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Guidewire Software Announces Fourth Quarter and Fiscal Year 2020 Financial Results

September 2, 2020 4:15 PM

SAN MATEO, Calif.--(BUSINESS WIRE)-- Guidewire Software, Inc. (NYSE: GWRE), provider of the platform Property and Casualty (“P&C”) insurers trust to engage, innovate, and grow efficiently, today announced its financial results for the fourth fiscal quarter and fiscal year ended July 31, 2020.

“We had a strong fourth quarter, adding 10 InsuranceSuite Cloud customers and growing subscription revenue for the year by 84%,” said Mike Rosenbaum, chief executive officer, Guidewire Software. “Additionally, we launched Aspen, our first cloud-optimized release of InsuranceSuite, taking a major leap forward in our mission to provide the cloud platform that enables P&C insurers around the world to engage, innovate and grow efficiently.”

Fiscal Year 2020 Financial Highlights

Revenue

Profitability

Liquidity

Fourth Quarter Fiscal Year 2020 Financial Highlights

Revenue

Profitability

Business Outlook

Guidewire is issuing the following outlook for the first quarter of fiscal year 2021 based on current expectations:

Guidewire is issuing the following outlook for the fiscal year 2021 based on current expectations:

Conference Call Information

What:

Guidewire Software Fourth Quarter and Fiscal Year 2020 Financial Results Conference Call

When:

Wednesday, September 2, 2020

Time:

2:00 p.m. PT (5:00 p.m. ET)

Live Call:

(877) 705-6003, Domestic

(201) 493-6725, International

Replay:

(844) 512-2921, Passcode 13708659, Domestic

(412) 317-6671, Passcode 13708659, International

Webcast:

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

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

Non-GAAP Financial Measures and Other Metrics

This press release contains the following non-GAAP financial measures: non-GAAP gross profit, non-GAAP income (loss) from operations, non-GAAP net income (loss), non-GAAP income tax provision (benefit), non-GAAP net income (loss) per share, and free cash flow. Non-GAAP gross profit and non-GAAP income (loss) from operations exclude 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, changes in fair value of our strategic investments, and the related tax effects of the non-GAAP adjustments. Free cash flow consists of net cash flow provided by (used in) operating activities less cash used for purchases of property and equipment and capitalized software development costs. These Non-GAAP measures enable us to analyze our financial performance without the effects of certain non-cash items such as depreciation, amortization, stock-based compensation, and changes in fair value of strategic investments.

Annual recurring revenue ("ARR") is used to identify the annualized recurring value of active customer contracts at the end of a reporting period. ARR includes the annualized recurring value of term licenses, subscription agreements, support contracts, and hosting agreements based on customer contracts, which may not be the same as the timing and amount of revenue recognized. All components of the licensing and other arrangements that are not expected to recur (primarily perpetual licenses and services) are excluded.

Guidewire believes that these non-GAAP financial measures and other metrics 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 and other metrics 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 and other metrics 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 and other metrics 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 platform Property and Casualty (“P&C”) insurers trust to engage, innovate, and grow efficiently. Guidewire's platform combines core operations, digital engagement, analytics, and artificial intelligence (AI) applications and is connected to numerous data sources and third-party systems through Guidewire Marketplace. 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 and our progress in developing cloud-based core systems. 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: quarterly and annual operating results may fluctuate more than expected; the impact of the COVID-19 pandemic on our employees and our business and the businesses of our customers, system integrator ("SI") partners, and vendors; seasonal and other variations related to our customer agreements and related 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 ability to successfully manage any changes to our business model, including the transition of our products to cloud offerings and the costs related to cloud operations; our products or cloud-based services may experience data security breaches; we face intense competition in our market; our services revenue produces lower gross margins than our license, subscription and support revenue; our product development and sales cycles are lengthy and may be affected by factors outside of our control; changes in accounting guidance, such as revenue recognition, which have and may cause us to experience greater volatility in our quarterly and annual results; assertions by third parties that we violate their intellectual property rights could substantially harm our business; weakened global economic conditions may adversely affect the P&C insurance industry including the rate of information technology spending; general political or destabilizing events, including war, conflict or acts of terrorism; our ability to sell our products is highly dependent on the quality of our professional services and SI partners; the risk of losing key employees; the challenges of international operations, including changes in foreign exchange rates; 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.

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands)

July 31,

2020

July 31,

2019

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

366,969

$

254,101

Short-term investments

766,527

870,136

Accounts receivable, net

114,242

138,443

Unbilled accounts receivable, net

49,491

36,728

Prepaid expenses and other current assets

45,989

35,566

Total current assets

1,343,218

1,334,974

Long-term investments

300,771

213,524

Unbilled accounts receivable, net

34,737

9,375

Property and equipment, net

65,235

65,809

Operating lease assets

103,797

Intangible assets, net

39,708

66,542

Goodwill

340,877

340,877

Deferred tax assets, net

101,565

90,308

Other assets

34,944

45,554

TOTAL ASSETS

$

2,364,852

$

2,166,963

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

$

22,634

$

34,255

Accrued employee compensation

58,547

73,365

Deferred revenue, net

118,311

108,304

Other current liabilities

25,706

16,348

Total current liabilities

225,198

232,272

Lease liabilities

119,408

Convertible senior notes, net

330,208

317,322

Deferred revenue, net

14,685

23,527

Other liabilities

18,585

19,641

Total liabilities

708,084

592,762

STOCKHOLDERS’ EQUITY:

Common stock

8

8

Additional paid-in capital

1,499,050

1,391,904

Accumulated other comprehensive income (loss)

(5,245

)

(7,758

)

Retained earnings

162,955

190,047

Total stockholders’ equity

1,656,768

1,574,201

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

2,364,852

$

2,166,963

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

Three Months Ended July 31,

Twelve Months Ended July 31,

2020

2019

2020

2019

Revenue:

Subscription and support

$

54,120

$

42,069

$

203,473

$

150,475

License

137,527

107,464

331,514

320,271

Services

52,027

58,325

207,320

248,768

Total revenue

243,674

207,858

742,307

719,514

Cost of revenue(1):

Subscription and support

33,511

23,083

117,178

73,597

License

3,519

2,618

11,546

7,700

Services

50,781

57,083

209,291

243,053

Total cost of revenue

87,811

82,784

338,015

324,350

Gross profit:

Subscription and support

20,609

18,986

86,295

76,878

License

134,008

104,846

319,968

312,571

Services

1,246

1,242

(1,971

)

5,715

Total gross profit

155,863

125,074

404,292

395,164

Operating expenses(1):

Research and development

52,232

49,472

200,575

188,541

Sales and marketing

36,830

33,958

142,420

130,751

General and administrative

22,460

20,562

85,183

74,401

Total operating expenses

111,522

103,992

428,178

393,693

Income (loss) from operations

44,341

21,082

(23,886

)

1,471

Interest income

4,039

8,030

24,705

30,182

Interest expense

(4,549

)

(4,476

)

(17,945

)

(17,334

)

Other income (expense), net

5,584

(909

)

(7,205

)

(1,867

)

Income (loss) before provision for (benefit from) income taxes

49,415

23,727

(24,331

)

12,452

Provision for (benefit from) income taxes

10,640

722

2,867

(8,280

)

Net income (loss)

$

38,775

$

23,005

$

(27,198

)

$

20,732

Net income (loss) per share:

Basic

$

0.46

$

0.28

$

(0.33

)

$

0.25

Diluted

$

0.46

$

0.28

$

(0.33

)

$

0.25

Shares used in computing net income (loss) per share:

Basic

83,314,410

81,977,722

82,855,392

81,447,998

Diluted

83,947,187

82,928,818

82,855,392

82,681,214

(1)Amounts include stock-based compensation expense as follows:

Three Months Ended July 31,

Twelve Months Ended July 31,

2020

2019

2020

2019

(unaudited, in thousands)

Stock-based compensation expense:

Cost of subscription and support revenue

$

2,070

$

1,933

$

7,575

$

4,659

Cost of license revenue

224

75

769

173

Cost of services revenue

5,153

4,883

20,816

22,781

Research and development

6,975

5,655

26,324

23,420

Sales and marketing

5,117

4,819

21,260

19,245

General and administrative

6,203

5,394

25,073

21,237

Total stock-based compensation expense

$

25,742

$

22,759

$

101,817

$

91,515

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

Three Months Ended July 31,

Twelve Months Ended July 31,

2020

2019

2020

2019

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

$

38,775

$

23,005

$

(27,198

)

$

20,732

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization

10,386

10,813

42,641

39,953

Amortization of debt discount and issuance costs

3,288

3,112

12,886

12,194

Stock-based compensation

25,742

22,759

101,817

91,516

Charges to bad debt and revenue reserves

177

191

367

670

Deferred income tax

(813

)

(2,162

)

(11,859

)

(13,998

)

Amortization of premium (accretion of discount) on available-for-sale securities, net

484

(2,061

)

(1,882

)

(7,757

)

Changes in fair value of strategic investment

10,672

Other non-cash items affecting net income (loss)

38

(386

)

739

189

Changes in operating assets and liabilities:

Accounts receivable

(34,302

)

(29,826

)

23,878

(15,057

)

Unbilled accounts receivable

6,615

26,517

(38,125

)

(17,341

)

Prepaid expenses and other assets

(4,135

)

(10,419

)

(8,672

)

(16,251

)

Operating lease assets

(17,895

)

(10,784

)

Accounts payable

4,471

5,615

(1,209

)

(5,521

)

Accrued employee compensation

9,662

18,890

(15,624

)

13,825

Deferred revenue

26,900

20,011

1,165

(9,628

)

Lease liabilities

21,312

18,678

Other liabilities

16,454

16,815

15,576

22,600

Net cash provided by (used in) operating activities

107,159

102,874

113,066

116,126

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of available-for-sale securities

(431,443

)

(431,301

)

(1,280,755

)

(1,209,312

)

Sales of available-for-sale securities

40,632

13,706

134,050

77,204

Maturities of available-for-sale securities

357,179

215,928

1,168,720

879,532

Purchases of strategic investments

(2,156

)

(2,156

)

Purchases of property and equipment

(2,411

)

(16,175

)

(21,377

)

(44,921

)

Capitalized software development costs

(1,010

)

(1,634

)

(4,283

)

(3,936

)

Net cash provided by (used in) investing activities

(39,209

)

(219,476

)

(5,801

)

(301,433

)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock upon exercise of stock options

1,878

2,103

4,955

3,954

Net cash provided by (used in) financing activities

1,878

2,103

4,955

3,954

Effect of foreign exchange rate changes on cash and cash equivalents

3,326

(269

)

648

(1,686

)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

73,154

(114,768

)

112,868

(183,039

)

CASH AND CASH EQUIVALENTS—Beginning of period

293,815

368,869

254,101

437,140

CASH AND CASH EQUIVALENTS—End of period

$

366,969

$

254,101

$

366,969

$

254,101

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES

Reconciliation of GAAP to Non-GAAP Financial Measures

(unaudited, in thousands)

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,

Twelve Months Ended July 31,

2020

2019

2020

2019

Gross profit reconciliation:

GAAP gross profit

$

155,863

$

125,074

$

404,292

$

395,164

Non-GAAP adjustments:

Stock-based compensation

7,447

6,891

29,160

27,614

Amortization of intangibles

4,526

4,945

19,221

19,780

Non-GAAP gross profit

$

167,836

$

136,910

$

452,673

$

442,558

Income (loss) from operations reconciliation:

GAAP income (loss) from operations

$

44,341

$

21,082

$

(23,886

)

$

1,471

Non-GAAP adjustments:

Stock-based compensation

25,742

22,759

101,817

91,516

Amortization of intangibles

6,323

7,217

26,834

29,113

Non-GAAP income (loss) from operations

$

76,406

$

51,058

$

104,765

$

122,100

Net income (loss) reconciliation:

GAAP net income (loss)

$

38,775

$

23,005

$

(27,198

)

$

20,732

Non-GAAP adjustments:

Stock-based compensation

25,742

22,759

101,817

91,516

Amortization of intangibles

6,323

7,217

26,834

29,113

Amortization of debt discount and issuance costs

3,288

3,111

12,886

12,194

Changes in fair value of strategic investment (1)

10,672

Tax impact of non-GAAP adjustments (2)

(4,598

)

(9,818

)

(19,243

)

(33,678

)

Non-GAAP net income (loss)

$

69,530

$

46,274

$

105,768

$

119,877

Tax provision (benefit) reconciliation:

GAAP tax provision (benefit)

$

10,640

$

722

$

2,867

$

(8,280

)

Non-GAAP adjustments:

Stock-based compensation

4,629

4,222

16,453

15,800

Amortization of intangibles

1,137

1,339

4,334

5,033

Amortization of debt discount and issuance costs

591

577

2,080

2,117

Changes in fair value of strategic investment (1)

1,418

Tax impact of non-GAAP adjustments (2)

(1,759

)

3,680

(5,042

)

10,728

Non-GAAP tax provision (benefit)

$

15,238

$

10,540

$

22,110

$

25,398

(1) Effective the third fiscal quarter of 2020, changes in fair value of strategic investments are excluded from non-GAAP measures. Prior to the third fiscal quarter of 2020, there were no changes in fair value of strategic investments in any periods presented.

(2) Adjustments reflect the tax benefit (provision) resulting from all non-GAAP adjustments.

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES

Reconciliation of GAAP to Non-GAAP Financial Measures

(unaudited, in thousands except per share amounts)

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,

Twelve Months Ended July 31,

2020

2019

2020

2019

Net income (loss) per share reconciliation:

GAAP net income (loss) per share — diluted

$

0.46

$

0.28

$

(0.33

)

$

0.25

Non-GAAP adjustments:

Stock-based compensation

0.31

0.27

1.23

1.11

Amortization of intangibles

0.08

0.09

0.33

0.36

Amortization of debt discount and issuance costs

0.04

0.04

0.16

0.16

Changes in fair value of strategic investment (1)

0.13

Tax impact of non-GAAP adjustments (2)

(0.05

)

(0.12

)

(0.23

)

(0.42

)

Non-GAAP dilutive shares excluded from GAAP net income (loss) per share calculation (3)

(0.01

)

(0.03

)

(0.01

)

Non-GAAP net income (loss) per share — diluted

$

0.83

$

0.56

$

1.26

$

1.45

Shares used in computing Non-GAAP income (loss) per share amounts:

GAAP weighted average shares — diluted

83,947,187

82,928,818

82,855,392

82,681,214

Non-GAAP dilutive shares excluded from GAAP income (loss) per share calculation (3)

834,002

Pro forma weighted average shares — diluted

83,947,187

82,928,818

83,689,394

82,681,214

(1) Effective the third fiscal quarter of 2020, changes in fair value of strategic investments are excluded from non-GAAP measures. Prior to the third fiscal quarter of 2020, there were no changes in fair value of strategic investments in any periods presented.

(2) Adjustments reflect the impact on the tax benefit (provision) resulting from all non-GAAP adjustments.

(3) Due to the occurrence of a net loss on a GAAP basis, potentially dilutive securities were excluded from the calculation of GAAP net income (loss) per share, as they would have an anti-dilutive effect. However, these shares have a dilutive effect on non-GAAP net income (loss) per share and, therefore, are included in the non-GAAP net income (loss) per share calculation.

Twelve Months Ended July 31,

2020

2019

Free cash flow:

Net cash provided by (used in) operating activities

$

113,066

$

116,126

Purchases of property and equipment

(21,377

)

(44,921

)

Capitalized software development costs

(4,283

)

(3,936

)

Free cash flow

$

87,406

$

67,269

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES

Reconciliation of GAAP to Non-GAAP Outlook

The following tables reconcile the specific items excluded from GAAP outlook in the calculation of non-GAAP outlook for the periods indicated below:

(in $ millions)

First Quarter Fiscal

Year 2021

Fiscal Year 2021

Income (loss) from operations outlook reconciliation:

GAAP income (loss) from operations

(44)

-

(40)

(155)

-

(145)

Non-GAAP adjustments:

Stock-based compensation

27

-

27

129

-

129

Amortization of intangibles

7

-

7

21

-

21

Non-GAAP income (loss) from operations

(10)

(6)

(5)

-

5

Media Contact:

Diana Stott

Guidewire Software, Inc.

(650) 356-4941

[email protected]

Investor Contact:

Garo Toomajanian

ICR, LLC

(650) 357-5282

[email protected]

Source: Guidewire Software, Inc.

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