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Guidewire Software Announces Fourth Fiscal Quarter and Fiscal Year 2018 Financial Results

September 5, 2018 4:15 PM

FOSTER CITY, Calif.--(BUSINESS WIRE)-- Guidewire Software, Inc. (NYSE: GWRE), a provider of software products to Property and Casualty (“P&C”) insurers, today announced its financial results for the fourth fiscal quarter and year ended July�31, 2018.

“Driven by a record number of transactions at new and existing customers in both domestic and international markets, revenue and net income were above our guidance ranges for the fourth quarter and fiscal year 2018,” said Marcus Ryu, chief executive officer, Guidewire Software. “As insurers strive for differentiation through automation, digital engagement, predictive analytics, and integration to insurtech partners, they increasingly seek cloud solutions that reduce IT complexity and risk. We enter fiscal 2019 well situated to continue Guidewire InsurancePlatform’s progress toward becoming the platform of choice for the $2 trillion P&C insurance industry.”

Fiscal Year 2018 Financial Highlights

Revenue

Profitability

Fourth Fiscal Quarter 2018 Financial Highlights

Revenue

Profitability

Liquidity

Business Outlook

Guidewire is issuing the following outlook for the first fiscal quarter and fiscal year 2019 based on current expectations:

� � � � � �
(in $ millions, except per share outlook)

First Fiscal Quarter
2019

Fiscal Year 2019
Revenue 159.0 - 163.0 740.5 - 752.5
License and other revenue 73.0 - 77.0 365.0 - 377.0
Maintenance revenue 19.0 - 20.0 79.5 - 81.5
Services revenue 65.0 - 68.0 290.0 - 300.0
GAAP operating loss (17.0 ) - (13.0 ) (27.8 ) - (15.8 )
Non-GAAP operating income 14.5 - 18.5 104.5 - 116.5
GAAP net loss (12.6 ) - (9.5 ) (19.5 ) - (10.1 )
GAAP net loss per share (0.16 ) - (0.12 ) (0.24 ) - (0.13 )
Non-GAAP net income 14.5 - 17.6 94.8 - 104.3
Non-GAAP net income per share 0.18 - 0.22 1.15 - 1.26
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Conference Call Information

What:

� � � � Guidewire Software Fourth Fiscal Quarter and Fiscal Year 2018 Financial Results Conference Call
When: Wednesday, September 5, 2018
Time: 2:00 p.m. PT (5:00 p.m. ET)
Live Call: (866) 548-4713, Domestic
(323) 794-2093, International
Replay: (844) 512-2921, Passcode 7506545, Domestic
(412) 317-6671, Passcode 7506545, International
Webcast:

http://ir.guidewire.com/ (live and replay)

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The webcast will be archived on Guidewire’s website (www.guidewire.com) for a period of three months.

Non-GAAP Financial Measures

This press release contains the following non-GAAP financial measures: Non-GAAP operating income (loss), Non-GAAP net income (loss), Non-GAAP income tax provision (benefit), and Non-GAAP net income (loss) per share. Non-GAAP operating income (loss) excludes stock-based compensation and amortization of intangibles. Non-GAAP net income (loss), Non-GAAP income tax provision (benefit), and Non-GAAP net income (loss) per share also exclude the amortization of debt discount and issuance costs from our convertible notes and the related tax effects of the non-GAAP adjustments. The estimated annual tax rates used in the business outlook to compute GAAP and Non-GAAP net income exclude discrete items such as forecasted tax benefits related to stock-based compensation and are impacted by the passage of the Tax Cuts and Jobs Act.

Guidewire believes that these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to Guidewire’s financial condition and results of operations. The Company’s management uses these non-GAAP measures to compare the Company’s performance to that of prior periods for trend analysis, for purposes of determining executive and senior management incentive compensation and for budgeting and planning purposes. The Company believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the Company’s financial measures with other software companies, many of which present similar non-GAAP financial measures to investors.

Management of the Company does not consider these non-GAAP measures in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company’s financial statements. In addition, they are subject to inherent limitations as they reflect the exercise of judgment by management about which expenses and income are excluded or included in determining these non-GAAP financial measures. Guidewire urges investors to review the reconciliation of its non-GAAP financial measures to the comparable GAAP financial measures, which it includes in press releases announcing quarterly financial results, including the financial tables at the end of this press release, and not to rely on any single financial measure to evaluate the Company’s business.

About Guidewire Software
Guidewire delivers the industry platform that P&C insurers rely upon to adapt and succeed in a time of accelerating change. We provide the software, services, and partner ecosystem to enable our customers to run, differentiate, and grow their business. We are privileged to serve more than 350 companies in 32 countries. For more information, please visit www.guidewire.com and follow us on twitter: @Guidewire_PandC.

NOTE: For information about Guidewire’s trademarks, visit https://www.guidewire.com/legal-notices.

Cautionary Language Concerning Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding our financial outlook, market positioning and future investments. These forward-looking statements are made as of the date they were first issued and were based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. Words such as “expect,” “anticipate,” “should,” “believe,” “hope,” “target,” “project,” “goals,” “estimate,” “potential,” “predict,” “may,” “will,” “might,” “could,” “intend,” variations of these terms or the negative of these terms and similar expressions are intended to identify these forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond Guidewire’s control. Guidewire’s actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to, risks detailed in Guidewire’s most recent Forms 10-K and 10-Q filed with the Securities and Exchange Commission as well as other documents that may be filed by the Company from time to time with the Securities and Exchange Commission. In particular, the following factors, among others, could cause results to differ materially from those expressed or implied by such forward-looking statements: the market for our software may develop more slowly than expected or than it has in the past; quarterly and annual operating results may fluctuate more than expected; seasonal and other variations related to our revenue recognition may cause significant fluctuations in our results of operations and cash flows; our reliance on sales to and renewals from a relatively small number of large customers for a substantial portion of our revenue; our services revenue produce lower gross margins than our license and maintenance revenue; assertions by third parties that we violate their intellectual property rights could substantially harm our business; we face intense competition in our market; weakened global economic conditions may adversely affect the P&C insurance industry including the rate of information technology spending; our product development and sales cycles are lengthy; the risk of losing key employees; changes in foreign exchange rates; general political or destabilizing events, including war, conflict or acts of terrorism; and other risks and uncertainties. Past performance is not necessarily indicative of future results. The forward-looking statements included in this press release represent Guidewire’s views as of the date of this press release. The Company anticipates that subsequent events and developments will cause its views to change. Guidewire undertakes no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These forward-looking statements should not be relied upon as representing Guidewire’s views as of any date subsequent to the date of this press release.

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GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands)
� � � � � �
July 31,
2018 		July 31,
2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 437,140 $ 263,176
Short-term investments 630,008 310,027
Accounts receivable, net 124,849 79,433
Prepaid expenses and other current assets 30,510 � 26,604 �
Total current assets 1,222,507 679,240
Long-term investments 190,952 114,585
Property and equipment, net 18,595 14,376
Intangible assets, net 95,654 71,315
Deferred tax assets, net 87,482 37,430
Goodwill 340,877 141,851
Other assets 22,525 � 20,104 �
TOTAL ASSETS $ 1,978,592 � $ 1,078,901 �
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 30,635 $ 13,416
Accrued employee compensation 60,135 48,882
Deferred revenue, current 114,138 91,243
Other current liabilities 20,280 � 10,075 �
Total current liabilities 225,188 163,616
Convertible senior notes, net 305,128 —
Deferred revenue, non-current 23,758 19,892
Other liabilities 774 � 2,112 �
Total liabilities 554,848 185,620
STOCKHOLDERS’ EQUITY:
Common stock 8 8
Additional paid-in capital 1,297,979 830,014
Accumulated other comprehensive loss (7,748 ) (5,796 )
Retained earnings 133,505 � 69,055 �
Total stockholders’ equity 1,423,744 � 893,281 �
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,978,592 � $ 1,078,901 �
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GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands except share and per share data)
� � � � � � � � � � � �
Three Months Ended July 31, Year Ended July 31,
2018 2017 2018 2017
Revenue:
License and other $ 151,103 $ 109,695 $ 315,776 $ 271,462
Maintenance 20,548 18,671 77,337 68,643
Services 76,988 � 52,734 � 267,954 � 174,179 �
Total revenue 248,639 � 181,100 � 661,067 � 514,284 �
Cost of revenue: (1)
License and other 9,955 6,627 35,452 17,046
Maintenance 3,895 3,513 14,783 13,397
Services 77,873 � 47,121 � 246,472 � 161,116 �
Total cost of revenue 91,723 � 57,261 � 296,707 � 191,559 �
Gross profit:
License and other 141,148 103,068 280,324 254,416
Maintenance 16,653 15,158 62,554 55,246
Services (885 ) 5,613 � 21,482 � 13,063 �
Total gross profit 156,916 � 123,839 � 364,360 � 322,725 �
Operating expenses: (1)
Research and development 45,502 35,458 171,657 130,323
Sales and marketing 38,168 31,431 124,117 109,239
General and administrative 18,009 � 15,902 � 75,916 � 56,551 �
Total operating expenses 101,679 � 82,791 � 371,690 � 296,113 �
Income (loss) from operations 55,237 41,048 (7,330 ) 26,612
Interest income 6,034 1,581 13,281 5,867
Interest expense (4,203 ) (7 ) (6,442 ) (13 )
Other income (expense), net (531 ) 1,146 � 509 � 811 �
Income before income taxes 56,537 43,768 18 33,277
Provision for (benefit from) income taxes (26,889 ) 16,841 � 19,683 � 12,053 �
Net income (loss) $ 83,426 � $ 26,927 � $ (19,665 ) $ 21,224 �
Net income (loss) per share:
Basic $ 1.04 � $ 0.36 � $ (0.25 ) $ 0.29 �
Diluted $ 1.02 � $ 0.36 � $ (0.25 ) $ 0.28 �
Shares used in computing net income (loss) per share:
Basic 80,433,450 � 74,776,333 � 77,709,592 � 73,994,577 �
Diluted 82,162,624 � 75,769,530 � 77,709,592 � 75,328,343 �
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(1) Amounts include stock-based compensation expense as follows:

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Three Months Ended July 31, Year Ended July 31,
2018 � � � 2017 2018 � � � 2017
(unaudited, in thousands)
Stock-based compensation expense:
Cost of license and other revenue $ 296 $ 142 $ 1,002 $ 373
Cost of maintenance revenue 488 429 1,886 1,694
Cost of services revenue 5,874 4,652 21,856 18,621
Research and development 5,595 4,498 25,440 18,123

Sales and marketing

4,619 4,166 18,387 16,664
General and administrative 4,248 � 4,246 � 21,043 � 16,319
Total stock-based compensation expense $ 21,120 � $ 18,133 � $ 89,614 � $ 71,794
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GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
� � � � � � � � � � � �

Three Months Ended
July 31,

Year Ended July 31,

2018 2017 2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 83,426 $ 26,927 $ (19,665 ) $ 21,224
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 9,494 6,517 35,611 18,725
Amortization of debt discount and issuance costs 2,944 — 4,512 —
Provision for doubtful accounts 1,062 — 1,062 —
Stock-based compensation 21,120 18,133 89,614 71,794
Excess tax benefit from stock-based compensation — (10,029 ) — (9,067 )
Deferred income tax (28,085 ) 5,552 15,336 (1,227 )
Amortization of premium on available-for-sale securities, and other non-cash items (1,384 ) 261 (1,418 ) 1,462
Changes in operating assets and liabilities:
Accounts receivable (24,023 ) 15,995 (40,832 ) (9,750 )
Prepaid expenses and other assets (811 ) (2,291 ) (2,783 ) (9,463 )
Accounts payable 10,248 765 16,792 1,311
Accrued employee compensation 16,684 10,727 9,230 7,138
Other liabilities 7,973 9,296 8,859 8,211
Deferred revenue 3,437 � 3,770 � 24,140 � 36,802 �
Net cash provided by operating activities 102,085 � 85,623 � 140,458 � 137,160 �
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (324,347 ) (118,274 ) (859,657 ) (462,035 )
Sales of available-for-sale securities 187,457 104,800 464,143 547,630
Purchases of property and equipment (2,712 ) (2,650 ) (9,398 ) (5,886 )
Capitalized software development costs (981 ) (410 ) (2,613 ) (784 )
Strategic investment — — — (4,677 )
Acquisitions of business, net of acquired cash — � — � (130,058 ) (187,590 )
Net cash used in investing activities (140,583 ) (16,534 ) (537,583 ) (113,342 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible senior notes, net of issuance costs — — 387,239 —
Proceeds from issuance of common stock, net of issuance costs — — 220,948 —
Purchase of capped calls — — (37,200 ) —
Proceeds from issuance of common stock upon exercise of stock options 958 2,144 2,013 5,563
Excess tax benefit from exercise of stock options and vesting of restricted stock units — � 10,029 � — � 9,067 �
Net cash provided by financing activities 958 � 12,173 � 573,000 � 14,630 �
Effect of foreign exchange rate changes on cash and cash equivalents (1,421 ) 1,748 � (1,911 ) 1,146 �
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (38,961 ) 83,010 173,964 39,594
CASH AND CASH EQUIVALENTS—Beginning of period 476,101 � 180,166 � 263,176 � 223,582 �
CASH AND CASH EQUIVALENTS—End of period $ 437,140 � $ 263,176 � $ 437,140 � $ 263,176 �
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GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Financial Measures

(unaudited, in thousands except share and per share data)

� � � � � � � � � � � �
The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP financial measures for the periods indicated below:
�
Three Months Ended July 31, Year Ended July 31,
2018 2017 2018 2017
Income (loss) from operations reconciliation:
GAAP income (loss) from operations $ 55,237 $ 41,048 $ (7,330 ) $ 26,612
Non-GAAP adjustments:
Stock-based compensation (1) 21,120 18,133 89,614 71,794
Amortization of intangibles (1) 7,348 � 4,776 � 27,462 � 12,089 �
Non-GAAP income from operations $ 83,705 � $ 63,957 � $ 109,746 � $ 110,495 �
�
Net income (loss) reconciliation:
GAAP net income (loss) $ 83,426 $ 26,927 $ (19,665 ) $ 21,224
Non-GAAP adjustments:
Stock-based compensation (1) 21,120 18,133 89,614 71,794
Amortization of intangibles (1) 7,348 4,776 27,462 12,089
Amortization of debt discount and issuance costs (2) 2,944 — 4,512 —
Tax impact of non-GAAP adjustments (3) (48,548 ) (5,080 ) (11,006 ) (26,323 )
Non-GAAP net income $ 66,290 � $ 44,756 � $ 90,917 � $ 78,784 �
�
Tax provision (benefit) reconciliation:
GAAP tax provision (benefit) $ (26,889 ) $ 16,841 $ 19,683 $ 12,053
Non-GAAP adjustments:
Stock-based compensation (1) 4,820 5,973 24,481 23,145
Amortization of intangibles (1) 2,369 1,573 8,085 3,913
Amortization of debt discount and issuance costs (2) 902 — 1,328 —
Other income tax effects and adjustments (3) 40,457 � (2,466 ) (22,888 ) (735 )
Non-GAAP tax provision $ 21,659 � $ 21,921 � $ 30,689 � $ 38,376 �
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Net income (loss) per share reconciliation:
GAAP net income (loss) per share - Diluted $ 1.02 $ 0.36 $ (0.25 ) $ 0.28
Non-GAAP adjustments:
Stock-based compensation (1) 0.26 0.24 1.15 0.96
Amortization of intangibles (1) 0.09 0.06 0.35 0.16
Amortization of debt discount and issuance costs (2) 0.04 — 0.06 —
Tax impact of non-GAAP adjustments (3) (0.60 ) (0.07 ) (0.14 ) (0.35 )
Non-GAAP dilutive shares excluded from GAAP net income (loss) per share calculation (4) — � — � (0.03 ) — �
Non-GAAP net income per share - Diluted $ 0.81 � $ 0.59 � $ 1.14 � $ 1.05 �
�
Shares used in computing Non-GAAP income per share amounts:
GAAP weighted average shares - Diluted 82,162,624 75,769,530 77,709,592 75,328,343
Non-GAAP dilutive shares excluded from GAAP loss per share calculation (4) — � — � 1,785,533 � — �
Pro forma weighted average shares - Diluted 82,162,624 � 75,769,530 � 79,495,125 � 75,328,343 �
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(1) Adjustments relate to amortization of acquired intangibles and stock-based compensation recognized during the period for GAAP purposes.
(2) Adjustments reflect the amortization of debt discount and issuance costs related to the issuance of our Senior Convertible Notes recognized during the period for GAAP purposes.
(3) Adjustments reflect the tax benefit (provision) resulting from all non-GAAP adjustments.
(4) Due to the occurrence of a net loss on a GAAP basis, potentially dilutive securities were excluded from the calculation of GAAP income (loss) per share, as they would have had an anti-dilutive effect. However, as net income was earned on a non-GAAP basis, these shares have a dilutive effect on Non-GAAP income (loss) per share.

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GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Outlook
The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP outlook for the periods indicated below:
(in $ millions) � � �

First Fiscal
Quarter 2019

� � � Fiscal Year 2019
Operating income (loss) outlook reconciliation:
GAAP operating loss (17.0 ) - (13.0 ) (27.8 ) - (15.8 )
Non-GAAP adjustments:
Stock-based compensation 23.7 - 24.7 101.7 - 104.7
Amortization of intangibles 7.1 � - 7.6 � 28.6 � - 29.6 �
Non-GAAP operating income 14.5 � - 18.5 � 104.5 � - 116.5 �
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Net income (loss) outlook reconciliation
GAAP net loss (12.6 ) - (9.5 ) (19.5 ) - (10.1 )
Non-GAAP adjustments:
Stock-based compensation 23.7 - 24.7 101.7 - 104.7
Amortization of intangibles 7.1 - 7.6 28.6 - 29.6
Amortization of debt discount and issuance costs 3.0 - 3.0 12.2 - 12.2
Tax impact of non-GAAP adjustments (7.4 ) - (7.3 ) (30.3 ) - (30.1 )
Non-GAAP net income 14.5 � - 17.6 � 94.8 � - 104.3 �
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Media Contact:

Guidewire Software, Inc.

Diana Stott, 650-356-4941

[email protected]

or

Investor Contact:

ICR, LLC

Garo Toomajanian, 650-357-5282

[email protected]

Source: Guidewire Software, Inc.

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