearwater Analytics Holdings, Inc.

 

Shares of Class C Common Stock to Be Outstanding Immediately After This Offering

43,340,216 shares of Class C common stock, representing approximately 23.7% of the combined voting power of all of Clearwater Analytics Holdings, Inc.’s common stock and no economic interest in Clearwater Analytics Holdings, Inc.

 

Shares of Class D Common Stock to Be Outstanding Immediately After This Offering

134,121,127 shares of Class D, representing approximately 73.3% of the combined voting power of all of Clearwater Analytics Holdings, Inc.’s common stock, 75.8% of the economic interest in Clearwater Analytics Holdings, Inc. and 57.9% of the indirect economic interest in CWAN Holdings, LLC.

 

LLC Interests to Be Held Directly by Us Immediately After This Offering

176,987,215 LLC Interests, representing approximately 76.5% of the economic interest in CWAN Holdings, LLC (or 181,487,215 LLC Interests, representing approximately 76.9% of the economic interest in CWAN Holdings, LLC if the underwriters exercise in full their option to purchase additional shares of Class A common stock).

 

17


Table of Contents
Index to Financial Statements

LLC Interests to Be Held Directly by the Other Continuing Equity Owners Immediately After This Offering

11,151,110 LLC Interests, representing approximately 4.8% of the economic interest in CWAN Holdings, LLC (or approximately 4.7% of the economic interest in CWAN Holdings, LLC if the underwriters exercise in full their option to purchase additional shares of Class A common stock).

 

LLC Interests to Be Held Directly by the Principal Equity Owners Immediately After This Offering

43,340,216 LLC Interests, representing approximately 18.7% of the economic interest in CWAN Holdings, LLC (or approximately 18.4% of the economic interest in CWAN Holdings, LLC if the underwriters exercise in full their option to purchase additional shares of Class A common stock).

 

Ratio of Shares of Class A Common Stock and Class D Common Stock to LLC Interests

Our amended and restated certificate of incorporation and the LLC Agreement will require that we and CWAN Holdings, LLC at all times maintain a one-to-one ratio between the aggregate number of shares of Class A common stock and shares of Class D common stock issued by us and the number of LLC Interests owned by us, except as otherwise determined by us.

 

Ratio of Shares of Class B Common Stock and Class C Common Stock to LLC Interests

Our amended and restated certificate of incorporation and the LLC Agreement will require that we and CWAN Holdings, LLC at all times maintain a one-to-one ratio between the number of shares of Class B common stock and Class C common stock owned by the Other Continuing Equity Owners and the Principal Equity Owners, respectively, and their respective permitted transferees, and the number of LLC Interests owned by such Continuing Equity Owners and Principal Equity Owners, respectively, and their respective permitted transferees, except as otherwise determined by us. Immediately after the Transactions, the Continuing Equity Owners and Principal Equity Owners, respectively, will collectively own 100% of the outstanding shares of our Class B common stock and our Class C common stock.

 

Permitted Holders of Shares of Class B Common Stock, Class C Common Stock and Class D Common Stock

Only the Other Continuing Equity Owners and the Permitted Transferees of Class B common stock as described in this prospectus will be permitted to hold shares of our Class B common stock. Only the Principal Equity Owners and the permitted transferees of Class C common stock and Class D common stock as described in this prospectus will be permitted to hold shares of our Class C common stock and shares of our Class D common stock. Shares of Class B common stock are exchangeable for shares of Class A common stock only together with an equal number of LLC Interests. Shares of Class C


 

18


Table of Contents
Index to Financial Statements
 

common stock are exchangeable for shares of Class D common stock only together with an equal number of LLC Interests. See “Certain Relationships and Related Party Transactions—LLC Agreement.”

 

Voting Rights

Holders of shares of our Class A common stock, Class B common stock, Class C common stock and Class D common stock will vote together as a single class on all matters presented to stockholders for their vote or approval, except as otherwise required by law or our amended and restated certificate of incorporation. Each share of our Class A common stock entitles its holders to one vote per share, each share of our Class B common stock entitles its holders to one vote per share, each share of our Class C common stock entitles its holders to ten votes per share and each share of our Class D common stock entitles its holders to ten votes per share on all matters presented to our stockholders generally. Each share of our Class C common stock and Class D common stock will automatically convert into a share of our Class B common stock and our Class A common stock, respectively, upon the earlier of (i) the date that affiliates of Welsh Carson own less than 5% of our common stock and (ii) the date that is seven years following the closing of our initial public offering. See “Description of Capital Stock.”

 

Exchange and Redemption Rights of Holders of LLC Interests

The Continuing Equity Owners may, subject to certain exceptions, periodically at their option require CWAN Holdings, LLC to redeem all or a portion of their LLC Interests in exchange for, at our election (determined solely by a majority of our directors who are disinterested), newly issued shares of our Class A common stock (in the case of Other Continuing Equity Owners) and shares of our Class D common stock (in the case of the Principal Equity Owners) on a one-for-one basis or cash, in each case, in accordance with the terms of the LLC Agreement; provided that, at our election (determined solely by a majority of our directors who are disinterested), we may effect a direct exchange by Clearwater Analytics Holdings, Inc. of such Class A common stock, Class D common stock or such cash, as applicable, for such LLC Interests. The Continuing Equity Owners may, subject to certain exceptions, exercise such redemption right for as long as their LLC Interests remain outstanding. See “Certain Relationships and Related Party Transactions—LLC Agreement.” Simultaneously with the payment of cash or shares of Class A common stock or shares of Class D common stock, as applicable, in connection with a redemption or exchange of LLC Interests pursuant to the terms of the LLC Agreement, a number of shares of our Class B common stock or Class C common stock, as the case may be, registered in the name of the redeeming or exchanging Continuing Equity Owner will automatically be transferred to the Company and will be cancelled for no consideration on a one-for-one basis with the number of LLC Interests so redeemed or exchanged.

 

19


Table of Contents
Index to Financial Statements

Tax Receivable Agreement

We intend to enter into a Tax Receivable Agreement with certain of the Continuing Equity Owners and the Blocker Shareholders and TRA Bonus Agreements with certain of our executive officers substantially concurrently with or prior to the consummation of this offering. The Tax Receivable Agreement provides for the payment by us to certain of the Continuing Equity Owners and the Blocker Shareholders, collectively, of 85% (less payments made under TRA Bonus Agreements) of the amount of tax benefits, if any, that we actually realize, or in some circumstances are deemed to realize, as a result of (i) Clearwater Analytics Holdings, Inc.’s allocable share of the Blocker Entities’ share of existing tax basis acquired in connection with the Transactions and certain tax attributes of the Blocker Entities, like net operating losses, to which Clearwater Analytics Holdings, Inc. will be the successor as a result of the Transactions, (ii) certain increases in the tax basis of assets of CWAN Holdings, LLC and its subsidiaries resulting from purchases or exchanges of LLC Interests, (iii) payments made under TRA Bonus Agreements and (iv) certain other tax benefits related to our entering into the Tax Receivable Agreement, including tax benefits attributable to certain payments that we make under the Tax Receivable Agreement (collectively, the “Tax Attributes”). The payment obligations under the Tax Receivable Agreement are not conditioned upon any LLC Interest holder maintaining a continued ownership interest in us or CWAN Holdings, LLC and the rights of the Continuing Equity Owners and the Blocker Shareholders under the Tax Receivable Agreement are assignable. We expect to benefit from the remaining 15% (taking into account amounts paid pursuant to the TRA Bonus Agreements) of the tax benefits, if any, that we may actually realize. The actual Tax Attributes, as well as any amounts paid to the Continuing Equity Owners and the Blocker Shareholders under the Tax Receivable Agreement, will vary depending on a number of factors, including the timing of any future exchanges, the price of shares of our Class A common stock at the time of any future exchanges, the extent to which such exchanges are taxable, the amount and timing of any payments under TRA Bonus Agreements, the amount and timing of our income and applicable tax rates. The payment obligations under the Tax Receivable Agreement are obligations of Clearwater Analytics Holdings, Inc. and not of CWAN Holdings, LLC. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement” and “Executive Compensation—TRA Bonus Agreements.”

 

Use of Proceeds

We expect to receive net proceeds in this offering of approximately $412.4 million based on an assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and offering expenses payable by us.

 

20


Table of Contents
Index to Financial Statements
  Clearwater Analytics Holdings, Inc. intends to use the net proceeds from this offering, together with the proceeds from the New Term Loan, to (i) purchase 30,000,000 LLC Interests (or 34,500,000 LLC Interests if the underwriters exercise in full their option to purchase additional shares of Class A common stock) from CWAN Holdings, LLC at a price per unit equal to the initial public offering price per share of Class A common stock in this offering less the underwriting discounts and commissions and (ii) repay approximately $432.7 million of outstanding borrowings under the Existing Credit Agreement and pay any associated prepayment penalties and accrued and unpaid interest to the date of repayment. We intend to use remaining proceeds, if any, for general corporate purposes to support the growth of the business. See “Use of Proceeds” for additional information.

 

Controlled Company

Upon completion of this offering, the Principal Equity Owners will continue to beneficially own more than 50% of the voting power of our outstanding common stock. As a result, we intend to avail ourselves of the “controlled company” exemptions under the rules of NYSE, including exemptions from certain of the corporate governance listing requirements. See “Management—Controlled Company Exemption” and “Certain Relationships and Related Party Transactions.”

 

Dividend Policy

We currently do not anticipate paying any cash dividends on our Class A common stock or Class D common stock after this offering or for the foreseeable future. Instead, we anticipate that all of our available funds and earnings in the foreseeable future will be used to repay indebtedness, for working capital, to support our operations and to finance the growth and development of our business. Any future determination relating to dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including restrictions in our and our subsidiaries’ current and future debt instruments, future earnings, capital requirements, financial condition and prospects, and applicable Delaware law, which provides that dividends are only payable out of surplus or current net profits. Holders of our Class B common stock and our Class C common stock are not entitled to participate in any dividends declared by our board of directors. Furthermore, because we are a holding company, our ability to pay cash dividends on our Class A common stock depends on our receipt of cash distributions from CWAN Holdings, LLC and, through CWAN Holdings, LLC, cash distributions and dividends from our other direct and indirect subsidiaries. See “Dividend Policy.”

 

Listing

We have applied to list our Class A common stock on NYSE under the symbol “CWAN.”

 

Risk Factors

See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our Class A common stock.

 

21


Table of Contents
Index to Financial Statements

Reserved Share Program

At our request, the underwriters have reserved for sale, at the initial public offering price, up to 5% of the Class A common stock offered by this prospectus for sale to certain of our directors, officers and employees through a reserved share program (the “Reserved Share Program”). The sale of shares will be made by Morgan Stanley & Co. LLC. If these persons purchase reserved shares, it will reduce the number of shares of Class A common stock available for sale to the general public. Any reserved shares of Class A common stock that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of Class A common stock offered by this prospectus. See “Underwriting.”

 

Indications of Interest

One or more funds and/or accounts affiliated with Wellington Management, Dragoneer Investment Group, LLC and Durable Capital have indicated an interest, severally and not jointly, in purchasing up to an aggregate of $150 million in shares in this offering at the initial public offering price. Because this indication of interest is not a binding agreement or commitment to purchase, the funds and/or accounts affiliated with Wellington Management, Dragoneer Investment Group, LLC and Durable Capital may determine to purchase more, less or no shares in this offering or the underwriters may determine to sell more, less or no shares to any of the funds and/or accounts affiliated with Wellington Management, Dragoneer Investment Group, LLC and Durable Capital. The underwriters will receive the same discount on any of our shares purchased by the funds and/or accounts affiliated with Wellington Management, Dragoneer Investment Group, LLC and Durable Capital.

Unless we specifically state otherwise or the context otherwise requires, the share information in this prospectus is based on the number of shares outstanding as of September 10, 2021:

 

   

assumes an initial public offering price of $15.00, the midpoint of the estimated price range set forth on the cover page of this prospectus;

 

   

assumes no exercise of the underwriters’ option to purchase up to an additional 4,500,000 shares of Class A common stock from us in this offering;

 

   

excludes 23,004,276 shares of Class A common stock issuable upon the exercise of outstanding options as of September 10, 2021, at a weighted average exercise price of $8.35 per share, under our new 2021 omnibus incentive plan (the “2021 Plan”);

 

   

excludes 375,000 shares of Class A common stock issuable upon the vesting of restricted stock units (“RSUs”) in equal installments annually until June 28, 2025, under our 2021 Plan;

 

   

excludes 1,685,625 shares of our Class A common stock issued upon the vesting and settlement of certain performance-based RSUs and service-based RSUs issuable to certain of our employees and executive officers, pursuant to our 2021 Plan, as more fully described in the section titled “Executive Compensation—Equity Incentive Compensation—Equity Awards Under the 2021 Plan”;

 

   

does not reflect the issuance of up to 20,304,836 shares of Class A common stock that are reserved for future grants or sale under the 2021 Plan; and

 

   

does not reflect the issuance of up to 3,472,178 shares of Class A common stock reserved for future sale under our new 2021 Employee Stock Purchase Plan (the “ESPP”).


 

22


Table of Contents
Index to Financial Statements

SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

The following table presents summary historical consolidated financial data for CWAN Holdings, LLC and its subsidiaries as of the dates and for the periods indicated, as well as certain pro forma financial data of CWAN Holdings, LLC and Clearwater Analytics Holdings, Inc. The summary consolidated statements of operations data and statements of cash flows data for the years ended December 31, 2020 and 2019 and the summary consolidated balance sheet data as of December 31, 2020 and 2019 are derived from the audited consolidated financial statements of CWAN Holdings, LLC included elsewhere in this prospectus. The summary consolidated statements of operations data and statements of cash flows data for the six months ended June 30, 2021 and 2020 and the summary consolidated balance sheet data as of June 30, 2021 are derived from the unaudited interim condensed consolidated financial statements of CWAN Holdings, LLC included elsewhere in this prospectus.

Historically, our business has been operated through Carbon Analytics Holdings, LLC, together with its subsidiaries. In connection with this offering, Carbon Analytics Holdings, LLC changed its name to CWAN Holdings, LLC. Clearwater Analytics Holdings, Inc. was formed for the purpose of this offering and has engaged to date only in activities in contemplation of this offering. Upon the completion of this offering, Clearwater Analytics Holdings, Inc. will be a holding company and all of our business will continue to be conducted through CWAN Holdings, LLC, together with its subsidiaries, and the financial results of CWAN Holdings, LLC will be consolidated in our financial statements. For more information regarding the organizational transactions and holding company structure, see “Organizational Structure.”

The unaudited interim condensed consolidated financial statements include all normal recurring adjustments necessary, in the opinion of management, to summarize the financial positions and results for the period presented. Our historical results are not necessarily indicative of our results to be expected in any future period, and the historical results for the six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the full year.

The unaudited pro forma consolidated balance sheet data as of June 30, 2021 presents the consolidated financial position of CWAN Holdings, LLC after giving pro forma effect to the Transactions, excluding this offering, and Clearwater Analytics Holdings, Inc. as adjusted for this offering and the contemplated use of the net proceeds from this offering as described under “Organizational Structure” and “Use of Proceeds” as if such transactions had occurred as of the balance sheet date. The unaudited pro forma consolidated statements of operations data for the year ended December 31, 2020 and the six months ended June 30, 2021 present the consolidated results of operations of CWAN Holdings, LLC after giving pro forma effect to the Transactions, excluding this offering, and Clearwater Analytics Holdings, Inc. as adjusted for this offering and the contemplated use of the net proceeds from this offering as described under “Organizational Structure” and “Use of Proceeds” as if such transactions had occurred on January 1, 2020. The pro forma adjustments are based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of the Transactions, excluding this offering, and as further adjusted for this offering, on the historical financial information of CWAN Holdings, LLC. The unaudited pro forma consolidated financial information is subject to change based on the actual initial public offering price, the number of shares of our Class A common stock sold in this offering and other terms of this offering determined at pricing. The unaudited pro forma consolidated financial information is included for informational purposes only and does not purport to reflect the results of operations or financial position of Clearwater Analytics Holdings, Inc. had it operated as a standalone public company during the periods presented.

The summary of our consolidated financial data, our condensed consolidated interim financial data and the pro forma financial data set forth below should be read together with our consolidated financial statements and our condensed consolidated interim financial statements and the related notes, as well as the sections captioned


 

23


Table of Contents
Index to Financial Statements

“Unaudited Pro Forma Consolidated Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus.

 

     CWAN Holdings, LLC     Pro Forma Clearwater
Analytics Holdings, Inc.
 
     Six Months Ended

June 30,
    Years Ended

December 31,
    Six Months Ended
June 30,
2021
    Year Ended
December 31,
2020
 
     2021     2020     2020     2019  
     (unaudited)              
     ($ in thousands, except per share amounts)  

Consolidated Statements of Operations Data:

            

Revenue

   $ 117,770     $ 95,109     $ 203,222     $ 168,001     $ 117,770     $ 203,222  

Cost of revenue

     29,898       26,891       53,263       47,145       31,274       56,014  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     87,872       68,218       149,959       120,856       86,496       147,208  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

            

Research and development

     32,576       24,069       55,262       39,275       36,285       62,680  

Sales and marketing

     16,025       8,600       22,243       19,082       17,917       26,029  

General and administrative

     18,727       10,974       43,874       36,802       22,134       50,688  

Recapitalization compensation expenses

     —         —         48,998       —         —         48,998  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     67,328       43,643       170,377       95,159       76,336       188,395  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     20,544       24,575       (20,418     25,697       10,160       (41,187
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest and other expense, net

     (17,024     (10,730     (22,910     (17,892     (9,424     (8,048
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     3,520       13,845       (43,328     7,805       736       (49,235

Income taxes

     320       210       902       73       320       902  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 3,200     $ 13,635     $ (44,230   $ 7,732     $ 416     $ (50,137
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to non-controlling interest

             98       (11,768
          

 

 

   

 

 

 

Net income (loss) attributable to Clearwater Analytics Holdings, Inc(1).

           $ 318     $ (38,369
          

 

 

   

 

 

 

 

24


Table of Contents
Index to Financial Statements
     CWAN Holdings, LLC      CWAN Holdings,
LLC
     Pro Forma
Clearwater
Analytics
Holdings, Inc.(2)
 
     As of December 31,      As of June 30, 2021  
     2020      2019      (unaudited)  
     (in thousands)  

Consolidated Balance Sheet Data:

           

Cash and cash equivalents

   $ 61,088      $ 20,254      $ 41,031      $ 74,574  

Total assets

   $ 115,559      $ 63,968      $ 120,498      $ 152,441  

Total liabilities

   $ 460,167      $ 264,690      $ 449,736      $ 78,077  

Total liabilities and members’ deficit

   $ 115,559      $ 63,968      $ 120,498      $ 152,441  

 

     CWAN Holdings, LLC  
     Six Months Ended
June 30,
    Years Ended
December 31,
 
     2021     2020     2020     2019  
     (unaudited)              
     (in thousands)  

Statement of Cash Flows Data:

        

Net cash provided by (used in) operating activities

   $ (16,352   $ 11,535     $ (6,486   $ (230,029

Net cash used in investing activities

   $ (2,231   $ (2,386   $ (3,806   $ (3,372

Net cash provided by (used in) financing activities

   $ (1,341   $ (525   $ 51,041     $ 237,715  

 

     CWAN Holdings, LLC  
     Six Months Ended
June 30,
    Years Ended
December 31,
 
     2021     2020     2020     2019  
     (in thousands)  

Other Financial Information (unaudited):

        

Annualized recurring revenue(3)

   $ 245,033     $ 200,492     $ 219,901     $ 185,041  

Gross revenue retention rate(4)

     98%       98%       98%       98%  

Net revenue retention rate(5)

     109%       108%       109%       111%  

Adjusted EBITDA(6)

   $ 35,618     $ 31,297     $ 57,050     $ 50,783  

 

(1)

We are not providing pro forma basic net income (loss) per share and pro forma diluted net income (loss) per share as it is not applicable for the period prior to the initial public offering and related Transactions.

(2)

See the unaudited pro forma consolidated balance sheet at June 30, 2021 in “Unaudited Pro Forma Consolidated Financial Information.”

(3)

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.

(4)

For a definition of gross revenue retention rate, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Measures.”

(5)

For a definition of net revenue retention rate, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Measures.”

(6)

We define Adjusted EBITDA as net income plus (i) interest expense, net, (ii) depreciation and amortization expense, (iii) equity-based compensation, (iv) recapitalization compensation expenses and (v) other expenses. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for a reconciliation of this non-GAAP measure to its closest GAAP equivalent.


 

25


Table of Contents
Index to Financial Statements

RISK FACTORS

Investing in our Class A common stock involves a substantial risk of loss. You should carefully consider these risk factors, together with all of the other information included in this prospectus, before you decide to purchase shares of our Class A common stock. If any of the following risks occur, it could have a material adverse effect on our business, financial condition, results of operations or prospects. In that case, the trading price of our Class A common stock could decline, and you could lose part or all of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. See the section of this prospectus captioned “Cautionary Note Regarding Forward-Looking Statements.”

Risks Related to Our Business and Our Industry

We operate in a highly competitive industry, with many companies competing for business from insurance companies, asset managers, corporations and government entities on the basis of a number of factors, including the quality and breadth of solutions and services provided, ability to innovate, reputation and the prices of services, and this competition could hurt our financial performance and cash flows.

The market for financial services software and services is competitive, rapidly evolving and highly sensitive to new product and service introductions, technological innovations and marketing efforts by industry participants. We and our competitors compete based on a variety of factors, including the range of offerings we provide, brand recognition, business reputation, financial strength, stability and continuity of client and other intermediary relationships, quality of service, and level of fees charged for our solutions and services. The market is also highly fragmented and served by numerous firms that target only local markets or specific client types. We compete with many different types of companies that vary in size and scope, including SS&C (Advent, Camera, Maximus, and Singularity), State Street (PAM), SAP, BNY Mellon (Eagle), Simcorp (Dimension), BlackRock (Aladdin), FIS (iWorks) and Northern Trust, and which are discussed in greater detail under “Business—Competition”. In addition, some of our clients, including financial services firms, have developed or may develop the in-house capability to provide the technology, investment reporting and accounting solutions, regulatory reporting solutions and investment risk management and performance analytics solutions and services they have engaged us to perform, obviating the need to hire us.

Some of our current and potential competitors also have significantly greater resources than we do. These resources may allow our competitors to respond more quickly to changes in demand for our solutions and services, and to devote greater resources to developing and promoting their services and to make more attractive offers to potential clients and strategic partners, which could hurt our financial performance. Our competitors may also enter into alliances with each other or other third parties, and through such alliances, acquire increased market share. Increased competition may result in price reductions, reduced gross margins and loss of market share.

Our failure to successfully compete in any of the above-mentioned areas could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We have experienced rapid revenue growth over the past several years, which may be difficult to sustain, and we depend on attracting and retaining top talent to continue growing and operating our business, and if we are unable to hire, integrate, develop, motivate and retain our personnel, we may not be able to maintain or manage our growth, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our revenues for the year ended December 31, 2020 grew 21% compared to the same period in 2019. Continued future growth could place additional demands on our resources and increase our expenses. Our success depends in large part on our ability to attract high-quality management and employees in sales,

 

26


Table of Contents
Index to Financial Statements

development, software engineering, operations and support functions. In addition to hiring new employees, we must continue to focus on retaining our best talent and preserving our culture, values and entrepreneurial environment. Competition for qualified employees is intense in our industry, and the loss of even a few qualified employees, or an inability to attract, retain and motivate additional highly skilled employees required for the ongoing expansion of our business, could harm our results of operations and impair our ability to grow. To attract and retain key personnel, we use various measures, including an equity incentive program for key executive officers and employees. We may need to invest significant amounts of cash and equity for new and existing employees and we may never realize returns on these investments. In addition, these measures may not be enough to attract and retain the personnel we require to operate our business effectively. If we are not able to effectively increase and retain our talent, our ability to achieve our strategic objectives will be adversely impacted, and our business, financial condition and results of operations will be harmed.

Sustaining growth will also require us to commit additional sales, management, operational and financial resources and to maintain appropriate operational and financial systems. In addition, continued growth increases the challenges involved in:

 

   

successfully expanding the range of solutions and services offered to our clients;

 

   

developing and improving our internal administrative infrastructure, particularly our financial, operational, compliance, record-keeping, communications and other internal systems; and

 

   

maintaining high levels of satisfaction with our solutions and services among clients.

We may not be able to manage our expanding operations effectively or maintain or accelerate our growth, and any failure to do so could adversely affect our business, financial condition, results of operations and cash flows.

We are dependent on fees based on the value of the assets on our platform for the vast majority of our revenues, and to the extent market volatility, a downturn in economic conditions or other factors cause negative trends or fluctuations in the value of the assets on our platform, our fee-based revenue and earnings may decline.

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 results of operations and financial condition are highly dependent on the value of the assets that our clients maintain on our platform. In particular, we are dependent on the fee-based revenue from our insurance industry clients and asset manager clients, from whom we derived 52% and 31%, respectively, of our total revenue for the year ended December 31, 2020.

Because we provide a majority of our solutions to the financial services industry, we are vulnerable to U.S. and foreign economic conditions and general trends in business and finance, which are affected by many factors beyond our control. For example, customers of our asset manager clients are generally free to change asset managers, and can even withdraw the funds they have invested with asset managers to avoid all securities markets-related risks. Because of significant fluctuations in securities prices or investment underperformance driven by an economic downturn, such an investor may choose to transfer assets to investments that are perceived to be more secure and that are not maintained or managed by our asset manager clients, such as bank deposits and Treasury securities, or to mutual funds. These actions by investors are outside of our control and could materially adversely affect the portfolio market value of the assets that our clients have loaded onto our platform, which could in turn materially adversely affect the portfolio-based fees we receive from our clients. Significant changes in investing patterns or large-scale withdrawal of investment funds could have a material adverse effect on our business, financial condition or results of operations.

Demand for our solutions and services could decline for other client-based reasons as well. Consolidation or limited growth in the industries we serve, including the insurance industry, could reduce the number of our

 

27


Table of Contents
Index to Financial Statements

clients and potential clients. Political or regulatory events or changes that adversely affect our clients’ businesses, rates of growth, costs of operations and regulatory compliance or the numbers of customers they serve, including decreased demand for our clients’ products and services or adverse conditions in our clients’ markets generally, could decrease demand for our solutions and services and thereby decrease our revenues. Any of the foregoing could have a material adverse effect on our business, financial condition or results of operations.

Our clients may seek to negotiate a lower fee percentage or may cease using our services, which could limit the growth of, or decrease, our revenues.

Our revenues are derived from fees we charge our clients based on an agreed upon basis points rate applied against the average daily value of assets on the platform over a given month, subject to contracted minimums. The basis points are typically tiered based on the amount of assets on platform (e.g., a client would be charged a lower basis point rate on incremental assets after exceeding a certain threshold). In general, the price we charge our clients for our solutions is based on a number of factors including the expected amount of assets on the platform, asset mix (e.g., fixed income, structured products, equities, derivatives or private assets), transaction volume, number of data feeds, and other client-specific factors. Our clients may, for a number of reasons, seek to negotiate a lower basis points fee percentage. For example, an increase in the use of index-linked investment products by the customers of our asset manager clients may result in lower fees being paid to our clients, and our clients may in turn seek to negotiate lower basis points fee percentages for our services. Similarly, the total value of assets reported in our insurance clients’ regulatory filings may decrease, and as a result, such clients may seek a corresponding reduction in our related fees.

In addition, as competition among our clients increases, they may be required to lower the fees they charge to their customers, which could cause them to seek to decrease our fees accordingly. Any of these factors could result in fluctuation or a decline in our portfolio-based fees, which would have a material adverse effect on our business, financial condition or results of operations.

The COVID-19 pandemic has caused, and is causing, significant harm to the global economy, which in turn could have a material adverse effect on our business, financial condition or results of operations.

On March 11, 2020, the World Health Organization declared Coronavirus Disease 2019 (“COVID-19”) a pandemic disease. The COVID-19 pandemic has resulted in authorities implementing numerous measures attempting to contain the spread and impact of COVID-19, such as travel bans and restrictions, quarantines, shelter in place orders, and limitations on business activity, including closures. These measures are, among other things, severely restricting global economic activity, which is disrupting supply chains, lowering certain asset and equity market valuations, significantly increasing unemployment and underemployment levels, increasing insurance costs, decreasing liquidity in certain markets for certain securities and causing significant volatility and disruption in the markets in which we and our clients operate.

In response to COVID-19 concerns, a majority of our employees are working from home, and we expect such work-from-home arrangements will continue as we plan for the phased return of employees to our offices pursuant to enhanced health and safety protocols consistent with guidelines issued by health authorities. Remote work-from-home restrictions makes us more dependent on certain technologies that allow us to operate our business remotely and collaborate without face-to-face meetings both internally and with our clients. To the extent we experience a technological disruption in our work-from-home capabilities, we would anticipate a negative impact on our business operations. Further, to the extent supply chains are disrupted, it may become more difficult to provide necessary technology to our employees working from remote locations.

The extent to which COVID-19, and the related global economic crisis, affect our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and any recovery period, future actions taken by governmental authorities, central banks and other third parties in response to the pandemic, and the effects on our

 

28


Table of Contents
Index to Financial Statements

solutions and services, clients, employees and vendors. If we are not able to respond to and manage the impact of such events effectively, our business, results of operations and financial condition may be materially and adversely affected.

The COVID-19 pandemic, and the related global economic crisis, could also precipitate or aggravate the other risks described in this prospectus, which could materially and adversely affect our business, results of operations and financial condition. Further, the COVID-19 pandemic may also affect our operating and financial results in a manner that is not presently known to us or that we currently do not consider to present significant risks.

If our investment accounting and reporting solutions, regulatory reporting solutions or risk management or performance analytics solutions fail to perform properly due to undetected errors or similar problems, our business, financial condition, reputation or results of operations could be materially adversely affected.

Investment accounting and reporting solutions, regulatory reporting solutions and risk management and performance analytics solutions we develop or license may contain undetected errors or defects despite testing. Such errors can exist at any point in the life cycle of our solutions, but there is an increased risk that they will be found after new services, enhancements or data sources are incorporated into our existing solutions or services. We continually introduce new solutions and services and new versions of our solutions and services, including, for example, in response to new or modified regulations or reporting requirements. Despite internal testing and testing by current and potential clients, our current and future solutions and services may contain serious defects or malfunctions. If we detect any errors before release, we might be required to delay the release of the solution or service for an extended period of time while we address the problem. We might not discover errors that affect our new or current solutions, services or enhancements until after they are deployed or after they have, for example, resulted in incorrect reporting on which our clients are dependent, and we may need to provide new enhancements to correct such errors. Errors may occur that could have a material adverse effect on our business, financial condition or results of operations and could result in harm to our reputation, lost sales, delays in commercial release, claims by affected clients, third-party claims, contractual disputes, contract terminations or renegotiations, or unexpected expenses and diversion of management and other resources to remedy errors. In addition, negative public perception and reputational damage caused by such claims would adversely affect our client relationships and our ability to enter into new contracts. Any of these problems could have a material adverse effect on our business, financial condition, reputation or results of operations.

We could face liability or incur costs to remediate operational errors or to address possible client dissatisfaction.

Operational risk generally refers to the risk of loss resulting from our operations, including, but not limited to, improper or unauthorized execution and processing of transactions and financial and market data, deficiencies in our operating systems, faulty aggregation or incorrect reconciliation of data by our solutions and services, miscalculations of cash balances available for investment purposes, business disruptions and inadequacies or breaches in our internal control processes. We operate in diverse markets and are reliant on the ability of our employees, systems, solutions and services to process large volumes of transactions and financial and market data, often within short time frames. In the event of a breakdown or improper operation of our systems, errors in our solutions and services, human error or improper action by employees, we could suffer financial loss or damage to our reputation, including as a result of allegations (and associated claims for contractual or other remedies) by any client that operational errors on our part resulted in financial or other harm to their business.

In addition, there may be circumstances when our clients are dissatisfied with our solutions and services, even in the absence of an operational error. In such circumstances, we may elect to make payments or otherwise incur increased costs or lower revenues in order to maintain a strong client relationship. In any of the forgoing circumstances, our business, financial condition, reputation or results of operations could be materially adversely affected.

 

29


Table of Contents
Index to Financial Statements

Our business relies heavily on computer equipment, cloud-based services, electronic delivery systems, networks and telecommunications systems and infrastructure, the Internet and the information technology systems of third parties. Any failures or disruptions in any of the foregoing could result in reduced revenues, increased costs and the loss of clients and could harm our business, financial condition, reputation, and results of operations.

Our business relies heavily on our computer equipment (including our servers), cloud-based services, electronic delivery systems, networks and telecommunications systems and infrastructure, the Internet and the information technology systems of third party providers, and the foregoing may be vulnerable to disruptions, failures or slowdowns caused by fire, earthquake, extreme weather events, power loss, telecommunications failure, terrorist attacks, wars, Internet failures, computer viruses, system errors and miscalculations and other events beyond our control. Furthermore, we rely on agreements with our suppliers, such as our current data hosting and service provider and financial market data providers, and on our clients’ agreements with certain third party data providers, to provide us with access to certain computer equipment, cloud-based services, electronic delivery systems, the Internet, market financial information and information regarding our clients’ assets. A future contractual dispute may arise with one of our suppliers or third party data providers that could cause a disruption or deterioration in our solutions and services, and we are unable to predict whether our agreements with our suppliers or our clients’ agreements with third party data providers can be obtained or renewed on acceptable terms, or at all. An unanticipated disruption, failure or slowdown affecting our key technologies or facilities may have significant ramifications, such as data loss, data corruption, damaged software code, inaccurate accounting of transactions, inaccurate regulatory reporting or inability to provide certain solutions and services to our clients. We maintain off-site back-up facilities for our electronic information and computer equipment, but these facilities could be subject to the same interruptions that may affect our primary facilities. Any significant termination of data access, or disruptions, failures, slowdowns, data loss or data corruption could have a material adverse effect on our business, financial condition or results of operations and result in the loss of clients.

If sources from which we obtain information limit our access to such information or institute or increase fees for accessing such information, our business could be materially and adversely harmed.

Our data aggregation solutions require certain data that we obtain from thousands of sources, including banks, financial institutions, data providers, custodians and other organizations, some of which are not our current clients or in direct contractual privity with us. Although we have a data feed with each of our clients, our access to much of the data we aggregate, reconcile and offer as part of our solutions is facilitated through and reliant upon agreements between our clients and providers of such data, such as asset managers and custodians, and we often do not have direct contractual relationships with such providers. If the sources from which we obtain information that is important to our solutions and services limit or restrict our ability to access or use such information, we may be unable to obtain similar data from other sources on commercially reasonable terms or at all, or we may be required to attempt to obtain such information by other means, such as end-user permissioned data scraping, that could be more costly and time-consuming, and less effective or efficient.

In order to serve our clients, we must have a reliable method from which to obtain client data. In the past, certain of our clients have requested we obtain this data through a web-based retrieval process, which we refer to as a web-based data feed. We sometimes encounter issues with our web-based data feeds, including as a result of our clients’ implementation of new security controls, changes to the layouts of web pages, or the use of software intended to block unauthorized scraping activities. If we are unable to re-institute the web-based data feed, or otherwise obtain the data from our clients through another reliable means, then we may be unable to continue to serve the affected clients. In any event, redesigning our web-based data feeds or being required to obtain data by other reliable means diverts time and resources and may have an adverse effect on our business, financial condition or results of operations.

In the past, a limited number of third parties have either blocked our access to their websites or requested that we cease employing data scraping of their websites to gather information, and we could receive similar,

 

30


Table of Contents
Index to Financial Statements

additional requests in the future. Any such limitation or restriction may also preclude us from providing our solutions and services on a timely basis, if at all. In addition, if in the future one or more third parties challenge our right to access information from these or other sources, we may be required to negotiate with such sources for access to their information, which may be more costly, or to discontinue certain of our solutions and services entirely. The legal environment surrounding data scraping and similar means of obtaining access to information contained on third-party websites is evolving, and one or more third parties could assert claims against us seeking damages or to prevent us from accessing information from third-party websites in that manner. In the event sources from which we obtain information begin to charge us fees for accessing such information, or block our access to this information entirely, we may be forced to increase the fees that we charge our clients or discontinue certain solutions and services, which could make our solutions and services less attractive, or our gross margins and other financial results could suffer.

We could face liability for certain information we provide, including information based on data we obtain from other parties.

We may be subject to claims for negligence, breach of contract or other claims relating to the information we provide. For example, individuals may take legal action against us if they rely on information we have provided and it contains an error. In addition, we could be subject to claims based upon the content that is accessible from our website through links to other websites. Moreover, we could face liability based on inaccurate information provided to us by others or based on information provided to us by others that have not obtained necessary consents to do so. Defending any such claims could be expensive and time-consuming, and any such claim could materially adversely affect our business, financial condition or results of operations.

If our reputation is harmed, our business, financial condition or results of operations could be materially adversely affected.

Our reputation, which depends on earning and maintaining the trust and confidence of our clients, is critical to our business. Our reputation is vulnerable to many threats that can be difficult or impossible to control, and costly or impossible to remediate. Regulatory inquiries or investigations, lawsuits initiated by our clients or others, employee misconduct, perceptions of conflicts of interest and rumors, among other developments, could substantially damage our reputation, even if they are baseless or satisfactorily addressed. In addition, any perception that the quality of our solutions and services may not be the same or better than that of other providers can also damage our reputation. Any damage to our reputation could harm our ability to attract and retain clients, which would materially adversely affect our business, financial condition and results of operations.

Our revenue can fluctuate from period to period, which could cause our stock price to fluctuate.

Our revenue may fluctuate from period-to-period in the future due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include the following events, as well as other factors described elsewhere in this prospectus:

 

   

a decline or slowdown of the growth in the value of financial market assets, which may reduce the portfolio market value of the assets loaded on our platform from which we derive portfolio-based fees, or reduce demand for our solutions and services generally, and therefore negatively affect our revenues and cash flows;

 

   

unanticipated changes to economic terms in contracts with clients, including renegotiations;

 

   

downward pressure on fees we charge our clients, which would therefore reduce our revenue;

 

   

changes in laws or regulations that could impact our ability to offer solutions and services;

 

   

failure to obtain new clients;

 

   

failure to expand the services offered to existing clients or to apply such services to additional asset portfolios of existing clients;

 

31


Table of Contents
Index to Financial Statements
   

cancellation or non-renewal of existing contracts with clients;

 

   

failure to protect our proprietary technology and intellectual property rights;

 

   

unanticipated delays in connection with the implementation of our services in relation to our clients’ asset portfolios; or

 

   

reduction in the suite of solutions and services provided to existing clients.

As a result of these and other factors, the results of operations for any quarterly or annual period may differ materially from the results of operations for any prior or future quarterly or annual period and our historical results should not be relied upon as indications of our future performance.

Early termination of our client contracts could have a material adverse effect on our business, financial condition or results of operations.

Our contracts with insurance companies, asset managers, corporations and government entities are generally terminable upon thirty days’ notice by our clients or prior to such time for cause, which may include breach of contract, bankruptcy, insolvency and other reasons. If a significant number of our clients were to terminate their contracts with us and we were unable to obtain a significant number of new clients, our business, financial condition or results of operations could be materially adversely affected.

Because some of our sales efforts are targeted at large financial institutions, corporations and government entities, we face prolonged sales cycles, substantial upfront sales costs and less predictability in completing some of our sales. If our sales cycle lengthens, or if our upfront sales investments do not result in sufficient revenue, our results of operations may be harmed.

We target a portion of our sales efforts at large financial institutions, corporations and government entities, which presents challenges that are different from those we encounter with smaller clients. Because our large clients are often making an enterprise-wide decision to deploy our solutions, we face longer sales cycles, complex client requirements, substantial upfront sales costs, significant contract negotiations and less predictability in completing some of our sales with these clients. Our sales cycle can often last several months or more with our largest clients, who often undertake an extended evaluation process, but this is variable and difficult to predict. We anticipate that we will experience even longer sales cycles, more complex client needs, higher upfront sales costs and less predictability in completing sales with clients located outside of the United States. If our sales cycle lengthens or our upfront sales investments do not generate sufficient revenue to justify our investments in our sales efforts, our results of operations may be harmed.

We may become subject to liability based on the use of our investment accounting and reporting solutions, regulatory reporting solutions and internal risk management and performance analytics solutions by our clients.

Our solutions and services support the investment, financial and regulatory reporting processes of our clients, many of whom have asset portfolios on our system aggregating to billions of dollars. Our clients similarly rely on our solutions to ensure compliance with complex regulatory requirements. Our client agreements have provisions designed to limit our exposure to potential liability claims brought by our clients or third parties based on the use of our solutions and services. However, these provisions have certain exceptions and could be invalidated by unfavorable judicial decisions or by federal, state, foreign or local laws. For instance, use of our solutions as part of the investment process creates the risk that asset manager clients, or the parties whose assets are managed by our clients, may pursue claims against us for very significant dollar amounts, and in a similar vein, our clients or their regulators may pursue claims or investigations against us in connection with regulatory reporting deficiencies associated with our services. Any such claim, lawsuit, investigation or other proceeding, even if the outcome were to be ultimately favorable to us, would involve a significant commitment

 

32


Table of Contents
Index to Financial Statements

of our management, personnel, financial and other resources and could have a negative impact on our reputation. Such proceedings could therefore have a material adverse effect on our business, financial condition or results of operations.

Furthermore, our clients may use our solutions and services together with software, data or products from other companies. As a result, when problems occur, it might be difficult to identify the source of the problem. Even when our solutions and services do not cause these problems, the existence of these errors might cause us to incur significant costs and divert the attention of our management and technical personnel, any of which could materially adversely affect our business, financial condition or results of operations.

Although we primarily process institutional financial information, we could face liability related to unauthorized access to, disclosure or theft of the personal information we store and process, and could consequently incur significant costs.

Although we primarily process institutional financial information, clients may maintain personal information, including personal investment, accounting and financial information, on our platform and we could be subject to liability if we were to inappropriately disclose any such client’s personal information, inadvertently or otherwise, or if third parties were able to obtain access to our network, circumvent our security, or otherwise gain access to any user’s name, address, portfolio holdings or other personal or financial information that we store or process. Any such event could subject us to claims and liability related to unauthorized access to or use of personal information, including claims by such users and by applicable regulatory authorities, which could cause us to incur significant costs and divert the attention of our management and technical personnel, or cause harm to our reputation, and could therefore have a material adverse effect on our business, financial condition or results of operations.

Our clients are located in the United States and around the world. As a result, we may also collect, process and store the personal information of individuals who live in many different countries. Privacy regulators in some of those countries have publicly stated that foreign entities (including entities based in the United States) may render themselves subject to those countries’ privacy laws and the jurisdiction of such regulators by collecting or storing the personal data of those countries’ residents, even if such entities have no physical or legal presence there. Consequently, we may be obligated to comply with the privacy and data security laws of certain foreign countries. Our potential exposure to foreign countries’ privacy and data security laws may impact our ability to collect and use personal information now and in the future, increase our legal compliance costs and may expose us to significant liability for non-compliance.

We are also subject to various laws and regulations both in the United States, including the California Consumer Privacy Act, and in other countries where we currently operate, including the Data Protection Act 2018 and UK General Data Protection Regulation in the United Kingdom. We have incurred, and will continue to incur, expenses to comply with privacy and security standards and protocols imposed by law, regulation, industry standards or contractual obligations. Increased domestic or international regulation of data collection, processing, transfer and security could require us to modify our operations and incur significant additional expense, which could have a material adverse effect on our business, financial condition or results of operations. Additionally, we are subject to the terms of our privacy policies and privacy-related obligations to third parties. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to clients or other third parties, or our legal obligations relating to privacy, or any compromise of security that results in the unauthorized access to, disclosure or misuse of personal information may result in governmental or regulatory investigations, enforcement actions, fines, litigation, or negative publicity and could cause clients to lose trust in us, all of which could be costly and have an adverse effect on our business.

 

33


Table of Contents
Index to Financial Statements

If we or our third-party service providers suffer a cybersecurity event, our reputation may be harmed, we may lose clients and we may incur significant liabilities, any of which would harm our business and results of operations.

Cyberattacks, computer malware, viruses, social engineering (including phishing attacks), ransomware attacks and general hacking are becoming more prevalent generally and in our industry, and we may in the future become the target of third parties seeking unauthorized access to our confidential or sensitive information or that of our clients. In addition, third parties may attempt to fraudulently induce employees, contractors or users to disclose information, including user names and passwords, to gain access to our clients’ data, our data or other confidential or sensitive information, and we may be the target of email scams that attempt to acquire personal information or company assets. While we have security measures in place designed to protect our and our clients’ confidential and sensitive information and prevent unauthorized access to data, these measures may not be effective to prevent a security breach, including as a result of employee error, theft, misuse or malfeasance, third-party actions, unintentional events, or deliberate attacks by individuals or criminal organizations, any of which may result in someone obtaining unauthorized access to our or our clients’ data, including to our trade secret or other confidential and proprietary business information. Because techniques used to sabotage or obtain unauthorized access to systems change frequently and frequently are not recognized until successfully launched against a target, we may be unable to anticipate all such techniques, or react in a timely manner or implement adequate preventative measures against such techniques. We devote significant financial and personnel resources to implement and maintain security measures; however, as cybersecurity threats develop, evolve and grow more complex over time, it may be necessary to make further investments to protect our data and infrastructure.

We use third parties to provide certain data processing services, including hosting services; however, our ability to monitor our third-party service providers’ data security is limited. Because we do not control our third-party service providers, or the processing of data by our third-party service providers, we cannot ensure the measures they take to protect and prevent the loss of our data or our clients’ data are sufficient.

A security breach suffered by us or our third-party service providers, an attack causing outages or unavailability of our solutions and services, or any unauthorized, accidental or unlawful access or loss of data, or the perception that any such event has occurred, could result in a disruption to our solutions and services, litigation, an obligation to notify regulators and affected individuals, the triggering of service availability, indemnification and other contractual obligations to our clients, regulatory investigations, government fines and penalties, reputational damage, loss of sales and clients, mitigation and remediation expenses and other significant costs and liabilities. In addition, we may incur significant costs and operational consequences of investigating, remediating, eliminating and putting in place additional tools and devices designed to prevent future actual or perceived security incidents, as well as the costs to comply with any notification or other obligations resulting from any security incidents. We also cannot be certain that our existing insurance coverage will be available in sufficient amounts to cover the potentially significant losses that may result from a security incident or breach, or will continue to be available on acceptable terms or at all, or that the insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could adversely affect our business, financial condition and results of operations. Further, our clients and their service providers administer access to data and control the entry of such data on their systems. As a result, a client may suffer a cybersecurity event on its own systems, unrelated to our own systems, and a malicious actor could obtain access to the client’s information held on our system. Even if such a breach is unrelated to our own security programs or practices, or if the client failed to adequately protect their system, that breach could result in our incurring significant economic and operational costs in investigating, remediating, eliminating and putting in place additional tools and devices to further protect our clients from their own vulnerabilities, and could also result in reputational harm to us.

The reliability and security of our information technology systems is critical to our operations and the implementation of our growth initiatives. Any cybersecurity event or other material disruption in our information

 

34


Table of Contents
Index to Financial Statements

technology systems, or delays or difficulties in implementing or integrating new systems or enhancing current systems, could have an adverse effect on our business, and results of operations.

Disruptions, capacity limitations or interference with our use of the data centers that host our solutions and services could result in delays or outages and harm our business.

We currently partially host and intend to increasingly host our cloud service from third-party data center facilities from several global locations operated by Google Cloud Computing Services. Any damage to, failure of or interference with our cloud service that is hosted by Google, or by third-party providers we currently utilize or may utilize in the future, whether as a result of our actions, actions by the third-party data centers, actions by other third parties, or acts of God, could result in interruptions in our cloud service and/or the loss of our or our clients’ data. While the third-party data centers host the server infrastructure, we manage the cloud services through our internal teams, and we need to support version control, changes in cloud software parameters and the evolution of our products, all in a multi-OS environment. As we utilize third-party data centers, we may move or transfer our data and our clients’ data from one region to another. Despite precautions taken during this process, any unsuccessful data transfers may impair the delivery of our solutions. Impairment of, or interruptions in, our cloud services may subject us to claims and litigation, cause our clients to terminate their agreements with us and adversely affect our ability to attract new clients. Our business will also be harmed if our clients and potential clients believe our services are unreliable. Additionally, any limitation of the capacity of our third-party data centers could impede our ability to scale, onboard new clients or expand the usage of existing clients, which could adversely affect our business, financial condition and results of operations.

We do not control, or in some cases have limited control over, the operation of the data center facilities we use to host our solutions and services, and these facilities may be vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunications failures and similar events. They may also be subject to cyberattacks, break-ins, sabotage, intentional criminal acts, acts of vandalism and similar misconduct and to adverse events caused by operator error. Despite precautions taken at these facilities, the occurrence of a natural disaster, an act of terrorism, war or other act of malfeasance, a decision to close the facilities without adequate notice to us, or other unanticipated problems at these facilities could result in lengthy interruptions in our solutions and services and the loss of client data and business, and related claims by our clients against us. We may also incur significant costs for using alternative equipment or facilities or taking other actions in preparation for, or in reaction to, any such events.

Changes to the laws or regulations applicable to us or to our asset manager or insurance industry clients could adversely affect our business, financial condition or results of operations.

We may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC or other U.S. federal or state or foreign governmental regulatory authorities or self-regulatory organizations that supervise the financial markets and insurance industries around the world. In addition, we may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and self-regulatory organizations. It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any current proposals will become law, and it is difficult to predict how any changes or potential changes could affect our business. Changes to laws or regulations could increase our potential liability in connection with the solutions and services that we provide. The introduction of any new laws or regulations could make our ability to comply with applicable laws and regulations more difficult and expensive. Any of the foregoing could have a material adverse effect on our business, financial condition or results of operations.

We may be unable to adapt to rapidly changing technology, evolving industry standards and regulatory requirements and new product and service introductions, which could result in a loss of market share.

Rapidly changing technology, evolving industry standards and regulatory requirements and new product and service introductions characterize the market for our solutions. Our future success will depend in part upon our

 

35


Table of Contents
Index to Financial Statements

ability to enhance our existing offerings, including to localize them to differing local requirements, and to develop and introduce new solutions and services to keep pace with such changes and developments and to meet changing client needs. The process of developing our platform is extremely complex and is expected to become increasingly complex and expensive in the future due to the introduction of new platforms, operating systems and technologies. Our ability to keep up with technology and business and legal and regulatory changes is subject to a number of risks, including that:

 

   

we may find it difficult or costly to update our solutions and services and to develop new solutions and services quickly enough to meet our clients’ needs;

 

   

we may find it difficult or costly to make some features of our software work effectively and securely over the Internet or with new or changed external applications;

 

   

we may find it difficult or costly to update our solutions and services to keep pace with business, evolving industry standards, regulatory and other developments in the industries where our clients operate;

 

   

we may find it difficult or costly to advertise and market our solutions and services;

 

   

we may find it difficult or costly to protect our proprietary technology and intellectual property rights;

 

   

our clients may delay purchases in anticipation of new solutions, services or enhancements; and

 

   

we may be exposed to liability for security breaches that allow unauthorized persons to gain access to confidential information stored on our computers or transmitted over our network.

Our failure to enhance our platform and to develop and introduce new solutions and services to promptly address the needs of the insurance industry and financial markets could adversely affect our business, financial condition or results of operations.

If government regulation of the Internet or other areas of our business changes, or if attitudes toward use of the Internet change, we may need to change the manner in which we conduct our business or incur greater operating expenses.

The adoption, modification or interpretation of laws or regulations relating to the Internet or other areas of our business could adversely affect the manner in which we conduct our business. Such laws and regulations may cover sales practices, taxes, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts, consumer protection, broadband residential Internet access and the characteristics and quality of services. Moreover, it is not always clear how certain existing laws governing these matters apply to the Internet. If we are required to comply with new regulations or legislation or new interpretations of existing regulations or legislation, we may be required to incur additional expenses or alter our business model, either of which could have a material adverse effect on our business, financial condition or results of operations.

We are substantially dependent on our intellectual property rights, and a failure to protect these rights could adversely affect our business, financial condition or results of operations.

We have made substantial investments in software and other intellectual property on which our business is highly dependent. We rely on trade secret, trademark and copyright laws, confidentiality and nondisclosure agreements and other contractual and technical security measures to protect our proprietary technology. Any loss of our intellectual property rights, or any significant claim of infringement or indemnity for violation of the intellectual property rights of others, could have a material adverse effect on our business, financial condition or results of operations.

None of our technologies, solutions or services is covered by any issued patent. We are the owner of three copyright registrations, two registered trademarks in the United States and three international trademarks, and we claim common law rights in other trademarks that are not registered. We cannot guarantee that:

 

   

our intellectual property rights will provide competitive advantages to us;

 

36


Table of Contents
Index to Financial Statements
   

our ability to assert our intellectual property rights against potential competitors or to settle current or future disputes will not be limited by our agreements with third parties;

 

   

our intellectual property rights will be enforced in jurisdictions where competition may be intense or where legal protection may be weak;

 

   

any of the trademarks, copyrights, trade secrets or other intellectual property rights that we presently employ in our business will not lapse or be invalidated, circumvented, challenged or abandoned;

 

   

our trademark applications will lead to registered trademarks;

 

   

our patent applications will lead to issued patents; or

 

   

competitors will not design around our intellectual property rights or develop similar technologies or offerings; or that we will be able to successfully assert our intellectual property rights against others.

We are also a party to a number of third-party intellectual property license agreements. Some of these license agreements require us to make one-time payments or ongoing subscription payments. We cannot guarantee that the third-party intellectual property we license will not be licensed to our competitors or others in our industry. In the future, we may need to obtain additional licenses or renew existing license agreements. We are unable to predict whether these license agreements will be obtained or renewed on commercially reasonable terms, or at all. Additionally, we use certain software covered by open source licenses. The terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that the licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability use such software, or that could require us to disclose certain portions of our proprietary source code or re-engineer all or a portion of our solutions and services, any of which could harm our business and result in significant costs.

Third parties may sue us for intellectual property infringement or misappropriation which, if successful, could require us to pay significant damages or make changes to the solutions or services that we offer.

We cannot be certain that our internally developed technology, solutions or services do not and will not infringe the intellectual property rights of others. In addition, we license content, software and other intellectual property rights from third parties and may be subject to claims of infringement if such parties do not possess the necessary intellectual property rights to the products they license to us. We may not have sufficient contractual protection to cover all liability associated with such claims. In addition, we may face additional risk of infringement or misappropriation claims if we hire an employee who possesses third party proprietary information who decides to use such information in connection with our solutions, services or business processes without such third party’s authorization. We have in the past been and may in the future be subject to legal proceedings and claims that we have infringed or misappropriated the intellectual property rights of a third party. Claims may involve patent holding companies who have no relevant product revenues and against whom our own proprietary technology may therefore provide little or no deterrence. In addition, third parties may in the future assert intellectual property infringement claims against our clients, which, in certain circumstances, we have agreed to indemnify. Any intellectual property related infringement or misappropriation claims, whether or not meritorious, could result in costly litigation and could divert management resources and attention. Moreover, should we be found liable for infringement or misappropriation, we may be required to enter into licensing agreements, which may not be available on acceptable terms or at all, pay substantial damages or make changes to the solutions and services that we offer. Any of the foregoing could prevent us from competing effectively, result in substantial costs to us, divert management’s attention and our resources away from our operations and otherwise harm our reputation.

If our intellectual property and proprietary technology are not adequately protected to prevent use or appropriation by our competitors, our business and competitive position would suffer.

Our future success and competitive position depend in part on our ability to protect our intellectual property rights. The steps we have taken to protect our intellectual property rights may be inadequate to prevent the

 

37


Table of Contents
Index to Financial Statements

misappropriation of our proprietary technology. Others may develop or patent similar or superior technologies, solutions or services. Unauthorized copying or other misappropriation of our proprietary technologies could enable third parties to benefit from our intellectual property rights without paying us for doing so, which could harm our business. Policing unauthorized use of proprietary technology is difficult and expensive and our monitoring and policing activities may not be sufficient to identify any misappropriation and protect our proprietary technology. In addition, third parties may knowingly or unknowingly infringe our trademarks and other intellectual property rights, and litigation may be necessary to protect and enforce our intellectual property rights. If litigation is necessary to protect and enforce our intellectual property rights, any such litigation could be very costly and could divert management attention and resources. If we are unable to protect our intellectual property rights or if third parties independently develop or gain access to our or similar technologies, solutions or services, our business, financial condition and results of operations could be materially adversely affected.

Confidentiality agreements with employees, consultants and others may not adequately prevent disclosure of trade secrets and other proprietary information.

We have devoted substantial resources to the development of our proprietary technologies, solutions and services. In order to protect our proprietary rights, we enter into confidentiality agreements with our employees, consultants and independent contractors. These agreements may not effectively prevent unauthorized disclosure of confidential information or unauthorized parties from copying aspects of our technologies, investment accounting offerings or obtaining and using information that we regard as proprietary. Moreover, these agreements may not provide an adequate remedy in the event of such unauthorized disclosures of confidential information and our rights under such agreements may not be enforceable. In addition, others may independently discover trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could reduce any competitive advantage we have developed and cause us to lose clients or otherwise harm our business.

Our failure to successfully integrate acquisitions could strain our resources. In addition, there are significant risks associated with growth through acquisitions, which may materially adversely affect our business, financial condition or results of operations.

We expect to grow our business by, among other things, making acquisitions. Acquisitions involve a number of risks. Financing an acquisition could result in dilution from issuing equity securities or a weaker balance sheet from using cash or incurring debt. To the extent we grow our business through acquisitions, any such future acquisitions could present a number of other risks, including:

 

   

incorrect assumptions regarding the future results of acquired operations or assets or expected cost reductions or other synergies expected to be realized as a result of acquiring operations or assets;

 

   

failure to integrate the operations or management of any acquired operations or assets successfully and on a timely and cost effective basis;

 

   

insufficient knowledge of the operations and markets of acquired businesses;

 

   

loss of key personnel;

 

   

diversion of management’s attention from existing operations or other priorities;

 

   

increased costs or liabilities as a result of undetected or undisclosed legal, regulatory or financial issues related to acquired operations or assets; and

 

   

inability to secure, on terms we find acceptable, sufficient financing that may be required for any such acquisition or investment.

In addition, if we are unsuccessful in completing acquisitions of other businesses, operations or assets or if such opportunities for expansion do not arise, our business, financial condition or results of operations could be materially adversely affected.

 

38


Table of Contents
Index to Financial Statements

We invest significantly in growth and research and development, and to the extent our research and development investments do not translate into new solutions and services or material enhancements to our current solutions and services, or if we do not use those investments efficiently, our business and results of operations would be harmed.

A key element of our strategy is to invest significantly in our growth and research and development efforts to develop new solutions and services and enhance our existing solutions and services to address additional applications and markets. For the year ended December 31, 2020, our research and development expense was approximately 27% of our revenue. If we do not spend our research and development budget efficiently or effectively on compelling innovation and technologies, our business may be harmed and we may not realize the expected benefits of our strategy. Moreover, research and development projects can be technically challenging and expensive. The nature of these research and development cycles may cause us to experience delays between the time we incur expenses associated with research and development and the time we are able to offer compelling solutions and services and generate revenue, if any, from such investment. Additionally, anticipated client demand for an offering we are developing could decrease after the development cycle has commenced, rendering us unable to recover substantial costs associated with the development of such offering. If we expend a significant amount of resources on research and development and our efforts do not lead to the successful introduction or improvement of solutions and services that are competitive in our current or future markets, it would harm our business and results of operations.

As a global organization, our business is susceptible to risks associated with our international operations.

In addition to our U.S. operations, we currently maintain international operations in the United Kingdom and India, and have smaller sales-focused presences in France and Singapore, and have clients located around the globe. Managing a global organization outside of the United States is difficult and time-consuming and introduces risks that we may not face with our operations and sales in the United States. These risks include:

 

   

the burdens of complying with a wide variety of foreign regulations, laws and legal standards, including privacy, data security, tax and employment, some of which may be materially different or more stringent than those of the United States;

 

   

regional data privacy laws that apply to the transmission of personal data across international borders;

 

   

lack of familiarity with, and unexpected changes in, foreign regulatory requirements;

 

   

clients’ unfamiliarity with and concerns regarding laws and regulations of the United States that may impact our business operations in their jurisdictions;

 

   

negative, local perception of industries and clients that we may pursue;

 

   

laws and business practices favoring local competitors;

 

   

localization of our solutions and services, including unanticipated costs related to translation into foreign languages and adaptation for local practices and regulatory requirements;

 

   

different pricing environments;

 

   

difficulties in managing and staffing international operations;

 

   

reduced or varied protection for intellectual property rights in some countries;

 

   

compliance with laws and regulations for foreign operations, including the U.S. Foreign Corrupt Practices Act (the “FCPA”), the U.K. Bribery Act, import and export control laws, tariffs, trade barriers, economic sanctions and other regulatory or contractual limitations on our ability to sell our solutions and services in certain foreign markets, and the risks and costs of compliance;

 

   

fluctuations in currency exchange rates;

 

   

potentially adverse tax consequences, including the complexities of foreign value added tax systems, difficulty in interpreting international tax laws and restrictions on the repatriation of earnings;

 

39


Table of Contents
Index to Financial Statements
   

increased financial accounting and reporting burdens and complexities; and

 

   

political, social and economic instability abroad, terrorist attacks and security concerns in general.

Operating in international markets also requires significant management attention and financial resources. A component of our growth strategy involves the further expansion of our operations and the development of new client relationships in Europe. As we seek to expand internationally, including in Europe, we will need to develop relationships with additional partners and add internal capabilities to effectively manage the operational, financial, legal and regulatory requirements and risks associated with our international operations. The investment we make and additional resources we use to expand our operations, target new international clients, expand our presence globally within our existing clients and manage operational and sales growth in other countries may not produce desired levels of revenue or profitability, which could adversely affect our business and results of operations.

Because our employees are geographically dispersed, we are required to comply with employment-related laws and regulations both in the United States and abroad.

The nature and geographic spread of our business requires that we comply with multiple employment-related legal and regulatory regimes both in the United States and outside the United States. We are subject to the Fair Labor Standards Act, applicable foreign employment standards laws and similar state laws, which govern such matters as time keeping and payroll requirements, minimum wage, overtime, employee and worker classifications and other working conditions. While we believe we are currently in compliance with all such regimes, we may be susceptible to various employment claims and proceedings. Any legal proceedings or claims, even if baseless, fully indemnified or insured, could negatively impact our reputation among our employees, clients and the public, and make it more difficult for us to compete effectively or obtain adequate insurance in the future.

If we are unable to effectively manage certain risks and challenges related to our India operations, our business could be harmed.

Our India operations are a key factor to our success. We believe that our significant presence in India provides certain important advantages for our business, such as direct access to a large pool of skilled professionals and assistance in growing our business internationally. However, it also creates certain risks that we must effectively manage. As of June 30, 2021, 274 of our total employees were based in India. Wage costs in India for skilled professionals are currently lower than in the United States for comparably skilled professionals. However, wages in India are increasing at a faster rate than in the United States, which could result in us incurring increased costs for technical professionals and reduced margins. There is intense competition in India for skilled technical professionals, and we expect such competition to increase. As a result, we may be unable to cost-effectively retain our current employee base in India or hire additional new talent. In addition, India has experienced significant inflation, low growth in gross domestic product and shortages of foreign exchange. India also has experienced civil unrest and terrorism and has been involved in conflicts with neighboring countries. The occurrence of any of these circumstances could result in disruptions to our India operations, which, if continued for an extended period of time, could have a material adverse effect on our business. If we are unable to effectively manage any of the foregoing risks related to our India operations, our development efforts could be impaired, our growth could be slowed and our results of operations could be negatively impacted.

Our results of operations may be harmed if we are required to collect sales or other related taxes for subscriptions to our solutions and services in jurisdictions where we have not historically done so.

States and some local taxing jurisdictions have differing rules and regulations governing sales and use taxes, and these rules and regulations are subject to varying interpretations that may change over time. The application

 

40


Table of Contents
Index to Financial Statements

of federal, state, local and international tax laws to services provided electronically is evolving. In particular, the applicability of sales taxes to our solutions and services in various jurisdictions is unclear. We collect and remit U.S. sales tax in a number of jurisdictions. It is possible, however, that we could face sales tax audits and that our liability for these taxes could exceed our estimates as state tax authorities could successfully assert that we are obligated to collect additional tax amounts from our paying clients and remit those taxes to those authorities. We could also be subject to audits in states and international jurisdictions for which we have not accrued tax liabilities. In each case, if states are successful in such audits we may be liable for substantial amounts of past sales, use or similar taxes, interest and penalties. A successful assertion that we should be collecting additional sales or other taxes on our services in jurisdictions where we have not historically done so and do not accrue for sales taxes could result in substantial tax liabilities for past sales, discourage organizations from subscribing to our products and services, or otherwise harm our business, results of operations and financial condition.

Risks Related to Our Organizational Structure

We will be a holding company and our principal asset after completion of the Transactions and this offering will be our interest in CWAN Holdings, LLC and, accordingly, we will depend on distributions from CWAN Holdings, LLC to pay our taxes and expenses, including payments under the Tax Receivable Agreement and the TRA Bonus Agreements. CWAN Holdings, LLC’s ability to make such distributions may be subject to various limitations and restrictions.

Upon completion of this offering and the Transactions, we will be a holding company and will have no material assets other than the LLC Interests. As a holding company, we will have no independent means of generating revenue or cash flow, and our ability to pay our taxes and operating expenses, including our obligations under the Tax Receivable Agreement and the TRA Bonus Agreements, or declare and pay dividends, if any, in the future, will depend upon the results of operations and cash flows of CWAN Holdings, LLC and its consolidated subsidiaries and distributions we receive from CWAN Holdings, LLC. Our subsidiaries may not generate sufficient cash flow to distribute funds to us and applicable state law and contractual restrictions may not permit such distributions.

We anticipate that CWAN Holdings, LLC will continue to be treated as a partnership for U.S. federal income tax purposes and, as such, generally will not be subject to any entity-level U.S. federal income tax. Instead, taxable income of CWAN Holdings, LLC will be allocated to holders of the LLC Interests. Accordingly, we and our subsidiaries will be required to pay income taxes on our allocable share of any net taxable income of CWAN Holdings, LLC allocated to us under the terms of the LLC Agreement. Under the terms of the LLC Agreement, CWAN Holdings, LLC is required to make tax distributions to the holders of LLC Interests, including us, on a pro rata basis, unless certain exceptions apply. In addition to tax payments, we will incur expenses related to our operations, including obligations to make payments under the Tax Receivable Agreement and the TRA Bonus Agreements. The tax benefits we may realize as a result of our purchase of LLC Interests and any exchanges of LLC Interests and as a result of payments under the TRA Bonus Agreements, and the resulting amounts we are likely to pay out to the Continuing Equity Owners and the Blocker Shareholders pursuant to the Tax Receivable Agreement depend on various factors and are difficult to quantify with any precision; however, we estimate that such payments may be substantial. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement” and “Executive Compensation—TRA Bonus Agreements.”

We intend to cause CWAN Holdings, LLC to make cash distributions to the owners of LLC Interests in amounts sufficient to (1) fund all or part of their tax obligations in respect of taxable income allocated to them and (2) cover our operating expenses, including payments under the Tax Receivable Agreement. However, CWAN Holdings, LLC’s ability to make such distributions may be subject to various limitations and restrictions, such as restrictions on distributions that would violate either any contract or agreement to which CWAN Holdings, LLC or its subsidiaries is then a party, including debt agreements, or any applicable law, or that would have the effect of rendering CWAN Holdings, LLC or its subsidiaries insolvent. If we do not have sufficient funds to pay tax or other liabilities or to fund our operations, we may have to borrow funds, which could materially adversely affect our liquidity and financial condition and subject us to various restrictions imposed by any such lenders. To the extent that we are unable to make payments under the Tax Receivable Agreement, such

 

41


Table of Contents
Index to Financial Statements

payments generally will be deferred and will accrue interest until paid. Nonpayment for a specified period, however, may constitute a breach of a material obligation under the Tax Receivable Agreement and therefore accelerate payments due under the Tax Receivable Agreement, unless, generally, such nonpayment is due to a lack of sufficient funds. See “—Risks Related to This Offering and Our Class A Common Stock,” “Dividend Policy,” and “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.”

Conflicts of interest could arise between our shareholders and the Continuing Equity Owners, which may impede business decisions that could benefit our shareholders.

The Continuing Equity Owners, who, upon consummation of this offering, will be the only holders of LLC Interests other than us, have the right to consent to certain amendments to the LLC Agreement, as well as to certain other matters. The Continuing Equity Owners may exercise these consent rights in a manner that conflicts with the interests of our other shareholders. Circumstances may arise in the future when the interests of the Continuing Equity Owners conflict with the interests of our other shareholders, particularly in the context of acquisitions. As we control CWAN Holdings, LLC, we have certain obligations to the Continuing Equity Owners as holders of LLC Interests that may conflict with fiduciary duties our officers and directors owe to our shareholders. These conflicts may result in decisions that are not in the best interests of our shareholders.

The Tax Receivable Agreement requires us to make cash payments to the Continuing Equity Owners and the Blocker Shareholders in respect of certain tax benefits to which we may become entitled, and we expect that the payments we will be required to make will be substantial.

In connection with the consummation of this offering, we will enter into a Tax Receivable Agreement with the Continuing Equity Owners and the Blocker Shareholders. Pursuant to the Tax Receivable Agreement, we will be required to make cash payments to the Continuing Equity Owners and the Blocker Shareholders, collectively, equal to 85% (less payments made under the TRA Bonus Agreements) of the tax benefits, if any, that we actually realize, or, in some circumstances, are deemed to realize, as a result of the Tax Attributes. We expect that the payments we will be required to make under the Tax Receivable Agreement will be substantial. Assuming no material changes in relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are subject to the Tax Receivable Agreement, we expect that the tax savings associated with the Transactions or exchanges of LLC Interests as described above would aggregate to approximately $704.2 million over 15 years from the date of the completion of this offering, based on an assumed initial public offering price of $15.00 per share of Class A common stock, the midpoint of the estimated price range set forth on the cover page of this prospectus, and assuming all future redemptions or exchanges would occur on the date of this offering. Under this scenario, we would be required to pay the other parties to the Tax Receivable Agreement and under the TRA Bonus Agreements approximately 85% of such amount, or $598.6 million, over the 15-year period from the date of the completion of this offering. The actual amounts we will be required to pay may materially differ from these hypothetical amounts, because potential future tax savings that we will be deemed to realize, and the Tax Receivable Agreement payments and the TRA Bonus Agreement payments made by us, will be calculated based in part on the market value of our common stock at the time of each redemption or exchange of an LLC Interest for cash or a share of common stock and the prevailing applicable federal tax rate (plus the assumed combined state and local tax rate) applicable to us over the life of the Tax Receivable Agreement and will depend on our generating sufficient taxable income to realize the tax benefits that are subject to the Tax Receivable Agreement. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement” and “Executive Compensation—TRA Bonus Agreements.” Payments under the Tax Receivable Agreement are not conditioned on our existing owners’ continued ownership of us after this offering. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.” Payments under the Tax Receivable Agreement will be based on the tax reporting positions that we determine, which tax reporting positions will be based on the advice of our tax advisors. Any payments made by us to the Continuing Equity Owners and the Blocker Shareholders under the Tax Receivable Agreement or to the relevant executive officers under the terms of the TRA Bonus Agreements will generally reduce the amount of overall cash flow that might have otherwise been available to us. To the extent that we are unable to make payments under the Tax Receivable Agreement or the TRA Bonus Agreements, such payments generally will be deferred and will accrue interest until paid. Nonpayment of amounts due under the Tax Receivable Agreement (but not the TRA Bonus Agreements) for a specified period,

 

42


Table of Contents
Index to Financial Statements

however, may constitute a breach of a material obligation under the Tax Receivable Agreement and therefore accelerate payments due under the Tax Receivable Agreement, unless, generally, such nonpayment is due to a lack of sufficient funds. Furthermore, our future obligation to make payments under the Tax Receivable Agreement and the TRA Bonus Agreements could make us a less attractive target for an acquisition, particularly in the case of an acquirer that cannot use some or all of the tax benefits that may be deemed realized under the Tax Receivable Agreement. The payments under the Tax Receivable Agreement are also not conditioned upon the Continuing Equity Owners or the Blocker Shareholders maintaining a continued ownership interest in CWAN Holdings, LLC. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.” The actual amount and timing of any payments under the Tax Receivable Agreement and the TRA Bonus Agreements will vary depending upon a number of factors, including the timing of exchanges by the Continuing Equity Owners and the Blocker Shareholders, the amount and timing of amounts paid under the TRA Bonus Agreements, the amount of gain recognized by the Continuing Equity Owners and the Blocker Shareholders, the amount and timing of the taxable income we generate in the future and the federal tax rates then applicable.

Finally, because we are a holding company with no operations of our own, our ability to make payments under the Tax Receivable Agreement is dependent on the ability of our subsidiaries to make distributions to us.

In certain circumstances, CWAN Holdings, LLC will be required to make distributions to us and the Continuing Equity Owners and the distributions may be substantial.

CWAN Holdings, LLC is treated as a partnership for U.S. federal income tax purposes and, as such, is not subject to U.S. federal income tax. Instead, taxable income is allocated to its members, including us and the Continuing Equity Owners. We intend to cause CWAN Holdings, LLC to make tax distributions quarterly to the holders of LLC Interests (including us), in each case on a pro rata basis based on CWAN Holdings, LLC’s net taxable income, which tax distributions will be based on an assumed tax rate. Thus, CWAN Holdings, LLC will be required to make tax distributions that, in the aggregate, will likely exceed the amount of taxes that it would have paid if it were taxed on its net income at the tax rate applicable to a similarly situated corporate taxpayer. Funds used by CWAN Holdings, LLC to satisfy its tax distribution obligations will not be available for reinvestment in our business. Moreover, these tax distributions may be substantial, and will likely exceed (as a percentage of CWAN Holdings, LLC’s income) the overall effective tax rate applicable to a similarly situated corporate taxpayer. As a result, it is possible that we will receive distributions significantly in excess of our tax liabilities and obligations to make payments under the Tax Receivable Agreement. While our board may choose to distribute such cash balances as dividends on our Class A common stock, it will not be required to do so, and may in its sole discretion choose to use such excess cash for any purpose depending upon the facts and circumstances at the time of determination. See “Dividend Policy.”

The amounts that we may be required to pay to the Continuing Equity Owners and the Blocker Shareholders under the Tax Receivable Agreement and to the relevant executive officers under the TRA Bonus Agreements may be accelerated in certain circumstances and may also significantly exceed the actual tax benefits that we ultimately realize.

The Tax Receivable Agreement provides that if (1) certain mergers, asset sales, other forms of business combination or other changes of control were to occur, (2) we breach any of our material obligations under the Tax Receivable Agreement or (3) at any time, we elect an early termination of the Tax Receivable Agreement, then the Tax Receivable Agreement will terminate and our obligations, or our successor’s obligations, to make payments under the Tax Receivable Agreement and the TRA Bonus Agreements would accelerate and become immediately due and payable. The amount due and payable in that circumstance is based on certain assumptions, including an assumption that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the Tax Receivable Agreement. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.” We may need to incur debt to finance payments under the Tax Receivable Agreement and the TRA Bonus Agreements to the extent our cash resources are insufficient to meet our obligations under the Tax Receivable Agreement and the TRA Bonus Agreements as a result of timing discrepancies or otherwise.

 

43


Table of Contents
Index to Financial Statements

As a result of a change of control, material breach or our election to terminate the Tax Receivable Agreement early, (1) we could be required to make cash payments to the Continuing Equity Owners, the Blocker Shareholders and certain executive officers that are greater than the specified percentage of the actual benefits we ultimately realize in respect of the tax benefits that are subject to the Tax Receivable Agreement and the TRA Bonus Agreements and (2) we would be required to make an immediate cash payment equal to the anticipated future tax benefits that are the subject of the Tax Receivable Agreement discounted in accordance with the Tax Receivable Agreement, which payment may be made significantly in advance of the actual realization, if any, of such future tax benefits. In these situations, our obligations under the Tax Receivable Agreement could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combination, or other changes of control. We may not be able to finance our obligations under the Tax Receivable Agreement and the TRA Bonus Agreements.

We may not be able to realize all or a portion of the tax benefits that are currently expected to result from the Tax Attributes covered by the Tax Receivable Agreement and from payments made under the Tax Receivable Agreement and the TRA Bonus Agreements.

Our ability to realize the tax benefits that we currently expect to be available as a result of the Tax Attributes, the payments made pursuant to the Tax Receivable Agreement, the payments made under the TRA Bonus Agreements and the interest deductions imputed under the Tax Receivable Agreement all depend on a number of assumptions, including that we earn sufficient taxable income each year during the period over which such deductions are available and that there are no adverse changes in applicable law or regulations. Additionally, if our actual taxable income were insufficient or there were additional adverse changes in applicable law or regulations, we may be unable to realize all or a portion of the expected tax benefits and our cash flows and shareholders’ equity could be negatively affected. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement” and “Executive Compensation—TRA Bonus Agreements.”

We will not be reimbursed for any payments made to the beneficiaries under the Tax Receivable Agreement or the TRA Bonus Agreements if any purported tax benefits are subsequently disallowed by the U.S. Internal Revenue Service (the “IRS”).

If the IRS or a state or local taxing authority challenges the tax basis adjustments and/or deductions that give rise to payments under the Tax Receivable Agreement or the TRA Bonus Agreements and the tax basis adjustments and/or deductions are subsequently disallowed, the recipients of payments under the Tax Receivable Agreement or the TRA Bonus Agreements will not reimburse us for any payments we previously made to them. Any such disallowance would be taken into account in determining future payments under the Tax Receivable Agreement or the TRA Bonus Agreements, as applicable, and may, therefore, reduce the amount of any such future payments. Nevertheless, if the claimed tax benefits from the tax basis adjustments and/or deductions are disallowed, our payments under the Tax Receivable Agreement or the TRA Bonus Agreements could exceed our actual tax savings, and we may not be able to recoup payments under the Tax Receivable Agreement and the TRA Bonus Agreements that were calculated on the assumption that the disallowed tax savings were available.

Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our financial condition and results of operations.

We will be subject to income taxes in the United States and foreign jurisdictions, and our domestic and foreign tax liabilities will be subject to the allocation of expenses in differing jurisdictions. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:

 

   

changes in the valuation of our deferred tax assets and liabilities;

 

   

expected timing and amount of the release of any tax valuation allowances;

 

   

tax effects of equity-based compensation;

 

   

costs related to intercompany restructurings;

 

   

changes in tax laws, regulations or interpretations thereof; or

 

   

lower than anticipated future earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated future earnings in jurisdictions where we have higher statutory tax rates.

 

44


Table of Contents
Index to Financial Statements

In addition, we may be subject to audits of our income, sales and other transaction taxes by U.S. federal and state authorities. Outcomes from these audits could have an adverse effect on our results of operations and financial condition.

If we were deemed to be an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business, financial condition and results of operations.

Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an “investment company” for purposes of the 1940 Act if it (1) is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (2) is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We do not believe that we are an “investment company,” as such term is defined in either of those sections of the 1940 Act.

As the sole managing member of CWAN Holdings, LLC, we will control and manage CWAN Holdings, LLC. On that basis, we believe that our interest in CWAN Holdings, LLC is not an “investment security” under the 1940 Act. Therefore, we have less than 40% of the value of our total assets (exclusive of U.S. government securities and cash items) in “investment securities.” However, if we were to lose the right to manage and control CWAN Holdings, LLC, interests in CWAN Holdings, LLC could be deemed to be “investment securities” under the 1940 Act.

We intend to conduct our operations so that we will not be deemed to be an investment company. However, if we were deemed to be an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to This Offering and Our Class A Common Stock

The Principal Equity Owners will continue to have significant influence over us after this offering, including control over decisions that require the approval of stockholders, which could limit your ability to influence the outcome of matters submitted to stockholders for a vote.

We are currently controlled, and after this offering is completed will continue to be controlled, by the Principal Equity Owners. Upon completion of this offering, the Principal Equity Owners will beneficially own 97.0% of the combined voting power of all of our outstanding common stock. As long as the Principal Equity Owners collectively own or control at least a majority of our outstanding voting power, they will have the ability to exercise substantial control and significant influence over our management and affairs and all corporate actions requiring stockholder approval, irrespective of how our other stockholders may vote, including the election and removal of directors and the size of our board of directors, any amendment of our certificate of incorporation or bylaws, or the approval of any merger or other significant corporate transaction, including a sale of substantially all of our assets. See “Description of Capital Stock.” The concentration of voting power limits your ability to influence corporate matters, and as a result, we may take actions that you do not view as beneficial. As a result, the market price of our Class A common stock could be adversely affected.

In addition, immediately following the offering, the Principal Equity Owners will own 18.7% of the economic interest in CWAN Holdings, LLC. Because they hold a substantial portion of their ownership interests in our business through CWAN Holdings, LLC, these existing holders of LLC Interests may have conflicting interests with holders of our Class A common stock. For example, they may have different tax positions from us which could influence their decisions regarding whether and when to dispose of assets, and whether and when to incur new or refinance existing indebtedness, especially in light of the existence of the Tax Receivable Agreement. In addition, the structuring of future transactions may take into consideration these existing unitholders’ tax considerations even where no similar benefit would accrue to us. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.”

 

45


Table of Contents
Index to Financial Statements

Certain of our stockholders will have the right to engage or invest in the same or similar businesses as us.

In the ordinary course of their business activities, the Principal Equity Owners and their respective affiliates may engage in activities where their interests conflict with our interests or those of our stockholders. Our amended and restated certificate of incorporation will provide that the Principal Equity Owners or any of their respective officers, directors, agents, stockholders, members, partners, affiliates and subsidiaries will have no duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as us or any of our subsidiaries, even if the opportunity is one that we might reasonably have pursued or had the ability or desire to pursue if granted the opportunity to do so. No such person will be liable to us for breach of any fiduciary or other duty, as a director or officer or otherwise, by reason of the fact that such person, acting in good faith, pursues or acquires any such business opportunity, directs any such business opportunity to another person or fails to present any such business opportunity, or information regarding any such business opportunity, to us unless, in the case of any such person who is our director or officer, any such business opportunity is expressly offered to such director or officer solely in his or her capacity as our director or officer.

Following the offering, we will be classified as a “controlled company,” and as a result, we qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.

After the closing of this offering, the Principal Equity Owners will continue to control a majority of our voting power. As a result, we would be a “controlled company” within the meaning of the applicable stock exchange corporate governance standards. Under the rules of NYSE, a company of which more than 50% of the outstanding voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain stock exchange corporate governance requirements, including:

 

   

that a majority of our board of directors consist of independent directors;

 

   

that nominating and corporate governance matters be decided solely by independent directors; and

 

   

that employee and officer compensation matters be decided solely by independent directors.

Following this offering, we intend to utilize these exemptions. As a result, we may not have a majority of independent directors, and our nominating and corporate governance and compensation functions may not be decided solely by independent directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the stock exchange corporate governance requirements.

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members and officers.

As a public company, we will be subject to the reporting requirements of the Exchange Act, the listing requirements of NYSE, and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and results of operations and maintain effective disclosure controls and procedures and internal control over financial reporting. To maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business and results of operations. Although we have already hired additional employees in preparation for these heightened requirements, we may need to hire more employees in the future which would increase our costs and expenses.

We also expect that being a public company will make it more expensive for us to obtain director and officer liability insurance and we may have to choose between reduced coverage or substantially higher costs to obtain coverage. These factors could make it more difficult for us to attract and retain qualified executive officers and members of our board of directors, particularly to serve on our audit committee and compensation committee.

 

46


Table of Contents
Index to Financial Statements

An active, liquid trading market for our Class A common stock may not develop.

Prior to this offering, there has not been a public market for our Class A common stock. Although we will list our Class A common stock on NYSE, we cannot predict whether an active public market for our Class A common stock will develop or be sustained after this offering. If an active and liquid trading market does not develop, you may have difficulty selling or may not be able to sell any of the shares of our Class A common stock that you purchase.

The price of our Class A common stock may decline or may be subject to significant volatility after this offering.

The market price of our Class A common stock could be subject to significant fluctuations after this offering. The price of our Class A common stock may change in response to fluctuations in our results of operations in future periods and also may change in response to other factors, including factors specific to companies in our industry, many of which are beyond our control. As a result, our stock price may experience significant volatility and may not necessarily reflect our performance. Among other factors that could affect our stock price are:

 

   

changes in laws or regulations applicable to our industry or offerings;

 

   

speculation about our business in the press or the investment community;

 

   

price and volume fluctuations in the overall stock market;

 

   

volatility in the market price and trading volume of companies in our industry or companies that investors consider comparable;

 

   

stock price and volume fluctuations attributable to inconsistent trading levels of our shares;

 

   

our ability to protect our intellectual property and other proprietary rights and to operate our business without infringing, misappropriating or otherwise violating the intellectual property and other proprietary rights of others;

 

   

sales of our Class A common stock by us or our significant stockholders, officers and directors;

 

   

redemptions and exchanges by certain of the Continuing Equity Owners of their LLC Interests into shares of Class A common stock;

 

   

the expiration of contractual lock-up agreements;

 

   

the development and sustainability of an active trading market for our Class A common stock;

 

   

success of competitive products or services;

 

   

the public’s response to press releases or other public announcements by us or others, including our filings with the SEC, announcements relating to litigation or significant changes to our key personnel;

 

   

the effectiveness of our internal controls over financial reporting;

 

   

changes in our capital structure, such as future issuances of debt or equity securities;

 

   

our entry into new markets;

 

   

tax developments in the United States, Europe or other markets;

 

   

strategic actions by us or our competitors, such as acquisitions or restructurings; and

 

   

changes in accounting principles.

Further, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. In addition, the stock prices of

 

47


Table of Contents
Index to Financial Statements

many technology companies have experienced wide fluctuations that have often been unrelated to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may cause the market price of our Class A common stock to decline.

You may not be able to resell any of your shares of our Class A common stock at or above the initial public offering price. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the trading market, if a trading market develops, after this offering. If the market price of our Class A common stock after this offering does not exceed the initial public offering price, you may not realize any return on your investment and may lose some or all of your investment.

We cannot predict the effect our multiple class structure may have on the trading market for our Class A common stock.

We cannot predict whether our multiple class structure will result in a lower or more volatile market price of our Class A common stock or other adverse consequences. For example, certain index providers have announced restrictions on including companies with multiple class share structures in certain of their indexes. S&P, Dow Jones and FTSE Russell have each announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices, including the S&P 500. These changes exclude companies with multiple classes of shares of common stock or ordinary shares from being added to these indices. Furthermore, other stock indices may take a similar approach to S&P, Dow Jones or FTSE Russell in the future. Exclusion from indices could make our Class A common stock less attractive to investors, and as a result, the market price of our Class A common stock could be adversely affected.

If you purchase shares of our Class A common stock sold in this offering, you will incur immediate and substantial dilution.

If you purchase shares of our Class A common stock in this offering, you will incur immediate and substantial dilution in the amount of $14.68 per share because the initial public offering price will be substantially higher than the pro forma as adjusted net tangible book value per share of our outstanding Class A common stock. This dilution would result because our earlier investors paid substantially less than the initial public offering price when they purchased their shares. In addition, you may also experience additional dilution upon future equity issuances, the exercise of stock options to purchase Class A common stock granted to our employees and directors under our stock option and equity incentive plans. See “Dilution.”

As an emerging growth company within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), we may utilize certain modified disclosure requirements, and we cannot be certain if these reduced requirements will make our Class A common stock less attractive to investors.

We are an emerging growth company, and for as long as we continue to be an emerging growth company, we intend to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute compensation not previously approved. We have in this prospectus utilized, and we may in future filings with the SEC continue to utilize, the modified disclosure requirements available to emerging growth companies. As a result, our stockholders may not have access to certain information they may deem important.

 

 

48


Table of Contents
Index to Financial Statements

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to not “opt out” of this exemption from complying with new or revised accounting standards, and therefore, we are permitted to adopt new or revised accounting standards at the time private companies adopt the new or revised accounting standard and are permitted to do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company.

Following this offering, we could remain an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; and (iv) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC.

A credit ratings downgrade or other negative action by a credit rating organization could adversely affect the trading price of the shares of our Class A common stock.

Credit rating agencies continually revise their ratings for companies they follow. The condition of the financial and credit markets and prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future. In addition, developments in our business and operations could lead to a ratings downgrade for us or our subsidiaries. Any such fluctuation in our or our subsidiaries’ ratings may impact our ability to access debt markets in the future or increase our cost of future debt, which could have a material adverse effect on our operations and financial condition, which in return may adversely affect the trading price of shares of our Class A common stock.

Provisions in our certificate of incorporation and bylaws, to be adopted upon the consummation of this offering, may have the effect of delaying or preventing a change of control or changes in our management.

Our certificate of incorporation and bylaws will contain provisions that could depress the trading price of our Class A common stock by discouraging, delaying or preventing a change of control of our Company or changes in our management that the stockholders of our Company may believe advantageous. These provisions include:

 

   

provide for a multi-class common stock structure in which each share of our Class C common stock and each share of our Class D common stock entitles its holder to ten votes per share on all matters presented to our stockholders generally;

 

   

authorizing “blank check” preferred stock that our board of directors could issue to increase the number of outstanding shares to discourage a takeover attempt;

 

   

providing for a classified board of directors with staggered three-year terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;

 

   

not providing for cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

 

   

limiting the ability of stockholders to call a special stockholder meeting;

 

   

prohibiting stockholders from acting by written consent from and after the date on which Welsh Carson, Warburg Pincus and Permira and their affiliates, collectively or singly, cease to beneficially own shares of our common stock representing at least 50% of the voting power of our common stock (the “Trigger Event”);

 

   

establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings;

 

 

49


Table of Contents
Index to Financial Statements
   

from and after the Trigger Event, the removal of directors only for cause and only upon the affirmative vote of the holders of at least 66 2/3% in voting power of all the then-outstanding shares of common stock of the Company entitled to vote thereon;

 

   

providing that our board of directors is expressly authorized to amend, alter, rescind or repeal our bylaws; and

 

   

from and after the Trigger Event, requiring the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then-outstanding shares of our common stock to amend provisions of our certificate of incorporation relating to the management of our business, our board of directors, stockholder action by written consent, calling special meetings of stockholders, competition and corporate opportunities, Section 203 of the Delaware General Corporation Law (the “DGCL”), forum selection and the liability of our directors, or to amend, alter, rescind or repeal our bylaws.

Our certificate of incorporation will also provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our certificate of incorporation will provide that, unless we consent in writing to the selection of an alternate forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the DGCL, our certificate of incorporation or our bylaws; any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or our bylaws; any action asserting a claim against us that is governed by the internal affairs doctrine; or any action asserting an “internal corporate claim” as defined in Section 115 of the DGCL. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court finds the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations.

Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. In addition, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our certificate of incorporation will provide that, unless we consent in writing to the selection of an alternate forum, the federal district court for the District of Delaware will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. We note that there is uncertainty as to whether a court would enforce the choice of forum provision with respect to claims under the federal securities laws, and that investors cannot waive compliance with the Securities Act and the rules and regulations thereunder.

We do not intend to pay any cash distributions or dividends on our Class A common stock in the foreseeable future.

We currently do not anticipate paying any cash dividends on our Class A common stock after this offering or for the foreseeable future. Instead, we anticipate that all of our available funds and earnings in the foreseeable future will be used to repay indebtedness, for working capital, to support our operations and to finance the growth and development of our business. Any future determination relating to dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including restrictions in our and

 

50


Table of Contents
Index to Financial Statements

our subsidiaries’ current and future debt instruments, our future earnings, capital requirements, financial condition and prospects, and applicable Delaware law, which provides that dividends are only payable out of surplus or current net profits. Holders of our Class B common stock and Class C common stock are not entitled to participate in any dividends declared by our board of directors. Furthermore, because we are a holding company, our ability to pay cash dividends on our Class A common stock depends on our receipt of cash distributions from CWAN Holdings, LLC and, through CWAN Holdings, LLC, cash distributions and dividends from our other direct and indirect subsidiaries. See “Dividend Policy.”

Our indebtedness could adversely affect our financial flexibility and our competitive position.

As of June 30, 2021, the Existing Credit Agreement had $432.7 million of term loans. We intend to use a portion of the net proceeds from this offering to repay outstanding borrowings under the Existing Credit Agreement and, in connection with this offering, expect to enter into the New Credit Agreement. Our level of indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness. Our indebtedness could have other important consequences to you and significant effects on our business. For example, it could:

 

   

increase our vulnerability to adverse changes in general economic, industry and competitive conditions;

 

   

require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;

 

   

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

 

   

restrict us from exploiting business opportunities;

 

   

make it more difficult to satisfy our financial obligations, including payments on our indebtedness;

 

   

place us at a disadvantage compared to our competitors that have less debt; and

 

   

limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general corporate purposes.

In addition, the New Credit Agreement is expected to contain, and the agreements evidencing or governing any other future indebtedness may contain, restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default that, if not cured or waived, could result in the acceleration of all of our indebtedness. See “Description of Certain Indebtedness.”

The phase-out, replacement or unavailability of LIBOR and/or other interest rate benchmarks could adversely affect our indebtedness.

The interest rates applicable to the Existing Credit Agreement and expected to be applicable to the New Credit Agreement are based on, and the interest rates applicable to certain debt obligations we may incur in the future may be based on, a fluctuating rate of interest determined by reference to the London Interbank Offered Rate (“LIBOR”). In July 2017, the U.K.’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. In response to concerns regarding the future of LIBOR, the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee (the “ARRC”) to identify alternatives to LIBOR. The ARRC has recommended a benchmark replacement waterfall to assist issuers in continued capital market entry while safeguarding against LIBOR’s discontinuation. The initial steps in the ARRC’s recommended provision reference variations of the Secured Overnight Financing Rate (“SOFR”),

 

51


Table of Contents
Index to Financial Statements

calculated using short-term repurchase agreements backed by Treasury securities. At this time, it is not possible to predict whether SOFR will attain market traction as a LIBOR replacement. Additionally, it is uncertain if LIBOR will cease to exist after calendar year 2021, or whether additional reforms to LIBOR may be enacted, or whether alternative reference rates will gain market acceptance as a replacement for LIBOR. In anticipation of LIBOR’s phase-out, the New Credit Agreement is expected to provide for alternative base rates, as well as a transition mechanism for selecting a benchmark replacement rate for LIBOR, with such benchmark replacement rate to be mutually agreed with the administrative agent and subject to the majority lenders not objecting to such benchmark replacement.

There can be no assurance that we will be able to reach any agreement on a replacement benchmark, and there can be no assurance that any agreement we reach will result in effective interest rates at least as favorable to us as our current effective interest rates. The failure to reach an agreement on a replacement benchmark, or the failure to reach an agreement that results in an effective interest rate at least as favorable to us as our current effective interest rates, could result in a significant increase in our debt service obligations, which could adversely affect our financial condition and results of operations. In addition, the overall financing market may be disrupted as a result of the phase-out or replacement of LIBOR, which could have an adverse impact on our ability to refinance, reprice or amend the New Credit Agreement or incur additional indebtedness, on favorable terms or at all.

Our indebtedness may restrict our current and future operations, which could adversely affect our ability to respond to changes in our business and to manage our operations.

The New Credit Agreement is expected to contain, and the agreements evidencing or governing any other future indebtedness may contain, financial restrictions on us and our restricted subsidiaries, including restrictions on our or our restricted subsidiaries’ ability to, among other things:

 

   

place liens on our or our restricted subsidiaries’ assets;

 

   

make investments other than permitted investments;

 

   

incur additional indebtedness;

 

   

prepay or redeem certain indebtedness;

 

   

merge, consolidate or dissolve;

 

   

sell assets;

 

   

engage in transactions with affiliates;

 

   

change the nature of our business;

 

   

change our or our subsidiaries’ fiscal year or organizational documents; and

 

   

make restricted payments.

In addition, we expect to be required to maintain compliance with various financial ratios in the New Credit Agreement. A failure by us or our subsidiaries to comply with the covenants or to maintain the required financial ratios contained in the New Credit Agreement could result in an event of default under such indebtedness, which could adversely affect our ability to respond to changes in our business and manage our operations. Additionally, a default by us under the New Credit Agreement or an agreement governing any other future indebtedness may trigger cross-defaults under any other future agreements governing our indebtedness. Upon the occurrence of an event of default or cross-default under any of the present or future agreements governing our indebtedness, the lenders could elect to declare all amounts outstanding to be due and payable and exercise other remedies as set forth in the agreements. If any of our indebtedness is accelerated, there can be no assurance that our assets will be sufficient to repay this indebtedness in full, which could have a material adverse effect on our ability to continue to operate as a going concern. See “Description of Certain Indebtedness.”

 

52


Table of Contents
Index to Financial Statements

We may not be able to raise additional capital to execute our current or future business strategies on favorable terms, if at all, or without dilution to our stockholders.

We expect that we may need to raise additional capital to execute our current or future business strategies. However, we do not know what forms of financing, if any, will be available to us. Some financing activities in which we may engage could cause your equity interest in the Company to be diluted, which could cause the value of our Class A common stock to decrease. If financing is not available on acceptable terms, if and when needed, our ability to fund our operations, expand our research and development and sales and marketing functions, develop and enhance our solutions and services, respond to unanticipated events, including unanticipated opportunities, or otherwise respond to competitive pressures would be significantly limited. In any such event, our business, financial condition and results of operations could be materially harmed, and we may be unable to continue our operations.

The price of our Class A common stock could decline if securities analysts do not publish research or if securities analysts or other third parties publish inaccurate or unfavorable research about us.

The trading of our Class A common stock is likely to be influenced by the reports and research that industry or securities analysts publish about us, our business, our market or our competitors. We do not currently have and may never obtain research coverage by securities or industry analysts. If no securities or industry analysts commence coverage of our Company, the trading price for our Class A common stock would be negatively affected. If we obtain securities or industry analyst coverage but one or more analysts downgrade our Class A common stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more securities or industry analysts ceases to cover the Company or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Future sales of our Class A common stock, or the perception that such sales may occur, could depress our Class A common stock price.

Sales of a substantial number of shares of our Class A common stock in the public market following this offering, or the perception that such sales may occur, could depress the market price of our Class A common stock. Issuing additional shares of our Class A common stock or other equity securities or securities convertible into equity may dilute the economic and voting rights of our existing stockholders or reduce the market price of our Class A common stock or both. Issuing additional shares of our Class B common stock and Class C common stock, as applicable, when issued with corresponding LLC Interests, may also dilute the economic and voting rights of our existing stockholders or reduce the market price of our Class A common stock or both. Additionally, further issuances of our Class D common stock, which is convertible into shares of our Class A common stock, may also dilute the economic and voting rights of our existing stockholders. See “Description of Capital Stock.”

Our executive officers and directors and holders of substantially all of our common stock have agreed with the underwriters not to offer, sell, dispose of or hedge any shares of our Class A common stock or any options to purchase any shares of our Class A common stock, or securities convertible into, exchangeable for, or that represent the right to receive, shares of our Class A common stock, subject to specified limited exceptions described elsewhere in this prospectus, during the period ending 180 days after the date of the final prospectus, (the “Lock-Up Period”) except with the prior written consent of the representatives of the underwriters. As further described in the section titled “Underwriting,” if (i) at least 120 days have elapsed from the date of this prospectus and (ii) the Lock-Up Period is scheduled to expire during a broadly applicable and regularly scheduled period during which trading in the Company’s securities would not be permitted under the Company’s insider trading policy (“Blackout Period”) or within five trading days prior to a Blackout Period, the Lock-Up Period will end on the 10th trading date prior to commencement of the Blackout Period. The lock-up agreements define “trading day” as a day on which the New York Stock Exchange and the Nasdaq Stock Market are open for the buying and selling of securities. Our certificate of incorporation, as expected to be in effect upon the completion of this offering, will authorize us to issue up to 1,500,000,000 shares of Class A common stock, of which 42,866,089 shares of Class A common stock will be outstanding and 1,457,133,911 will be available for issuance, of which 188,702,453 will be available for issuance upon the exchange of outstanding LLC Interests,

 

53


Table of Contents
Index to Financial Statements

together with an equal number of shares of Class B common stock or Class C common stock, as the case may be, and the conversion of outstanding shares of Class D common stock immediately following the closing of this offering. All shares of our common stock held by the Continuing Equity Owners will be subject to the lock-up agreements described under “Shares Eligible for Future Sale” and “Underwriting.” Shares of our common stock held by our affiliates will continue to be subject to the volume and other restrictions of Rule 144 under the Securities Act. The representatives of the underwriters may, in their sole discretion and at any time, release all or any portion of the shares subject to the lock-up. See “Underwriting.”

Upon the completion of this offering, the holders of an aggregate of 177,461,343 shares of our Class A common stock (on an as-converted basis) or their transferees will be entitled to rights with respect to the registration of their shares under the Securities Act. In addition, immediately following this offering, we intend to file a registration statement registering under the Securities Act the shares of Class A common stock reserved for issuance under the 2021 Plan. See the information under the heading “Shares Eligible for Future Sale” for a more detailed description of the shares that will be available for future sales upon completion of this offering. Sales of our Class A common stock pursuant to these registration rights or this registration statement may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales also could cause our stock price to fall and make it more difficult for you to sell shares of our Class A common stock.

An aggregate of approximately 33.3 million shares of our Class D common stock that are beneficially owned by affiliates of Warburg Pincus are pledged to secure obligations of affiliates of Warburg Pincus under a loan agreement with Wells Fargo Bank, National Association, an affiliate of one of the underwriters in this offering. In the case of nonpayment at maturity or another event of default (including but not limited to the borrower’s inability to satisfy certain mandatory prepayments which are triggered off the value of such shares), Wells Fargo Bank, National Association or any transferee (in the event that Wells Fargo Bank, National Association had assigned or otherwise transferred its rights under the pledge to a non-affiliate) may exercise its rights under the applicable loan agreements to foreclose on and sell shares pledged to cover the amount due under the loan, provided that no sales of the pledged shares may be made to third parties until 180 days after the date of this prospectus. Any transfers or sales of such pledged shares may cause the price of our Class A common stock to decline.

If we fail to implement and maintain effective internal controls over financial reporting, we may be unable to accurately or timely report our financial condition or results of operations, which may adversely affect our business.

Our management has not completed an assessment of the effectiveness of our internal control over financial reporting, and our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. Evaluation by us of our internal control over financial reporting may identify material weaknesses. The identification of a material weakness in our internal control over financial reporting or the failure to remediate existing material weaknesses in our internal control over financial reporting may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC or violations of NYSE rules. There also could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. This could have a material adverse effect on our business, financial condition and results of operations and could also lead to a decline in the price of our Class A common stock.

We are not currently required to comply with the SEC’s rules implementing Section 404 of the Sarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which will require our management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting. To comply with the requirements of being a public company, we will need to implement additional internal controls, reporting systems and procedures and hire additional accounting, finance and legal staff. For as long as we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be

 

54


Table of Contents
Index to Financial Statements

required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404. We could be an “emerging growth company” for up to five years. An independent assessment of the effectiveness of our internal control over financial reporting could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation. Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently.

 

55


Table of Contents
Index to Financial Statements

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that 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 sections captioned “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” 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. 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 prospectus. You should read this prospectus and the documents that we have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

Important factors that could cause actual results, performance or achievements to differ materially from our expectations include the following:

 

   

we operate in a highly competitive industry, with many companies competing for business from insurance companies, asset managers, corporations and government entities on the basis of a number of factors, including the quality and breadth of solutions and services provided, ability to innovate, reputation and the prices of services, and this competition could hurt our financial performance;

 

   

we have experienced rapid revenue growth over the past several years, which may be difficult to sustain, and we depend on attracting and retaining top talent to continue growing and operating our business, and if we are unable to hire, integrate, develop, motivate and retain our personnel, we may not be able to maintain or manage our growth, which could have a material adverse effect on our business, financial condition or results of operations;

 

   

if our investment accounting and reporting solutions, regulatory reporting solutions or risk management or performance analytics solutions fail to perform properly due to undetected errors or similar problems, our business, financial condition, reputation or results of operations could be materially adversely affected;

 

   

our business relies heavily on computer equipment, cloud-based services, electronic delivery systems, networks and telecommunications systems and infrastructure, the Internet and the information technology systems of third parties. Any failures or disruptions in any of the foregoing could result in reduced revenues, increased costs and the loss of clients and could harm our business, financial condition, reputation and results of operations;

 

   

if we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed;

 

   

if our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest, and our competitive position may be harmed;

 

   

we may need to defend ourselves against third-party claims that we are infringing, misappropriating or otherwise violating others’ intellectual property rights, which could divert management’s attention, cause us to incur significant costs, and prevent us from selling or using the technology to which such rights relate;

 

56


Table of Contents
Index to Financial Statements
   

the Principal Equity Owners will continue to have significant influence over us after this offering, including control over decisions that require the approval of stockholders, which could limit your ability to influence the outcome of matters submitted to stockholders for a vote;

 

   

following the offering, we will be classified as a “controlled company,” and as a result, we will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements. In addition, the Principal Equity Owners’ interests may conflict with our interests and the interests of other stockholders;

 

   

the requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members and officers; and

 

   

provisions in our certificate of incorporation and bylaws, to be adopted upon the consummation of this offering, may have the effect of delaying or preventing a change of control or changes in our management.

Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

 

57


Table of Contents
Index to Financial Statements

USE OF PROCEEDS

We estimate, based upon an assumed initial public offering price of $15.00 per share (which is the midpoint of the estimated price range set forth on the cover page of this prospectus), that we will receive net proceeds from this offering of approximately $412.4 million (or $475.7 million if the underwriters exercise in full their option to purchase additional shares of Class A common stock), after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

Clearwater Analytics Holdings, Inc. intends to use the net proceeds from this offering, together with the proceeds from the New Term Loan, to (i) purchase 30,000,000 LLC Interests (or 34,500,000 LLC Interests if the underwriters exercise in full their option to purchase additional shares of Class A common stock) from CWAN Holdings, LLC at a price per unit equal to the initial public offering price per share of Class A common stock in this offering less the underwriting discounts and commissions and (ii) repay approximately $432.7 million of outstanding borrowings under the Existing Credit Agreement and pay any associated prepayment penalties and accrued and unpaid interest to the date of repayment. We intend to use remaining proceeds, if any, for general corporate purposes to support the growth of the business. The contract interest rate on the indebtedness that we intend to repay was 7.25% annually as of June 30, 2021, and the maturity date is October 31, 2025.

Each $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share (which is the midpoint of the estimated price range set forth on the cover page of this prospectus) would increase (decrease) the net proceeds to us from this offering by approximately $28.1 million and, in turn, the net proceeds received by CWAN Holdings, LLC from the sale of LLC Interests to Clearwater Analytics Holdings, Inc. by $28.1 million, assuming the number of shares offered, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

Each 1,000,000 share increase (decrease) in the number of shares offered by us in this offering would increase (decrease) the net proceeds to us from this offering and, in turn, the net proceeds received by CWAN Holdings, LLC from the sale of LLC Interests to Clearwater Analytics Holdings, Inc., by approximately $14.1 million, assuming that the price per share for the offering remains at $15.00 (which is the midpoint of the estimated price range set forth on the cover page of this prospectus), and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

58


Table of Contents
Index to Financial Statements

ORGANIZATIONAL STRUCTURE

Clearwater Analytics Holdings, Inc., a Delaware corporation, was formed on May 18, 2021 and is the issuer of the Class A common stock offered by this prospectus. Prior to this offering and the Transactions (as defined below), all of our business operations have been conducted through Carbon Analytics Holdings, LLC, which changed its name to CWAN Holdings, LLC in connection with this offering, and its direct and indirect subsidiaries. The Continuing Equity Owners are the only owners of CWAN Holdings, LLC. We will consummate the Transactions, excluding this offering, substantially concurrently with or prior to the consummation of this offering.

Existing Organization

CWAN Holdings, LLC is treated as a partnership for U.S. federal income tax purposes and, as such, is generally not subject to any U.S. federal entity-level income taxes. Taxable income or loss of CWAN Holdings, LLC is included in the U.S. federal income tax returns of CWAN Holdings, LLC’s members.

Transactions

We will consummate the following organizational transactions prior to or in connection with this offering:

 

   

we will amend and restate the existing limited liability company agreement of CWAN Holdings, LLC, which will become effective substantially concurrently with or prior to the consummation of this offering, to, among other things, (1) recapitalize all existing ownership interests in CWAN Holdings, LLC into one class of LLC Interests, (2) appoint Clearwater Analytics Holdings, Inc. as the sole managing member of CWAN Holdings, LLC, (3) for strategic business and tax reasons, including to provide liquidity for certain holders of LLC Interests, provide that the Other Continuing Equity Owners are entitled to exchange LLC Interests, together with an equal number of shares of Class B common stock, for shares of Class A common stock on a one-for-one basis or, at our election, for an amount in cash representing the fair market value of shares of Class A common stock net of any underwriters’ discounts, commissions and brokers’ fees that would be payable in connection with a registered offering of such shares as calculated in accordance with the LLC Agreement and (4) for strategic business and tax reasons, including to provide liquidity for certain holders of LLC Interests, provide that Principal Equity Owners are entitled to exchange LLC Interests, together with an equal number of shares of Class C common stock, for shares of Class D common stock on a one-for-one basis or, at our election, for an amount in cash representing the fair market value of shares of Class A common stock net of any underwriters’ discounts, commissions and brokers’ fees that would be payable in connection with a registered offering of such shares as calculated in accordance with the LLC Agreement. The holders of Class B common stock and Class C common stock will have no economic interests in Clearwater Analytics Holdings, Inc. (where “economic interests” means the right to receive any dividends or distributions, whether cash or stock, in connection with common stock). Each share of our Class C common stock and Class D common stock will automatically convert into a share of our Class B common stock and our Class A common stock, respectively, upon the earlier of (i) the date that affiliates of Welsh Carson own less than 5% of our common stock and (ii) the date that is seven years following the closing of our initial public offering. The attributes of our classes of common stock are summarized in the following table. For more information, see “Certain Relationships and Related Party Transactions—LLC Agreement.”

 

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  

 

   

we will amend and restate Clearwater Analytics Holdings, Inc.’s certificate of incorporation as described in “Description of Capital Stock”;

 

   

we will effectuate the Blocker Mergers, with Clearwater Analytics Holdings, Inc. remaining as the surviving corporation, and will (1) issue to the Blocker Shareholders 12,866,089 shares of our Class A

 

59


Table of Contents
Index to Financial Statements
 

common stock and 134,121,127 shares of our Class D common stock, as the case may be, in exchange for all of the Blocker Shareholders’ equity interests in the Blocker Entities, which indirectly includes their LLC Interests, and (2) enter into the Tax Receivable Agreement with the Blocker Shareholders, each as consideration for the Blocker Mergers;

 

   

we will issue 11,151,110 shares of our Class B common stock to the Other Continuing Equity Owners, which is equal to the number of LLC Interests held by such Other Continuing Equity Owners;

 

   

we will issue 43,340,216 shares of our Class C common stock to the Principal Equity Owners, which is equal to the number of LLC Interests held by such Principal Equity Owners;

 

   

we will issue 30,000,000 shares of our Class A common stock to the purchasers in this offering (or 34,500,000 shares if the underwriters exercise in full their option to purchase additional shares of Class A common stock) in exchange for net proceeds of approximately $412.4 million (or approximately $475.7 million if the underwriters exercise in full their option to purchase additional shares of Class A common stock) based upon an assumed initial public offering price of $15.00 per share (which is the midpoint of the estimated price range set forth on the cover page of this prospectus), less the underwriting discounts and commissions and estimated offering expenses payable by us;

 

   

we will use a portion of the net proceeds from this offering to purchase 30,000,000 LLC Interests (or 34,500,000 LLC Interests if the underwriters exercise in full their option to purchase additional shares of Class A common stock) from CWAN Holdings, LLC at a price per unit equal to the initial public offering price per share of Class A common stock in this offering, less the underwriting discounts and commissions; and

 

   

Clearwater Analytics Holdings, Inc. will enter into (1) the Registration Rights Agreement, (2) the Tax Receivable Agreement, (3) the TRA Bonus Agreements and (4) the Stockholders’ Agreement. For a description of the terms of the Registration Rights Agreement, the Tax Receivable Agreement and the Stockholders’ Agreement, see “Certain Relationships and Related Party Transactions” and a description of the terms of the TRA Bonus Agreements, see “Executive Compensation—TRA Bonus Agreements.”

Organizational Structure Following the Transactions

 

   

Clearwater Analytics Holdings, Inc. will be a holding company, and its principal asset will consist of LLC Interests it acquires as a result of (i) the purchase of such LLC Interests with the net proceeds of this offering and (ii) the Blocker Mergers. Clearwater Analytics Holdings, Inc. will directly own 176,987,215 LLC Interests of CWAN Holdings, LLC, representing approximately 76.5% of the economic interest in CWAN Holdings, LLC (or 181,487,215 LLC Interests, representing approximately 76.9% of the economic interest in CWAN Holdings, LLC if the underwriters exercise in full their option to purchase additional shares of Class A common stock);

 

   

Clearwater Analytics Holdings, Inc. will be the sole managing member of CWAN Holdings, LLC and will control the business and affairs of CWAN Holdings, LLC and its direct and indirect subsidiaries;

 

   

the Other Continuing Equity Owners will own (1) 11,151,110 LLC Interests of CWAN Holdings, LLC, representing approximately 4.8% of the economic interest in CWAN Holdings, LLC (or approximately 4.7% of the economic interest in CWAN Holdings, LLC if the underwriters exercise in full their option to purchase additional shares of Class A common stock), (2) 12,866,089 shares of Class A common stock of Clearwater Analytics Holdings, Inc., representing approximately 0.7% of the combined voting power of all of Clearwater Analytics Holdings, Inc.’s common stock and approximately 7.3% of the economic interest in Clearwater Analytics Holdings, Inc. (or approximately 0.7% of the combined voting power and approximately 7.0% of the economic interest if the underwriters exercise in full their option to purchase additional shares of Class A common stock), and (3) 11,151,110 shares of Class B common stock of Clearwater Analytics Holdings, Inc., representing in aggregate approximately 0.6% of the combined voting power of all of Clearwater Analytics Holdings, Inc.’s common stock (or approximately 0.6% of the combined voting power of all of Clearwater Analytics Holdings, Inc.’s

 

60


Table of Contents
Index to Financial Statements
 

common stock if the underwriters exercise in full their option to purchase additional shares of Class A common stock) and no economic interest in us;

 

   

the Principal Equity Owners will own (1) 43,340,216 LLC Interests of CWAN Holdings, LLC, representing approximately 18.7% of the economic interest in CWAN Holdings, LLC (or approximately 18.4% of the economic interest in CWAN Holdings, LLC if the underwriters exercise in full their option to purchase additional shares of Class A common stock), (2) 43,340,216 shares of Class C common stock of Clearwater Analytics Holdings, Inc., representing in aggregate approximately 23.7% of the combined voting power of all of Clearwater Analytics Holdings, Inc.’s common stock (or approximately 23.6% of the combined voting power of all of Clearwater Analytics Holdings, Inc.’s common stock if the underwriters exercise in full their option to purchase additional shares of Class A common stock) and no economic interest in us, and (3) 134,121,127 shares of Class D common stock, representing approximately 73.3% of the combined voting power of all of Clearwater Analytics Holdings, Inc.’s common stock and approximately 75.8% of the economic interest in Clearwater Analytics Holdings, Inc. (or approximately 73.2% of the combined voting power and approximately 73.9% of the economic interest if the underwriters exercise in full their option to purchase additional shares of Class A common stock); and

 

   

the purchasers in this offering will own (1) 30,000,000 shares of Class A common stock of Clearwater Analytics Holdings, Inc. (or 34,500,000 shares of Class A common stock of Clearwater Analytics Holdings, Inc. if the underwriters exercise in full their option to purchase additional shares of Class A common stock), representing approximately 1.6% of the combined voting power of all of Clearwater Analytics Holdings, Inc.’s common stock and approximately 17.0% of the economic interest in Clearwater Analytics Holdings, Inc. (or approximately 1.9% of the combined voting power and approximately 19.0% of the economic interest if the underwriters exercise in full their option to purchase additional shares of Class A common stock), and (2) through Clearwater Analytics Holdings, Inc.’s ownership of LLC Interests, indirectly will hold approximately 13.0% of the economic interest in CWAN Holdings, LLC (or approximately 14.6% of the economic interest in CWAN Holdings, LLC if the underwriters exercise in full their option to purchase additional shares of Class A common stock).

Our corporate structure following this offering, as described above, is commonly referred to as an “Up-C” structure, which is often used by partnerships and limited liability companies when they undertake an initial public offering of their business. The Up-C structure will allow the Continuing Equity Owners to retain their equity ownership in CWAN Holdings, LLC and to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership, or “passthrough” entity, for U.S. federal income tax purposes following the offering. One of the tax benefits to the Continuing Equity Owners associated with this structure is that future taxable income of CWAN Holdings, LLC that is allocated to the Continuing Equity Owners will be taxed on a flow-through basis and therefore will not be subject to corporate taxes at the CWAN Holdings, LLC entity level. Additionally, because the Continuing Equity Owners may redeem or exchange their LLC Interests for newly issued shares of our Class A common stock or Class D common stock, as the case may be, on a one-for-one basis or, at our option, for cash, the Up-C structure also provides the Continuing Equity Owners with potential liquidity that holders of nonpublicly traded limited liability companies are not typically afforded. For more information regarding the redemption and exchange of LLC Interests, see “Certain Relationships and Related Party Transactions—LLC Agreement.”

Because we will own LLC Interests, we will receive the same benefits as the Continuing Equity Owners of equity ownership in an entity treated as a partnership, or “passthrough” entity, for U.S. federal income tax purposes. In addition, as the Continuing Equity Owners redeem or exchange their LLC Interests, we will obtain a step-up in tax basis in our share of CWAN Holdings, LLC assets. This step-up in tax basis will provide us with certain tax benefits, such as future depreciation and amortization deductions that can reduce the taxable income of CWAN Holdings, LLC that is allocable to us. We expect to enter into the Tax Receivable Agreement with certain of the Continuing Equity Owners and the Blocker Shareholders that will provide for the payment by us to such Continuing Equity Owners and Blocker Shareholders, collectively, of 85% (less payments under the TRA Bonus Agreements) of the amount of tax benefits, if any, that we actually realize, or in some circumstances are

 

61


Table of Contents
Index to Financial Statements

deemed to realize, as a result of the Tax Attributes. For more information regarding such tax benefits, see “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.”

Immediately following this offering, we will be a holding company, and our principal asset will consist of LLC Interests of CWAN Holdings, LLC. As the sole managing member of CWAN Holdings, LLC, we will operate and control all of the business and affairs of CWAN Holdings, LLC. Accordingly, although we will have a minority economic interest in CWAN Holdings, LLC, we will have the sole voting interest in, and control the management of, CWAN Holdings, LLC.

The diagram below depicts our organizational structure after giving effect to the Transactions, including this offering, assuming no exercise by the underwriters of their option to purchase additional shares of Class A common stock:

 

LOGO

 

62


Table of Contents
Index to Financial Statements

As the sole managing member of CWAN Holdings, LLC, we will operate and control all of the business and affairs of CWAN Holdings, LLC and, through CWAN Holdings, LLC and its direct and indirect subsidiaries, conduct our business. As a result, the Company will consolidate CWAN Holdings, LLC and record a significant noncontrolling interest in a consolidated entity in Clearwater Analytics Holdings, Inc.’s consolidated financial statements for the economic interest in CWAN Holdings, LLC held by the Continuing Equity Owners.

Unless otherwise indicated, this prospectus assumes the shares of Class A common stock are offered at $15.00 per share (the midpoint of the estimated price range set forth on the cover page of this prospectus).

Incorporation of Clearwater Analytics Holdings, Inc.

Clearwater Analytics Holdings, Inc., the issuer of the Class A common stock offered by this prospectus, was incorporated as a Delaware corporation on May 18, 2021. Clearwater Analytics Holdings, Inc. has not engaged in any material business or other activities except in connection with its formation and the Transactions. The amended and restated certificate of incorporation of Clearwater Analytics Holdings, Inc. that will become effective immediately prior to the consummation of this offering will, among other things, authorize four classes of common stock, Class A common stock, Class B common stock, Class C common stock and Class D common stock, each having the terms described in “Description of Capital Stock.”

Reclassification and Amendment and Restatement of the LLC Agreement

Prior to or substantially concurrently with the consummation of this offering, the existing limited liability company agreement of CWAN Holdings, LLC will be amended and restated to, among other things, recapitalize its capital structure by creating a single class of LLC Interests and provide for a right of redemption of such LLC Interests in exchange for, at our election (determined solely by a majority of our directors who are disinterested), shares of our Class A common stock, shares of our Class D common stock or cash. See “Certain Relationships and Related Party Transactions—LLC Agreement.”

November 2020 Recapitalization

In November 2020, we completed a recapitalization transaction on behalf of existing unitholders (the “Recapitalization”). In connection with the Recapitalization, we paid approximately $46.4 million in transaction bonuses to our employees and we accelerated the vesting of approximately 3.8 million options. Pursuant to the terms of the transaction bonus and option exercise agreement we entered into with our named executive officers in connection with the Recapitalization, we paid approximately $23.8 million in transaction bonuses to our named executive officers, and accelerated the vesting of approximately 2.9 million options held by them subject to those executive officers’ continued employment with us through the applicable acceleration date and to a 33% clawback in the event such executive officer voluntarily terminates employment with us before 12 months of the closing date of the Recapitalization.

 

63


Table of Contents
Index to Financial Statements

DIVIDEND POLICY

We currently do not anticipate paying any cash dividends on our Class A common stock or Class D common stock after this offering or for the foreseeable future. Instead, we anticipate that all of our available funds and earnings in the foreseeable future will be used to repay indebtedness, for working capital, to support our operations and to finance the growth and development of our business. Any future determination relating to dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including restrictions in our and our subsidiaries’ current and future debt instruments, future earnings, capital requirements, financial condition and prospects, and applicable Delaware law, which provides that dividends are only payable out of surplus or current net profits. Holders of our Class B common stock and Class C common stock are not entitled to participate in any dividends declared by our board of directors. Furthermore, because we are a holding company, our ability to pay cash dividends on our Class A common stock depends on our receipt of cash distributions from CWAN Holdings, LLC and, through CWAN Holdings, LLC, cash distributions and dividends from our other direct and indirect subsidiaries. See “Description of Capital Stock,” “Description of Certain Indebtedness” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

Accordingly, you may need to sell your shares of our Class A common stock to realize a return on your investment, and you may not be able to sell your shares at or above the price you paid for them. See “Risk Factors—Risks Related to This Offering and Our Class A Common Stock—We do not intend to pay any cash distributions or dividends on our Class A common stock in the foreseeable future.”

Immediately following this offering, we will be a holding company, and our principal asset will be LLC Interests. If we decide to pay a dividend in the future, we would need to cause CWAN Holdings, LLC to make distributions to us in an amount sufficient to cover such dividend. If CWAN Holdings, LLC makes such distributions to us, the other holders of LLC Interests will be entitled to receive pro rata distributions. See “Risk Factors—Risks Related to Our Organizational Structure—We will be a holding company and our principal asset after completion of the Transactions and this offering will be our interest in CWAN Holdings, LLC and, accordingly, we will depend on distributions from CWAN Holdings, LLC to pay our taxes and expenses, including payments under the Tax Receivable Agreement. CWAN Holdings, LLC’s ability to make such distributions may be subject to various limitations and restrictions.”

 

64


Table of Contents
Index to Financial Statements

CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2021, as follows:

 

   

of CWAN Holdings, LLC and its subsidiaries on an actual basis;

 

   

of CWAN Holdings, LLC and its subsidiaries on a pro forma basis to give effect to the Transactions (other than this offering) and the entry into the New Credit Agreement; and

 

   

of Clearwater Analytics Holdings, Inc. and its subsidiaries on a pro forma as adjusted basis to give further effect to the sale of the shares of Class A common stock in this offering at an assumed initial public offering price of $15.00 per share (which is the midpoint of the estimated price range set forth on the cover page of this prospectus), after deducing the underwriting discounts and commissions and estimated offering expenses payable by us, and the application of the net proceeds therefrom as described under “Use of Proceeds.”

For more information, please see “Organizational Structure,” “Use of Proceeds” and “Unaudited Pro Forma Consolidated Financial Information” included elsewhere in this prospectus. You should read this information together with our consolidated financial statements and our condensed consolidated interim financial statements and the related notes included elsewhere in this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and other financial information contained in this prospectus.

 

     As of June 30, 2021 (unaudited)  
(in thousands, except per share and share data)    CWAN
Holdings,
LLC
    Pro Forma as
adjusted
Clearwater
Analytics
Holdings, Inc.(4)
 

Cash and cash equivalents

   $ 41,031     $ 74,574  
  

 

 

   

 

 

 

Indebtedness:

    

Term Loan(1)

   $ 432,692     $ —    

Revolving Line of Credit(1)

     —         —    

New Term Loan(2)

     —         55,000  

New Revolving Facility(2)

     —         —    
  

 

 

   

 

 

 

Total indebtedness

   $ 432,692     $ 55,000  
  

 

 

   

 

 

 

Total equity:

    

Members’ equity (deficit)

     (329,238  

Class A common stock, par value $0.001; 1,500,000,000 shares authorized, 42,866,089 shares issued and outstanding pro forma as adjusted

     —         43  

Class B common stock, par value $0.001; 500,000,000 shares authorized, 11,151,110 shares issued and outstanding pro forma as adjusted

     —         11  

Class C common stock, par value $0.001; 500,000,000 shares authorized, 43,340,216 shares issued and outstanding pro forma as adjusted

     —         43  

Class D common stock, par value $0.001; 500,000,000 shares authorized, 134,121,127 shares issued and outstanding pro forma as adjusted

       134  

Additional paid-in capital

     —         412,345  

Accumulated deficit

     —         (338,212
  

 

 

   

 

 

 

Total members’/stockholders’ equity (deficit)

   $ (329,238   $ 74,364  
  

 

 

   

 

 

 

Noncontrolling interest(3)

     —         17,505  
  

 

 

   

 

 

 

Total capitalization

   $ 103,454     $ 146,869  
  

 

 

   

 

 

 

 

(1)

The Existing Credit Agreement (as defined herein) provides a term loan facility of $435 million and a $30 million revolving line of credit. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Term Loan Facility and Revolving Line of Credit.”

 

65


Table of Contents
Index to Financial Statements
(2)

It is anticipated that the New Credit Agreement will provide for a $55 million term loan facility and a $125 million revolving facility. For a description of the New Credit Agreement, see “Description of Certain Indebtedness.”

(3)

On a pro forma basis, includes the membership interests not owned by us, which represents 23.5% of CWAN Holdings, LLC’s outstanding LLC Interests. Clearwater Analytics Holdings, Inc. will hold 76.5% of the economic interest in CWAN Holdings, LLC, the Other Continuing Equity Owners will hold 4.8% of the economic interest in CWAN Holdings, LLC and the Principal Equity Owners will hold 18.7% of the economic interest in CWAN Holdings, LLC.

(4)

Each $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share (which is the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) each of cash and cash equivalents, additional paid-in capital, total members’ stockholders’ equity and total capitalization on a pro forma basis as adjusted by approximately $28.1 million, assuming the number of shares offered, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Each 1,000,000 share increase (decrease) in the number of shares of Class A common stock offered in this offering would increase (decrease) the net proceeds to us from this offering by approximately $14.1 million, assuming that the price per share for the offering remains at $15.00 per share (which is the midpoint of the price range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

66


Table of Contents
Index to Financial Statements

DILUTION

Because other than in connection with the Transactions described under “Organizational Structure,” the Continuing Equity Owners do not own any Class A common stock or have any right to receive distributions from Clearwater Analytics Holdings, Inc., we have presented dilution in pro forma net tangible book value per share both before and after this offering assuming that all of the holders of LLC Interests (other than Clearwater Analytics Holdings, Inc.) had their LLC Interests redeemed or exchanged for newly issued shares of Class A common stock (in the case of the Other Continuing Equity Owners) or shares of Class D common stock (in the case of the Principal Equity Owners) on a one-for-one basis and the automatic transfer to the Company and cancellation for no consideration of all of their shares of Class B common stock or Class C common stock (which are not entitled to receive distributions or dividends, whether cash or stock from Clearwater Analytics Holdings, Inc.), as the case may be, in order to more meaningfully present the dilutive impact on the investors in this offering. We refer to the assumed redemption or exchange of all LLC Interests for shares of Class A common stock or shares of Class D common stock as described in the previous sentence as the “Assumed Redemption.”

Dilution is the amount by which the offering price paid by the purchasers of the Class A common stock in this offering exceeds the as adjusted pro forma net tangible book value per share of Class A common stock after the offering. CWAN Holdings, LLC’s pro forma net tangible book value as of June 30, 2021 prior to this offering and after giving effect to the other Transactions and the Assumed Redemption was a deficit of $329.2 million. Pro forma net tangible book value per share prior to this offering is determined by subtracting our total liabilities from the total book value of our tangible assets and dividing the difference by the number of shares of Class A common stock deemed to be outstanding after giving effect to the Assumed Redemption.

If you invest in our Class A common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the as adjusted pro forma net tangible book value per share of our Class A common stock after this offering.

As adjusted pro forma net tangible book value per share after this offering is determined by subtracting our total liabilities from the total book value of our tangible assets and dividing the difference by the number of shares of Class A common stock deemed to be outstanding, after giving effect to the Transactions, including this offering and the application of the proceeds from this offering as described in “Use of Proceeds,” and the Assumed Redemption. Our as adjusted pro forma net tangible book value as of June 30, 2021, after giving effect to this offering, would have been approximately $74.4 million, or $0.32 per share of Class A common stock. This amount represents an immediate increase in as adjusted pro forma net tangible book value of $1.95 per share to our existing stockholders and an immediate dilution in as adjusted pro forma net tangible book value of approximately $14.68 per share to new investors purchasing shares of Class A common stock in this offering. We determine dilution by subtracting the as adjusted pro forma net tangible book value per share after this offering from the amount of cash that a new investor paid for a share of Class A common stock.

The following table illustrates this dilution on a per share basis to new investors:

 

Assumed initial public offering price per share (the midpoint of the estimated price range set forth on the cover page of this prospectus)

      $ 15.00  

Pro forma net tangible book value (deficit) per share as of June 30, 2021, before this offering

   $ (1.63   

Increase in net tangible book value per share attributable to new investors participating in this offering

   $ 1.95     
  

 

 

    

As adjusted pro forma net tangible book value per share, after this offering

   $ 0.32     

Dilution per share to new Class A common stock investors participating in this offering

      $ 14.68  
     

 

 

 

 

67


Table of Contents
Index to Financial Statements

The following table summarizes, as of June 30, 2021, after giving effect to the Transactions (including this offering) and the Assumed Redemption, the number of shares of Class A common stock purchased from us, the total consideration paid, or to be paid, to us and the average price per share paid, or to be paid, by existing owners and by the new investors. The calculation below is based on an assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, before deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Shares Purchased     Total Consideration     Average
Price
Per
Share
 
     Number      Percent     Amount      Percent  

Continuing Equity Owners

     201,478,541        87   $ 141,828,000      24   $ 0.70

New investors

     30,000,000        13   $ 450,000,000        76   $ 15.00  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

     231,478,541        100   $ 591,828,000        100   $ 2.56  
  

 

 

    

 

 

   

 

 

    

 

 

   

Each $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share would increase (decrease) the total consideration paid by new investors and the total consideration paid by all stockholders by $30 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions but before estimated offering expenses.

Except as otherwise indicated, the discussion and the tables above assume no exercise of the underwriters’ option to purchase additional shares of Class A common stock. The number of shares of our Class A common stock outstanding after this offering as shown in the tables above is based on the number of shares outstanding as of June 30, 2021, after giving effect to the Transactions and the Assumed Redemption. To the extent that options are issued under our compensatory stock plans or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering. In connection with the consummation of this offering, outstanding options to purchase Class B Common Units of CWAN Holdings, LLC will be converted into options to purchase shares of our Class A common stock.

If the underwriters exercise in full their option to purchase additional shares of Class A common stock:

 

   

the percentage of shares of common stock held by the Continuing Equity Owners will decrease to approximately 85% of the total number of shares of our common stock outstanding after this offering; and

 

   

the number of shares held by new investors will increase to 34,500,000, or approximately 15% of the total number of shares of our common stock outstanding after this offering.

 

68


Table of Contents
Index to Financial Statements

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma consolidated financial information reflects the impact of this offering, after giving effect to the Transactions discussed in the section of the prospectus entitled “Organizational Structure.” Following the completion of the Transactions, Clearwater Analytics Holdings, Inc. will be a holding company whose principal asset will consist of approximately 76% of the outstanding LLC Interests (or approximately 77% of LLC Interests if the underwriters exercise in full their option to purchase additional shares of Class A common stock) that it acquires as a result of the Blocker Mergers and from CWAN Holdings, LLC with the use of net proceeds from this offering. The remaining LLC Interests will be held by the Continuing Equity Owners. Clearwater Analytics Holdings, Inc. will act as the sole managing member of CWAN Holdings, LLC, will operate and control the business and affairs of CWAN Holdings, LLC and its direct and indirect subsidiaries and, through CWAN Holdings, LLC and its direct and indirect subsidiaries, conduct its business.

The following unaudited pro forma consolidated statements of operations for the year ended December 31, 2020 and the six months ended June 30, 2021 give effect to the Transactions, including this offering, as if the same had occurred on January 1, 2020. The unaudited pro forma consolidated balance sheet as of June 30, 2021 presents our unaudited pro forma balance sheet giving effect to the Transactions, including this offering, as if they had occurred on such date.

We have derived the unaudited pro forma consolidated statements of operations data and unaudited pro forma consolidated balance sheet data from the consolidated financial statements and the unaudited consolidated interim financial statements of CWAN Holdings, LLC and its subsidiaries included elsewhere in this prospectus. The historical consolidated financial information of CWAN Holdings, LLC has been adjusted in this unaudited pro forma consolidated financial information to give effect to events that are directly attributable to the Transactions, are factually supportable and, with respect to the consolidated statements of operations data, are expected to have a continuing impact on Clearwater Analytics Holdings, Inc. The unaudited pro forma consolidated financial information reflects adjustments that are described in the accompanying notes and are based on available information and certain assumptions we believe are reasonable but are subject to change.

We refer to the adjustments related to the Transactions, including the impact of the Transaction described in “Organizational Structure,” as the “Pro Forma Transaction Adjustments.” The Pro Forma Transaction Adjustments are described in the notes to the unaudited pro forma consolidated information and principally include:

 

   

the amendment and restatement of the limited liability company agreement of CWAN Holdings, LLC to, among other things, appoint Clearwater Analytics Holdings, Inc. as the sole managing member of CWAN Holdings, LLC and provide certain exchange and redemption rights to the Continuing Equity Owners;

 

   

the amendment and restatement of the certificate of incorporation of Clearwater Analytics Holdings, Inc. to create Class A, B, C and D common stock;

 

   

a four-for-one reverse stock split of Clearwater Analytics Holdings, Inc. Class A, B, C and D common stock:

 

   

the mergers of Blocker Entities into Clearwater Analytics Holdings, Inc and the issuance of Class A common stock, Class B common stock, Class C common stock, and Class D common stock to Blocker Shareholders and the Continuing Equity Owners;

 

   

the approximate 27% non-controlling interest in CWAN Holdings, LLC represented by the units not held by Clearwater Analytics Holdings, Inc. after completion of the Transaction Adjustments and prior to the Offering Adjustments;

 

   

the establishment of a provision for income taxes and deferred income taxes including a valuation allowance upon the deferred taxes, to the extent applicable;

 

 

69


Table of Contents
Index to Financial Statements
   

the execution of the Tax Receivable Agreement between Clearwater Analytics Holdings, Inc. and certain Blocker Shareholders and Continuing Equity Owners;

 

   

the execution of the agreements providing management participation in the Tax Receivable Agreement under certain circumstances (the “TRA Bonus Agreements”). See “Executive Compensation-TRA Bonus Agreements;” and

 

   

the conversion of existing options to purchase Class B Common Units granted under 2017 Equity Incentive Plan into options to purchase Class A common stock governed under the terms of our 2021 Equity Incentive Plan and perform modifications to those option agreements including modification of equity options subject to performance-based vesting being changed to time-based vesting.

The adjustments related to this offering, which we refer to as the “Pro Forma Offering Adjustments,” are described in the notes to the unaudited pro forma consolidated financial information and principally include the following:

 

   

the issuance of 30,000,000 shares of our Class A common stock to the investors in this offering in exchange for net proceeds of approximately $421.9 million (based on an assumed initial public offering price of $15.00 per share, the midpoint of the estimated price range set forth on the cover page of this prospectus), after deducting the underwriting discounts and commissions but before estimated offering expenses payable by us;

 

   

the payment of fees and expenses related to this offering and the application of the net proceeds from the sale of Class A common stock in this offering to

 

  (i)

purchase LLC Interests from CWAN Holdings, LLC at a purchase price per unit equal to the initial public offering price per share of Class A common stock less the underwriting discounts and commissions, with such LLC Interests representing approximately 76% of the outstanding LLC Interests,

 

  (ii)

repay $432.7 million of outstanding borrowings under the Existing Credit Agreement and pay accrued and unpaid interest to the date of repayment,

 

  (iii)

enter into a New Credit Agreement that includes both a $125 million revolving facility and a $55 million term loan facility which is presented net of debt issuance costs,

 

  (iv)

the payment of additional expense of $9.5 million associated with this offering (of which $0.4 million has been paid as of June 30, 2021), and

 

  (v)

the issuance of 1,685,625 RSUs (as defined below) to employees upon consummation of the offering.

Except as otherwise indicated, the unaudited pro forma consolidated financial information presented assumes no exercise by the underwriters of their option to purchase additional shares of Class A common stock in the offering.

As a public company, we will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. We expect to incur additional annual expenses related to these additional procedures and processes and, among other things, additional directors’ and officers’ liability insurance, director fees, additional expenses associated with complying with the reporting requirements of the SEC, transfer agent fees, costs relating to additional accounting, legal and administrative personnel, increased auditing, tax and legal fees, stock exchange listing fees and other public company expenses. We have not included any pro forma adjustments relating to these costs in the information below.

As described in greater detail under the sections titled “Organizational Structure” and “Certain Relationships and Related Party Transactions,” in connection with the completion of this offering, we will enter into the Tax Receivable Agreement with the Continuing Equity Owners and the Blocker Shareholders, which will provide for the payment by Clearwater Analytics Holdings, Inc. to the Continuing Equity Owners and the Blocker Shareholders of 85% (less payments under the TRA Bonus Agreements) of the applicable savings, if

 

70


Table of Contents
Index to Financial Statements

any, that Clearwater Analytics Holdings, Inc. may realize, or be deemed to realize (using the actual applicable U.S. federal income tax rate in effect for the tax period and an assumed, weighted-average state and local income tax rate based on applicable period apportionment factors), as a result of the Tax Attributes. Due to uncertainty in the amount and timing of tax savings as we currently do not generate taxable income, the unaudited pro forma consolidated financial information assumes that tax attributes of CWAN Holdings, LLC and the Blocker Entities, like net operating losses, to which Clearwater Analytics Holdings, Inc. will be the successor as a result of the Transactions will not be realized.

The unaudited pro forma consolidated financial information is included for informational purposes only. The unaudited pro forma consolidated financial information should not be relied upon as being indicative of our results of operations or financial condition had the Transactions, including this offering, occurred on the dates assumed. The unaudited pro forma consolidated financial information also does not project our results of operations or financial position for any future period or date. The unaudited pro forma consolidated statement of operations and balance sheet data should be read in conjunction with the “Risk Factors,” “Summary Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and our consolidated interim financial statements and related notes included elsewhere in this prospectus.

 

71


Table of Contents
Index to Financial Statements

Unaudited pro forma consolidated balance sheet as of June 30, 2021

 

    CWAN
Holdings,
LLC
Historical
    Pro Forma
Transaction
Adjustments
        Pro Forma
Clearwater
Analytics
Holdings, Inc.
as adjusted
before Offering
Adjustments(1)
    Pro Forma
Offering
Adjustments
        Pro Forma
Clearwater
Analytics
Holdings,
Inc.
 
(in thousands, except share and unit amounts)                                      

Assets

             

Current assets:

             

Cash and cash equivalents

  $ 41,031       —         $ 41,031     $ 33,543     (2)(3)   $ 74,574  

Accounts receivable, net

    45,075       —           45,075       —           45,075  

Prepaid and other current assets

    14,233       —           14,233       (1,572   (2)     12,661  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total current assets

    100,339       —           100,339       —           179,185  

Property and equipment, net

    9,330       —           9,330       —           9,330  

Deferred contract costs, non-current

    4,021       —           4,021       —           4,021  

Debt issuance costs - line of credit

    403       —           403       (28   (3)     375  

Other non-current assets

    6,405       —       (5)     6,405       —           6,405  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total assets

  $ 120,498     $ —         $ 120,498     $ 31,943       $ 152,441  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Liabilities and Members’ Deficit

             

Current liabilities:

             

Accounts payable

  $ 601       —         $ 601     $ —         $ 601  

Accrued expenses and other current liabilities

    24,677       —           24,677       (1,172   (2)     23,505  

Notes payable, current portion

    3,077       —           3,077       (327   (3)     2,750  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total current liabilities

    28,355       —           28,355       (1,499       26,856  

Notes payable, less current maturities and unamortized debt issuance costs of $8,370 as of June 30, 2021

    421,245       —           421,245       (370,160   (3)     51,085  

Other long-term liabilities

    136       —       (5)     136       —           136  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total liabilities

    449,736       —           449,736       (371,659       78,077  

Members’ equity (deficit)

             

Class A Common units, no par value; 190,960,379 units issued and outstanding at June 30, 2021

    —         —           —         —           —    

Class B Common units, no par value; 10,358,478 units issued and outstanding at June 30, 2021

    —         —           —         —           —    

Members’ deficit

    (329,238     329,238     (6)     —         —           —    

Stockholders’ equity

      —       (6)     —         —           —    

Class A common stock, par value $0.001 per share, 1,500,000,000 shares authorized on a pro forma basis, 12,866,089 shares issued and outstanding on a pro forma basis, and 42,866,089 after offering (2)

    —         13     (6)     13       30         43  

Class B common stock, par value $0.001 per share, 500,000,000 shares authorized on a pro forma basis, 11,151,110 shares issued and outstanding on a pro forma basis

    —         11     (6)     11       —           11  

Class C common stock, par value $0.001 per share, 500,000,000 shares authorized on a pro forma basis, 43,340,216 shares issued and outstanding on a pro forma basis

      43     (6)     43       —           43  

Class D common stock, par value $0.001 per share, 500,000,000 shares authorized on a pro forma basis, 134,121,127 shares issued and outstanding on a pro forma basis

      134     (6)     134       —           134  

Additional paid-in-capital

    —         —       (6)     —         412,345     (2)     412,345  

Accumulated Deficit

    —         (329,439   (6)     (329,439     (8,773       (338,212
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total members’ /stockholders’ equity (deficit) attributable to CWAN Holdings, LLC/ Clearwater Analytics Holdings, Inc.

    (329,238     (240,179   (4)     (240,179     297,038     (4)     56,859  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Non-controlling interest

    —         (89,059   (4)     (89,059     106,564     (4)     17,505  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total members’ /stockholders’ equity (deficit)

    (329,238     (329,238       (329,238     403,602         74,364  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total liabilities and members’ /stockholders’ equity

  $ 120,498     $ —         $ 120,498     $ 31,943       $ 152,441  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

 

72


Table of Contents
Index to Financial Statements

Notes to unaudited pro forma consolidated balance sheet

 

(1)

Clearwater Analytics Holdings, Inc. was formed on May 18, 2021 and will have no material assets or results of operations until the consummation of the Transactions, and therefore its historical financial position is not shown in a separate column in this unaudited pro forma balance sheet.

 

(2)

Reflects the net effect on cash of the receipt of offering proceeds of $412.4 million, based on the assumed sale of shares of Class A common stock at an assumed public offering of $15.00 per share, the midpoint of the estimated range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. These amounts as described in “Use of Proceeds” relate to:

 

  a)

payment of $421.9 million to purchase 30,000,000 LLC Interests from CWAN Holdings, LLC and certain Continuing Equity Owners at an assumed initial public offering of $15.00 per share, the midpoint of the estimated range set forth on the cover page of this prospectus after deducting the underwriting discounts and commissions;

 

  b)

payment of approximately $9.5 million of estimated offering expenses (of which $0.4 million has been paid as of June 30, 2021)

 

(3)

Reflects the net cash of repayment and issuance of debt:

 

  a)

repayment of approximately $432.7 million to repay outstanding borrowings under our Existing Credit Agreement utilizing proceeds. The repayment of our borrowings under the Existing Credit Agreement resulted in a $8.7 million loss on debt repayment as the result of the write-off of unamortized debt issuance costs;

 

  b)

entering into the New Credit Agreement that includes both a $125 million revolving facility and a $55 million term loan facility which is presented net of debt issuance costs of $1.2 million

 

(4)

Upon completion of the Transaction Adjustments, we will become the sole managing member of CWAN Holdings, LLC. We will have the sole voting interest in, and control of the management of, CWAN Holdings, LLC. As a result, we will consolidate the financial results of CWAN Holdings, LLC and will report a noncontrolling interest related to the interests in CWAN Holdings, LLC held by the Continuing Equity Owners on our consolidated balance sheet. Immediately following the Transactions, the economic interests held by the noncontrolling interest will be approximately 27%.

The Transaction Adjustments include adjustments to transfer CWAN Holdings, LLC members’ deficit to accumulated deficit and report a noncontrolling interest equal to the Continuing Equity Owners’ economic interest in CWAN Holdings, LLC of 27%. The following table describes such Transaction adjustments ($ in thousands):

 

     June 30, 2021  

Non-controlling interest

  

Members’ deficit—CWAN Holdings, LLC

   $ (329,238

Class A and Class D common stock economic interest in CWAN Holdings, LLC

     73

Members’ deficit attributable to Class A and Class D common stock

   $ (240,179
  

 

 

 

Members’ deficit attributable to Continuing Equity Owners -non-controlling interest

   $ (89,059
  

 

 

 

 

73


Table of Contents
Index to Financial Statements

The Offering Adjustments include adjustments to report a noncontrolling interest equal to the Continuing Equity Owners’ economic interest in CWAN Holdings, LLC of 24%, after giving effect to the issuance of 30,000,000 shares of Class A common stock in this offering based on the pro forma CWAN Holdings, LLC members’ deficit adjusted for the net proceeds received from the sale of common units, less offering expenses and write off of unamortized debt issuance costs, which are included in stockholders’ equity. If the underwriters were to exercise their options to purchase additional shares of our common stock in full, the economic interest held by the noncontrolling interest would be 23%. The following table describes such offering adjustments ($ in thousands):

 

     June 30, 2021  

Non-controlling interest

  

Members’ deficit—CWAN Holdings, LLC

   $ (329,238

Proceeds from offering net of underwriter fee and offering expense

     412,375  

Costs associated with extinguishment of debt

     (8,773
  

 

 

 

CWAN Holdings LLC members’ equity after the offering

     74,364  

Continuing Equity Owners’ interest in CWAN Holdings, LLC

     24
  

 

 

 

Members’ equity attributable to Continuing Equity Owners—noncontrolling interest

     17,505  

Less non-controlling interest included in the “Transaction Adjustments” column

     (89,059
  

 

 

 

Non-controlling interest—“Offering Adjustments” column

   $ 106,564  

 

(5)

Clearwater Holdings Analytics, Inc is a C corporation and subject to federal and state income taxes and will file consolidated income tax returns. Due to uncertainty in the amount and timing of tax savings as we currently do not generate taxable income, the unaudited pro forma consolidated financial information assumes that tax attributes of CWAN Holdings, LLC and the Blocker Entities, like net operating losses, to which Clearwater Analytics Holdings, Inc. will be the successor as a result of the Transactions will not be realized. We will not be obligated to make any payments under the Tax Receivable Agreement until these tax benefits are realized. As such, no deferred tax asset and Tax Receivable Agreement liability were reflected in the unaudited pro forma consolidated financial information.

For financial reporting purposes, we will assess the tax attributes of CWAN Holdings, LLC and Clearwater Analytics Holdings, Inc. in accordance with ASC 740, Income Taxes, to determine if it is more likely than not that we will realize the benefit of any deferred tax assets. Following that assessment, we may recognize a deferred tax asset and liability under the Tax Receivable Agreement, reflecting the expected future realization of such tax benefits. Amounts payable under the Tax Receivable Agreement are contingent upon, among other things, (i) generation of sufficient future taxable income during the term of the Tax Receivable Agreement and (ii) future changes in tax laws. All of the effects of changes in any of our estimates after the date of the offering will be included in net income. Similarly, the effect of subsequent changes in the enacted tax rates, if any, will be included in net income.

Although no Tax Receivable Agreement liability was reflected in the unaudited pro forma consolidated financial information, we expect that the aggregate payments that we may make under the Tax Receivable Agreement will be substantial. Assuming no material changes in the relevant tax law, and that we earn sufficient taxable income to realize all tax benefits that are subject to the Tax Receivable Agreement, we expect that future payments under the Tax Receivable Agreement relating to the purchase by Clearwater Analytics Holdings, Inc. of LLC Interests from CWAN Holdings, LLC and the acquisition of the Blocker Entities from the Blocker Shareholders in connection with this offering to range over the next 15 years from approximately $9.0 million to $75.5 million and decline thereafter. Under the terms of the TRA Bonus Agreements, certain members of management would collectively receive compensation in an amount equal to 4.6% of any Tax Receivable Agreement payments subject to continued employment through the applicable payment date. These estimates are based on an initial public offering price of $15.00 per share of Class A common stock, which is the midpoint of the estimated price range set forth on the cover page of this prospectus and assuming all future redemptions or exchanges would occur on the date of this offering. The actual amounts paid to the Continuing Equity Owners and the Blocker Shareholders under the Tax Receivable Agreement will vary based on a number of factors including: the price of Class A Common

 

74


Table of Contents
Index to Financial Statements

Stock at the time of any future exchanges; the timing of any future exchanges; the extent to which such exchanges are taxable; the amount and timing of any payments under TRA Bonus Agreements; the amount and timing of our taxable income; and applicable tax rates.

 

(6)

To reflect the capital structure of the C corporation, the value of Common Stock in each class, additional paid in capital and accumulated deficit are presented separately on the balance sheet. Each class of common stock has a par value of $0.001 per share. The value is determined by multiplying the number of shares by the par value. The remaining balance of members deficit is included in accumulated deficit.

In connection with the Transactions we will issue 11,151,110 shares of Class B common stock to the Continuing Equity Owners and 43,340,216 shares of Class C common stock to the Principal Equity Owners, on a one to one basis with the number of common units of CWAN Holdings, LLC. Holders of our Class B and Class C common stock, along with the holders of our Class A and Class D common stock, will have certain voting rights as described under “Description of Capital Stock” but holders of our Class B and Class C common stock will not have an economic interests in the Company.

In connection with the Transactions we will issue 134,121,127 shares of Class D common stock to Principal Equity Owners, on a one to one basis, with the number of common units of CWAN Holdings, LLC. Holders of our Class D common stock will have certain voting rights and are entitled to the economic interest in the Company as described under “Description of Capital Stock”.

Unaudited pro forma consolidated statement of operations for the year ended December 31, 2020

 

     CWAN
Holdings,
LLC
Historical
    Pro Forma
Transaction
Adjustments
          Pro Forma
Clearwater
Analytics
Holdings, Inc.
as adjusted
before
Offering
Adjustments(a)
    Pro Forma
Offering
Adjustments
          Pro Forma
Clearwater
Analytics
Holdings,
Inc.(d)
 
(in thousands, except share and unit amounts)                                           

Revenue

   $ 203,222     $ —         $ 203,222     $ —         $ 203,222  

Cost of revenue

     53,263       1,794       (d     55,057       957       (e     56,014  
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Gross profit

     149,959       (1,794       148,165       (957       147,208  

Operating expenses:

              

Research and development

     55,262       4,838       (d     60,100       2,580       (e     62,680  

Sales and marketing

     22,243       2,469       (d     24,712       1,317       (e     26,029  

General and administrative

     43,874       4,444       (d     48,318       2,370       (e     50,688  

Recapitalization compensation expenses

     48,998       —           48,998       —           48,998  
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total operating expenses

     170,377       11,751         182,128       6,267         188,395  
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Loss from operations

     (20,418     (13,545       (33,963     (7,224       (41,187

Interest and other expense, net

     (22,910     —           (22,910     21,091       (b     (1,819
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Loss before income taxes

     (43,328     (13,545       (56,873     13,867         (43,006

Income taxes

     902       —         (c     902       —         (c     902  
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Net loss

   $ (44,230   $ (13,545     $ (57,775   $ 13,867       $ (43,908
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Net loss attributable to non-controlling interest

       (15,628     (f     (15,593     5,292       (g     (10,301
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Net loss attributable to Clearwater Analytics Holdings, Inc.

   $ (44,230   $ 2,083       $ (42,182   $ 8,575       $ (33,607
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

 

75


Table of Contents
Index to Financial Statements

Unaudited pro forma consolidated statement of operations for the six months ended June 30, 2021

 

     CWAN
Holdings,
LLC
Historical
    Pro Forma
Transaction
Adjustments
          Pro Forma
Clearwater
Analytics
Holdings, Inc.
as adjusted
before
Offering
Adjustments(a)
    Pro Forma
Offering
Adjustments
          Pro Forma
Clearwater
Analytics
Holdings,
Inc.(d)
 
(in thousands, except share and unit amounts)                                           

Revenue

   $ 117,770     $ —         $ 117,770     $ —         $ 117,770  

Cost of revenue

     29,898       897       (d     30,795       479       (e     31,274  
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Gross profit

     87,872       (897       86,975       (479       86,496  

Operating expenses:

              

Research and development

     32,576       2,419       (d     34,995       1,290       (e     36,285  

Sales and marketing

     16,025       1,234       (d     17,259       658       (e     17,917  

General and administrative

     18,727       2,222       (d     20,949       1,185       (e     22,134  

Recapitalization compensation expenses

     —         —           —         —           —    
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total operating expenses

     67,328       5,875         73,203       3,133         76,336  
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Income from operations

     20,544       (6,772       13,772       (3,612       10,160  

Interest and other expense, net

     (17,024     —           (17,024     16,051       (b     (973
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Income before income taxes

     3,520       (6,772       (3,252     12,439         9,187  

Income taxes

     320       —         (c     320       —         (c     320  
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Net income

   $ 3,200     $ (6,772     $ (3,572   $ 12,439       $ 8,867  
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Net income attributable to non-controlling interest

       (966     (f     (966     3,054       (g     2,087  
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Net income attributable to Clearwater Analytics Holdings, Inc.

   $ 3,200     $ (5,806     $ (2,606   $ 9,385       $ 6,780  
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Notes to unaudited pro forma consolidated statements of operations

 

(a)

Clearwater Analytics Holdings, Inc. was formed on May 18, 2021 and will have no material assets or results of operations until the consummation of the Transactions, and therefore its historical financial position is not shown in a separate column in this unaudited pro forma balance sheet.

 

(b)

In connection with this offering, we will use proceeds to repay outstanding borrowings of $432.7 million under our Existing Credit Agreement and enter into the New Credit Agreement that includes a $125 million revolving facility and a $55 million term loan facility. Accordingly, pro forma adjustments have been made to reflect a decrease in interest expense of $21.1 million (comprised of a reduction of interest expense of $21.4 million offset by amortization of new debt issuance costs of $0.3 million), and a reduction of $16.1 million (comprised of a reduction of interest expense of $16.3 million offset by amortization of new debt issue costs of $0.2 million) for the year ended December 31, 2020 and six month period ended June 30, 2021, respectively. The change in interest expense is computed with an effective interest rate of 2.75%, in each case, as if the borrowings from the Existing Credit Agreement had been repaid, and the borrowings from the New Credit Agreement had been raised on January 1, 2020. The New Credit Agreement is currently under negotiation and terms are subject to change. We estimate that a hypothetical increase or decrease of 100 basis points to the interest rate would increase or decrease, respectively, our pro forma interest expense by approximately $0.5 million and $0.3 million, based on a $55 million debt balance for the year ended December 31, 2020 and the six month period ended June 30, 2021, respectively. Pro forma interest expense excludes any losses on extinguishment of borrowings in all periods.

 

76


Table of Contents
Index to Financial Statements
(c)

Following this offering and the Transactions, Clearwater Analytics Holdings, Inc. will be subject to U.S. federal income taxes, in addition to state and local taxes, with respect to its allocable share of any net taxable income of CWAN Holdings, LLC. As Clearwater Analytics Holdings, Inc. has historically generated losses, and on a pro forma basis, will continue to have losses following this offering and the Transactions, the unaudited pro forma consolidated statements of operations do not reflect adjustments to our provision for income taxes as we concluded that it is more-likely-than-not that the tax benefit of the Tax Attributes will not be realized.

 

(d)

In connection with the offering, employee equity options will be transferred from CWAN Holdings, LLC to Clearwater Analytics Holdings, Inc. and equity options subject to performance-based vesting are modified to remove the performance-based criteria and only be subject to time-based vesting. The incremental compensation charge resulting from the modification is $49.5 million and will be recognized over the remaining requisite service period of approximately 44 months. The pro forma adjustments decrease operating income by $13.5 million and $6.8 million for the year ended December 31, 2020, and the six-month period ended June 30, 2021, respectively.

 

(e)

In conjunction with the offering, we will grant employees an award of restricted stock units of Clearwater Analytics Holdings, Inc. (“IPO RSUs”) under the 2021 Plan. We will grant a total of 1,685,625 IPO RSUs which will result in a total expense of $25.3 million assuming an initial public offering price of $15.00 per share of Class A common stock, which is the midpoint of the estimated price range set forth on the cover page of this prospectus (with a $1.00 increase or decrease in the initial public offering price increasing or decreasing, respectively, the total expense by $1.7 million) and 100% achievement of performance vesting conditions (if performance vesting achievement is 110%, this would result in total incremental expense of $1.3 million). The expense is expected to be recognized over 42 months, and the expense is reflected in the line item based on the employees’ job function.

 

(f)

Pro forma net income (loss) attributable to non-controlling interest as a result of the Transaction Adjustments is calculated as follows ($ in thousands):

 

     Year Ended
December 31,
    Six Months Ended
June 30,
 
     2020     2021  

Non-controlling interest

    

Net income (loss)—CWAN Holdings, LLC

   $ (44,230   $ 3,200  

Incremental costs from equity option modification

     (13,545     (6,772
  

 

 

   

 

 

 

Net loss following the Transaction Adjustments

   $ (57,775   $ (3,572

Non-controlling interest immediately following the Transaction Adjustments

     27     27
  

 

 

   

 

 

 

Total net loss attributable to non-controlling interest immediately following the Transaction Adjustments

   $ (15,628   $ (966
  

 

 

   

 

 

 

 

(g)

Upon completion of the Offering Adjustments, we will become the sole managing member of CWAN Holdings, LLC. We will have the sole voting interest in, and control of the management of, CWAN Holdings, LLC. As a result, we will consolidate the financial results of CWAN Holdings, LLC and will report a noncontrolling interest related to the interests in CWAN Holdings, LLC held by the Continuing Equity Owners on our consolidated balance sheet. Immediately following the Transactions, the economic interests held by the noncontrolling interest will be approximately 24%. If the underwriters exercise their option to purchase additional shares of our Class A common stock in full, the economic interests held by the noncontrolling interest will remain approximately 23%.

 

77


Table of Contents
Index to Financial Statements

Pro forma net income (loss) attributable to non-controlling interests as a result of the Offering Adjustments is calculated as follows ($ in thousands):

 

     Year Ended
December 31,
2020
    Six Months Ended
June 30,
2021
 

Non-controlling interest

  

Pro forma net loss prior to Offering Adjustments

   $ (57,775   $ (3,572

Reduction in non-controlling interest ownership due to the Offering Adjustments

     4     4
  

 

 

   

 

 

 

Reduction in net income (loss) attributable to non-controlling interest due to Offering Adjustments

   $ 2,028     $ 125  
  

 

 

   

 

 

 

Pro forma adjustments to net income (loss) from the Offering Adjustments

   $ 13,867     $ 12,439  

Non-controlling interest ownership immediately following the Offering Adjustments

     24     24
  

 

 

   

 

 

 

Non-controlling interest in the pro forma adjustments to net income (loss) from the Offering Adjustments

   $ 3,624     $ 2,928  
  

 

 

   

 

 

 

Total net income (loss) attributable to non-controlling interest immediately following the Offering Transactions

   $ 5,292     $ 3,054  
  

 

 

   

 

 

 

 

78


Table of Contents
Index to Financial Statements

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

This section presents management’s perspective on our financial condition and results of operations. The following discussion and analysis is intended to highlight and supplement data and information presented elsewhere in this prospectus, including the consolidated financial statements and related notes and the sections of this prospectus captioned “Summary Consolidated Financial and Other Data” and “Business,” and should be read in conjunction therewith. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of our future performance. In addition to historical financial information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from management’s expectations as a result of many factors, including those discussed under the sections of this prospectus captioned “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.” We assume no obligation to update any of these forward-looking statements, except as required by law.

Historically, our business has been operated through Carbon Analytics Holdings, LLC, together with its subsidiaries. In connection with this offering, Carbon Analytics Holdings, LLC changed its name to CWAN Holdings, LLC. Clearwater Analytics Holdings, Inc. was formed for the purpose of this offering and has engaged to date only in activities in contemplation of this offering. Upon the completion of this offering, Clearwater Analytics Holdings, Inc. will be a holding company and all of our business will continue to be conducted through CWAN Holdings, LLC, together with its subsidiaries, and the financial results of CWAN Holdings, LLC will be consolidated in our financial statements. For more information regarding the organizational transactions and holding company structure, see “Organizational Structure.”

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 $5.6 trillion of global invested assets for over 1,000 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.

 

79


Table of Contents
Index to Financial Statements

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 very low levels of volatility and highly predictable revenue streams. When applicable, we charge additional transaction fees for certain complex asset classes (e.g., derivatives and other financial instruments).

We have achieved significant organic growth in recent periods. Our revenues increased from $168 million in the year ended December 31, 2019 to $203 million in the year ended December 31, 2020, representing an increase of 21%. For the six months ended June 30, 2020 and 2021, our revenues were $95 million and $118 million, respectively, representing year-over-year growth of 24%. We had net income of $8 million and a net loss of $44 million in the years ended December 31, 2019 and 2020, respectively, representing net income margin of 5% and net loss margin of (22%), respectively. For the six months ended June 30, 2020 and 2021, we had net income of $14 million and $3 million, representing net income margin of 14% and 3%, respectively. Our adjusted EBITDA was $51 million and $57 million in the years ended December 31, 2019 and 2020, representing adjusted EBITDA margins of 30% and 28%, respectively. For the six months ended June 30, 2020 and 2021, we had adjusted EBITDA of $31 million and $36 million, representing adjusted EBITDA margins of 33% and 30%, respectively. For additional information on adjusted EBITDA, including a reconciliation of adjusted EBITDA to net income, see “—Non-GAAP Financial Measures”.

 

 

LOGO

 

80


Table of Contents
Index to Financial Statements

Key Factors Affecting Our Performance

The growth and future success of our business depends on many factors, including those described below.

 

   

Adding New Clients in Established End Markets: Our future growth is dependent upon our ability to continue to add new clients. We are focused on continuing to increase our client base in our established client end-markets of corporations, insurance companies and asset managers, and doing so with increasingly large and sophisticated clients. As we add clients, it takes time to fully onboard their assets to the platform. Our revenue generally increases as assets are added to the platform, while the effort to serve the client is relatively consistent over time. Therefore, we expect revenues and gross margins to increase for a client as the client transitions from the onboarding process to a steady state once assets have been onboarded. In any period, our gross margins may fluctuate based on the relative size and number of clients that we are onboarding at that time.

 

   

Expanding and Retaining Relationships with Existing Clients: Our future growth is dependent upon retaining our existing clients and expanding our relationships with these clients through increases in the amount of their assets on our platform. We have enjoyed consistent gross revenue retention rates of approximately 98% over the past ten quarters. The consistency in revenue retention creates predictability in our business and enables us to better plan our future investments. Our relationships with our clients expands as these clients add more assets to our platform, with our net revenue retention rates (as defined below under “—Key Operating Measures”) above 105% over the past two years. Clients may add assets as a result of acquiring new clients themselves or by acquiring new businesses or simply through organic growth, which produces additional assets that they manage using our platform. We believe that our client service model and technology platform are strong contributing factors in our attractive retention rates. As such, we expect to continue to invest in both our operations and research and development functions to maintain and increase our high levels of client satisfaction, which we believe will lead to strong client retention and expansion.

 

   

International Expansion: We believe that the value provided by our platform is equally applicable to asset owners and asset managers outside of North America, and there is a significant opportunity to expand our client base and usage of our platform internationally. Our future growth is dependent upon our ability to successfully enter new international markets and to expand our client base in our current international markets. Our cost to acquire clients in international markets is currently greater than in North America because there is less awareness of the Clearwater brand and our product capabilities, and we have to date invested less in sales and marketing internationally. For these reasons, we expect to invest more in sales and marketing in international markets relative to North America in order to achieve growth in these international markets.

 

   

Adding New Clients in Adjacent or Nascent End-Markets: Our strategy is to also add new clients in our more nascent end-markets, which include state and local governments, pension funds and sovereign wealth funds, as well as a variety of alternative asset managers. Traditionally, our existing clients have been among our best resources for referring new clients to us, and we will continue to invest in sales and marketing to build awareness of our brand, engage prospective clients and drive adoption of our platform, particularly as it relates to expanding into new end-markets. As we establish our presence in new end-markets, we expect sales and marketing expenditures will be less efficient than in our established verticals and we will become increasingly more efficient at acquiring clients in new end-markets over time.

 

   

Expanding Solutions and Broadening Innovation: Our future growth is dependent upon our continued expansion of our solutions in order to better retain our current clients and to develop new use cases that appeal to new clients. While we believe we will be able to reduce our research and development expenses as a percentage of revenues as we achieve greater scale, our priority is to maintain and grow our technological advantage over our competitors. As we identify opportunities to increase our technological and competitive advantages, we may increase our investments in research and development at rates that are faster than our growth in revenues in order to enhance our long-term growth and profitability.

 

81


Table of Contents
Index to Financial Statements
   

Fluctuations in the Market Value of Assets on the Platform: We generally bill our clients monthly in arrears based on a basis point rate applied to our clients’ assets on our platform, which can be influenced by general economic conditions. While 84% of the assets on our platform were high-grade fixed income securities and structured products as of June 30, 2021 and therefore subject to very low levels of volatility, the value of our clients’ assets on our platform varies on a daily basis due to changes in securities prices, cash flow needs, incremental buying and selling of assets and other strategic priorities of our clients. For these reasons, our revenue is subject to fluctuations based on economic conditions, including market conditions and the changing interest rate environment.

Key Components of Results of Operations

The following discussion describes certain line items in our 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. 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.

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 and Other Expense, Net

Interest and other 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 and foreign currency gains and losses are also included in interest and other expense, net.

 

82


Table of Contents
Index to Financial Statements

Income Taxes

Income taxes relate to international subsidiaries which are corporations and, therefore, subject to income taxes. The international subsidiaries earn revenue by providing services to the Company on a “cost plus markup” basis. Income taxes are recorded at the statutory rate within income tax expense on the consolidated statement of operations and within income taxes payable on the consolidated balance sheet due to the minimal temporary differences between book expense and the amount of taxes paid within these regimes.

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.

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.

The following table summarizes the Company’s annualized recurring revenue as of the dates presented:

 

     First
Quarter
     Second
Quarter
     Third
Quarter
     Fourth
Quarter
 
     (In thousands)  

2021

           

Annualized recurring revenue

   $ 232,467      $ 245,033        

2020

           

Annualized recurring revenue

   $ 186,521      $ 200,492      $ 214,877      $ 219,901  

2019

           

Annualized recurring revenue

   $ 158,510      $ 167,169      $ 178,220      $ 185,041  

Because a substantial majority of the assets on our platform have very 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.

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.

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

 

83


Table of Contents
Index to Financial Statements

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.

The following table summarizes our retention rates as of the dates presented:

 

     First
Quarter
    Second
Quarter
    Third
Quarter
    Fourth
Quarter
 

2021

        

Gross revenue retention rate

     98     98    

Net revenue retention rate

     110     109    

2020

        

Gross revenue retention rate

     98     98     98     98

Net revenue retention rate

     107     108     109     109

2019

        

Gross revenue retention rate

     98     98     98     98

Net revenue retention rate

     105     105     110     111

Gross revenue retention rates have remained consistently at approximately 98% since 2019. We believe the extremely consistent and high gross revenue retention rate is a testament to the value proposition that our leading solution offers.

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 is a supplemental performance measure that our management uses to assess our operating performance. We define Adjusted EBITDA as net income plus (i) interest expense, net, (ii) depreciation and amortization expense, (iii) equity-based compensation, (iv) Recapitalization compensation expenses and (v) other expenses. We define Adjusted EBITDA Margin as Adjusted EBITDA (as defined above) divided by revenue.

 

84


Table of Contents
Index to Financial Statements

The following tables reconcile net income (loss) to Adjusted EBITDA and include amounts expressed as a percentage of revenue for the periods indicated.

 

     Six Months Ended
June 30,
 
     2021     2020  
     (in thousands)      (%)     (in thousands)      (%)  

Net income (loss)

   $ 3,200        3   $ 13,635        14

Interest expense, net

     16,959        14     10,614        11

Depreciation and amortization(1)

     1,412        1     1,047        1

Equity-based compensation

     11,556        10     4,988        5

Other expenses(1)

     2,491        2     1,013        1

Adjusted EBITDA

   $ 35,618        30 %    $ 31,297        33
  

 

 

    

 

 

   

 

 

    

 

 

 

Revenue

   $ 117,770        100   $ 95,109        100

 

     Years Ended
December 31,
 
     2020     2019  
  

 

 

    

 

 

   

 

 

    

 

 

 
     (in thousands)      (%)     (in thousands)      (%)  

Net income (loss)

   $ (44,230      (22 )%    $ 7,732        5

Interest expense, net

     22,854        11     17,807        11

Depreciation and amortization(1)

     2,271        1     2,019        1

Equity-based compensation

     24,602        12     6,233        4

Recapitalization compensation expenses

     48,998        24     —          —    

Other expenses(2)

     2,555        1     16,992        10

Adjusted EBITDA

   $ 57,050        28   $ 50,783        30
  

 

 

    

 

 

   

 

 

    

 

 

 

Revenue

   $ 203,222        100   $ 168,001        100

 

     Six Months Ended
June 30,
     Years Ended
December 31,
 
     2021      2020          2020              2019      
     (in thousands)  

Legal professional service fees

   $ —        $ —        $ —        $ 14,779  

Up-C structure expenses

     926        —          —          —    

Management fees and reimbursed expenses

     1,083        688        1,597        1,853  

Income tax expense

     320        209        902        73  

Miscellaneous

     162        116        56        287  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other expenses

   $ 2,491      $ 1,013      $ 2,555      $ 16,992  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

For the six months ended June 30, 2021 and 2020, and the years ended December 31, 2020 and 2019, depreciation and amortization attributable to: (i) cost of revenue was $771, $513, $1,073 and $1,313, (ii) research and development expenses was $422, $364, $761, and $107, (iii) sales and marketing expenses was $120, $86, $181, and $33, and (iv) general and administrative expenses was $99, $84, $259, $566, respectively.

(2)

Other expenses includes professional service fees related to settlement of a legal matter, management fees to our investors, income taxes related to foreign subsidiaries, foreign exchange gains and losses and other expenses that are not reflective of our core operating performance, including the cost of implementing our Up-C structure and entering into the Tax Receivable Agreement.

 

85


Table of Contents
Index to Financial Statements

Results of Operations

The following tables set forth our consolidated statements of operations data for the six months ended June 30, 2020 and 2021 and for the years ended December 31, 2019 and 2020. We have derived this data from our audited consolidated financial statements and our unaudited consolidated interim financial statements included elsewhere in this prospectus. This information should be read in conjunction with our audited consolidated financial statements and our unaudited consolidated interim financial statements and related notes included elsewhere in this prospectus.

 

     Six Months Ended      Years Ended  
     June 30,      December 31,  
     2021      2020      2020      2019  
     (in thousands)  

Revenue

   $ 117,770      $ 95,109      $ 203,222      $ 168,001  

Cost of revenue

     29,898        26,891        53,263        47,145  
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     87,872        68,218        149,959        120,856  
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating expenses:

           

Research and development

     32,576        24,069        55,262        39,275  

Sales and marketing

     16,025        8,600        22,243        19,082  

General and administrative

     18,727        10,974        43,874        36,802  

Recapitalization compensation expenses

     —          —          48,998        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     67,328        43,643        170,377        95,159  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) from operations

     20,544        24,575        (20,418      25,697  

Interest and other expense, net

     (17,024      (10,730      (22,910      (17,892
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) before income taxes

     3,520        13,845        (43,328      7,805  

Income taxes

     320        210        902        73  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

   $ 3,200      $ 13,635      $ (44,230    $ 7,732  
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table sets forth our consolidated statements of operations data expressed as a percentage of revenue for the periods indicated.

 

     Six Months Ended     Years Ended  
     June 30,     December 31,  
         2021             2020             2020             2019      

Revenue

     100     100     100     100

Cost of revenue

     25     28     26     28
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     75     72     74     72
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Research and development

     28     25     27     23

Sales and marketing

     14     9     11     11

General and administrative

     16     12     22     22

Recapitalization compensation expenses

     0     0     24     0
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     57     46     84     57
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     17     26     (10 %)      15

Interest and other expense, net

     (14 %)      (11 %)      (11 %)      (11 %) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     3     15     (21 %)      5

Income taxes

     0     0     0     0
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     3     14     (22 %)      5
  

 

 

   

 

 

   

 

 

   

 

 

 

 

86


Table of Contents
Index to Financial Statements

The following table presents the Company’s revenue disaggregated by geography, based on billing address of the client for the periods indicated.

 

     Six Months Ended      Years Ended  
     June 30,      December 31,  
     2021      2020      2020      2019  
     (in thousands)  

United States

   $ 107,346      $ 85,477      $ 183,745      $ 152,112  

Rest of World

     10,424        9,632        19,477        15,889  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 117,770      $ 95,109      $ 203,222      $ 168,001  
  

 

 

    

 

 

    

 

 

    

 

 

 

Comparison of the Six Months Ended June 30, 2021 and 2020 (unaudited)

Revenue

 

     Six Months Ended
June 30,
               
     2021      2020      $ Change      % Change  
     (in thousands)  

Revenue

   $ 117,770      $ 95,109      $ 22,661        24

Revenue increased $22.7 million, or 24%, for the six months ended June 30, 2021 as compared to the corresponding period in 2020. The increase was driven by growth in our client base as we brought new clients onto our platform and also added additional assets onto our platform from existing clients. Average assets loaded on our platform that were billed to customers increased 24% from the six months ended June 30, 2020 to the six months ended June 30, 2021 while the average basis point rate billed to customers decreased by 0.4% from the six months ended June 30, 2020 to the six months ended June 30, 2021.

Cost of Revenue

 

     Six Months Ended
June 30,
               
     2021      2020      $ Change      % Change  
     (in thousands)  

Equity-based compensation

   $ 1,272      $ 550      $ 722        131

All other cost of revenue

     28,626        26,341        2,285        9
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cost of revenue

   $ 29,898      $ 26,891      $ 3,007        11

Percent of revenue

     25%        28%        

 

87


Table of Contents
Index to Financial Statements

Cost of revenue changed as follows:

 

     Change From
June 30, 2020 to
June 30, 2021
 
     (in thousands)  

Increased payroll and related

   $ 1,069  

Increased equity-based compensation

     722  

Increased data costs

     436  

Increased outside services and contractors

     322  

Increased technology

     272  

Increased depreciation and amortization

     257  

Decreased travel and entertainment

     (175

Other items

     104  
  

 

 

 

Total change

   $ 3,007  
  

 

 

 

The increase in cost of revenue is 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 and increased data costs to support a larger client base as well as increased equity-based compensation expense due to increased grant-date fair value of equity awards and higher headcount. In addition, the increased utilization of third-party contractors, technology and IT services on operational activities and higher depreciation expense from completion of development projects increased cost of revenue. These increases were partially offset by a reduction in travel and entertainment in response to the COVID-19 pandemic.

Operating Expenses

Research and Development

 

     Six Months Ended
June 30,
              
     2021     2020     $ Change      % Change  
     (in thousands)  

Equity-based compensation

   $ 3,686     $ 1,379     $ 2,307        167

All other research and development

     28,890       22,690       6,200        27
  

 

 

   

 

 

   

 

 

    

 

 

 

Total research and development

   $ 32,576     $ 24,069     $ 8,507        35

Percent of revenue

     28     25     

Research and development expense changed as follows:

 

     Change From
June 30, 2020 to
June 30, 2021
 
     (in thousands)  

Increased payroll and related

   $ 4,076  

Increased equity-based compensation

     2,307  

Increased outside services and contractors

     1,156  

Increased technology

     958  

Other items

     10  
  

 

 

 

Total change

   $ 8,507  
  

 

 

 

The increase in research and development expense was primarily due to increased payroll and related costs as a result of headcount growth of additional employees to focus on new offerings as well as increased equity-

 

88


Table of Contents
Index to Financial Statements

based compensation expense due to increased grant-date fair value of equity awards, higher headcount and strategic hiring to the executive team. In addition, research and development expense increased from higher utilization of third-party contractors, IT services and cloud computing services.

Sales and Marketing

 

     Six Months Ended               
     June 30,               
         2021             2020         $ Change      % Change  
     (in thousands)  

Equity-based compensation

   $ 2,127     $ 732     $ 1,395        191

All other sales and marketing

     13,898       7,868       6,030        77
  

 

 

   

 

 

   

 

 

    

 

 

 

Total sales and marketing

   $ 16,025     $ 8,600     $ 7,425        86

Percent of revenue

     14     9     

Sales and marketing expense changed as follows:

 

     Change From
June 30, 2020 to
June 30, 2021
 
     (in thousands)  

Increased payroll and related

   $ 4,628  

Increased equity-based compensation

     1,395  

Increased outside services and contractors

     1,070  

Increased marketing

     227  

Decreased travel and entertainment

     (167

Other items

     272  
  

 

 

 

Total change

   $ 7,425  
  

 

 

 

The increase in sales and marketing expense is primarily due to increased payroll and related costs as a result of headcount growth of additional employees to expand sales coverage as well as increased equity-based compensation expense due to increased grant-date fair value of equity awards, higher headcount and strategic hiring to the executive team. In addition, sales and marketing expense increased from higher utilization of third-party contractors on marketing activities and higher marketing costs due to increased focus on public relations and branding. These increases were partially offset by a reduction in travel and entertainment costs primarily in response to the COVID-19 pandemic.

General and Administrative

 

     Six Months Ended
June 30,
   

 

    

 

 
         2021             2020         $ Change      % Change  
     (in thousands)  

Equity-based compensation

   $ 4,471     $ 2,327     $ 2,144        92

All other general and administrative

     14,256       8,647       5,609        65
  

 

 

   

 

 

   

 

 

    

 

 

 

Total general and administrative

   $ 18,727     $ 10,974     $ 7,753        71

Percent of revenue

     16     12     

 

89


Table of Contents
Index to Financial Statements

General and administrative expense changed as follows:

 

     Change From  
     June 30, 2020 to
June 30, 2021
 
     (in thousands)  

Increased equity-based compensation

   $ 2,144  

Increased outside services and contractors

     1,734  

Increased payroll and related

     1,470  

Increased recruiting

     934  

Increased costs associated with Up-C structure

     926  

Increased technology

     424  

Decreased travel and entertainment

     (168

Other items

     289  
  

 

 

 

Total change

   $ 7,753  
  

 

 

 

The increase in general and administrative expense was primarily due to increased equity-based compensation expense due to increased grant-date fair value of equity awards and additional headcount, increased costs from higher utilization of third-party contractors on accounting, IT and compliance activities, increased payroll and related costs as a result of headcount growth of additional employees, and increased recruiting costs to support hiring for growth initiatives. In addition, general and administrative expense increased due to accounting and legal professional service costs associated with creating the Up-C structure and developing the Tax Receivable Agreement, and higher utilization of IT services. These increases were partially offset by a reduction in travel and entertainment costs primarily in response to the COVID-19 pandemic.

Interest and Other Expense, Net

 

     Six Months Ended
June 30,
               
     2021      2020      $ Change      % Change