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December 5, 2019 at 4:15 PM EST

Guidewire Software Announces First Quarter Fiscal Year 2020 Financial Results

SAN MATEO, Calif.--(BUSINESS WIRE)--Dec. 5, 2019-- Guidewire Software, Inc. (NYSE: GWRE), provider of the industry platform Property and Casualty (“P&C”) insurers rely upon, today announced its financial results for the fiscal quarter ended October 31, 2019.

“Total revenue and profitability in the first quarter exceeded our outlook and was highlighted with the selection of InsuranceSuite Cloud by a Tier One carrier for a new, greenfield line of business,” said Mike Rosenbaum, chief executive officer, Guidewire Software. "As we build momentum into the year, we are as committed as ever to the cloud, data, and analytics transformation we are helping drive in the P&C insurance industry.”

First Quarter Fiscal Year 2020 Financial Highlights

Revenue

  • Total revenue for the first quarter of fiscal year 2020 was $157.0 million, a decrease of 13% from the same quarter in fiscal year 2019. License and subscription revenue was $82.4 million, a decrease of 13%; services revenue was $53.6 million, a decrease of 17%; and maintenance revenue was $21.0 million, which remained relatively flat.
  • Annual recurring revenue, or ARR, was $463 million as of October 31, 2019, up from $460 million as of July 31, 2019. Quarterly ARR results for fiscal year 2020 are based on actual currency rates at the end of fiscal year 2019, held constant throughout the year.

Profitability

  • GAAP loss from operations was $24.6 million for the first quarter of fiscal year 2020, compared with $2.5 million of income for the comparable period in fiscal year 2019.
  • Non-GAAP income from operations was $7.1 million for the first quarter of fiscal year 2020, compared with $33.1 million of non-GAAP income for the comparable period in fiscal year 2019.
  • GAAP net loss was $15.0 million for the first quarter of fiscal year 2020, compared with $6.3 million of net income for the comparable period in fiscal year 2019. GAAP net loss per share was $0.18, based on diluted weighted average shares outstanding of 82.4 million, compared with net income per share of $0.08 for the comparable period in fiscal year 2019, based on diluted weighted average shares outstanding of 82.2 million.
  • Non-GAAP net income was $11.0 million for the first quarter of fiscal year 2020, compared with $31.1 million of non-GAAP net income for the comparable period in fiscal year 2019. Non-GAAP net income per share was $0.13, based on diluted weighted average shares outstanding of 83.1 million, compared with non-GAAP net income per share of $0.38 for the comparable period in fiscal year 2019, based on diluted weighted average shares outstanding of 82.2 million.

Liquidity

  • The Company had $1.3 billion in cash, cash equivalents, and investments at October 31, 2019, the same as at July 31, 2019. The Company used $18.1 million in cash from operations and had negative free cash flow of $29.1 million during the three months ended October 31, 2019.

Business Outlook

Guidewire is issuing the following outlook for the second fiscal quarter and fiscal year 2020 based on current expectations:

(in $ millions)

 

Second Quarter
Fiscal Year 2020

 

Fiscal Year 2020

Revenue

 

162.0

-

166.0

 

759.0

-

771.0

License and subscription

 

92.0

-

96.0

 

443.0

-

455.0

Maintenance

 

20.0

-

20.5

 

85.0

-

87.0

Services

 

48.0

-

51.0

 

224.0

-

236.0

GAAP income (loss) from operations

 

(28.9)

-

(24.9)

 

(41.4)

-

(29.4)

Non-GAAP income (loss) from operations

 

5.0

-

9.0

 

96.0

-

108.0

The Company is not providing an outlook for GAAP and non-GAAP net income (loss) and GAAP and non-GAAP net income (loss) per share due to the issuance of base erosion and anti-abuse tax ("BEAT") regulations earlier this week. The Company is currently evaluating these regulations; however, the Company believes that these regulations will increase the Company's GAAP income tax provision in fiscal year 2020 but will not impact the non-GAAP income tax provision.

Conference Call Information

What:

Guidewire Software First Quarter Fiscal Year 2020 Financial Results Conference Call

When:

Thursday, December 5, 2019

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 13697014, Domestic
(412) 317-6671, Passcode 13697014, 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

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, free cash flow, and annual recurring revenue ("ARR"). 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 and the related tax effects of the non-GAAP adjustments. Free cash flow, which consists of net cash flow provided by (used in) operating activities less cash used for capital expenditures, enables us to analyze our financial performance without the effects of certain non-cash items such as depreciation, amortization, and stock-based compensation expenses. 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, maintenance contracts, and hosting contracts. All components of the licensing and usage arrangements that are not expected to recur (primarily perpetual licenses and services) are excluded.

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. As of the end of our fiscal year 2019, we were privileged to serve more than 380 companies in 34 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, business momentum, and the future effects of recently issued base erosion and anti-abuse tax regulations. 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; 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 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 services revenue produces 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; our products or cloud-based services may experience data security breaches; changes in accounting guidance on revenue recognition, such as contained in ASC 606, have and may cause us to experience greater volatility in our quarterly and annual results; 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.

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)

 

 

 

 

 

October 31,
2019

 

July 31,
2019

ASSETS

 

 

 

CURRENT ASSETS:

 

 

 

Cash and cash equivalents

$

179,089

 

$

254,101

Short-term investments

832,127

 

870,136

Accounts receivable, net

79,480

 

138,443

Unbilled accounts receivable, net

59,778

 

36,728

Prepaid expenses and other current assets

39,251

 

35,566

Total current assets

1,189,725

 

1,334,974

Long-term investments

300,797

 

213,524

Unbilled accounts receivable, net

9,428

 

9,375

Property and equipment, net

67,440

 

65,809

Operating lease assets

90,673

 

Intangible assets, net

59,375

 

66,542

Goodwill

340,877

 

340,877

Deferred tax assets, net

97,387

 

90,308

Other assets

43,322

 

45,554

TOTAL ASSETS

$

2,199,024

 

$

2,166,963

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

CURRENT LIABILITIES:

 

 

 

Accounts payable

$

25,666

 

$

34,255

Accrued employee compensation

33,494

 

73,365

Deferred revenue, net

85,845

 

108,304

Other current liabilities

19,681

 

16,348

Total current liabilities

164,686

 

232,272

Lease liabilities

105,624

 

Convertible senior notes, net

320,477

 

317,322

Deferred revenue, net

21,277

 

23,527

Other liabilities

1,435

 

19,641

Total liabilities

613,499

 

592,762

STOCKHOLDERS’ EQUITY:

 

 

 

Common stock

8

 

8

Additional paid-in capital

1,417,037

 

1,391,904

Accumulated other comprehensive loss

(6,683)

 

(7,758)

Retained earnings

175,163

 

190,047

Total stockholders’ equity

1,585,525

 

1,574,201

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

2,199,024

 

$

2,166,963

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands except share and per share data)

 

 

 

 

 

Three Months Ended October 31,

 

2019

 

2018

Revenue:

 

 

 

License and subscription

$

82,423

 

$

94,680

Maintenance

20,971

 

21,003

Services

53,616

 

64,572

Total revenue

157,010

 

180,255

Cost of revenue(1):

 

 

 

License and subscription

23,796

 

13,330

Maintenance

3,694

 

3,868

Services

53,366

 

64,410

Total cost of revenue

80,856

 

81,608

Gross profit:

 

 

 

License and subscription

58,627

 

81,350

Maintenance

17,277

 

17,135

Services

250

 

162

Total gross profit

76,154

 

98,647

Operating expenses(1):

 

 

 

Research and development

46,496

 

45,496

Sales and marketing

33,016

 

32,319

General and administrative

21,239

 

18,345

Total operating expenses

100,751

 

96,160

Income (loss) from operations

(24,597)

 

2,487

Interest income

7,636

 

6,851

Interest expense

(4,429)

 

(4,244)

Other income (expense), net

(251)

 

(1,489)

Income (loss) before provision for income taxes

(21,641)

 

3,605

Benefit from income taxes

(6,650)

 

(2,704)

Net income (loss)

$

(14,991)

 

$

6,309

Net income (loss) per share:

 

 

 

Basic

$

(0.18)

 

$

0.08

Diluted

$

(0.18)

 

$

0.08

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

 

 

 

Basic

82,360,891

 

80,821,227

Diluted

82,360,891

 

82,209,988

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

 

 

Three Months Ended October 31,

 

 

2019

 

2018

 

 

(unaudited, in thousands)

Stock-based compensation expense:

 

 

 

 

Cost of license and subscription revenue

 

$

1,363

 

$

334

Cost of maintenance revenue

 

450

 

534

Cost of services revenue

 

5,332

 

5,968

Research and development

 

6,181

 

6,406

Sales and marketing

 

5,157

 

4,621

General and administrative

 

6,075

 

5,472

Total stock-based compensation expense

 

$

24,558

 

$

23,335

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)

 

 

 

 

 

Three Months Ended October 31,

 

2019

 

2018

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

Net income (loss)

$

(14,991)

 

$

6,309

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

 

 

 

Depreciation and amortization

10,886

 

9,652

Amortization of debt discount and issuance costs

3,156

 

2,986

Stock-based compensation

24,558

 

23,335

Charges to bad debt and revenue reserves

357

 

238

Deferred income tax

(7,375)

 

(3,382)

Accretion of discount on available-for-sale securities, net

(1,360)

 

(1,790)

Other non-cash items affecting net income (loss)

 

374

Changes in operating assets and liabilities:

 

 

 

Accounts receivable

58,567

 

28,200

Unbilled accounts receivable

(23,103)

 

(25,661)

Prepaid expenses and other assets

(1,446)

 

3,898

Operating lease assets

2,340

 

Accounts payable

(3,009)

 

(7,931)

Accrued employee compensation

(39,780)

 

(29,048)

Deferred revenue

(24,709)

 

(32,736)

Lease liabilities

285

 

Other liabilities

(2,514)

 

(1,691)

Net cash used in operating activities

(18,138)

 

(27,247)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

Purchases of available-for-sale securities

(406,762)

 

(253,469)

Sales and maturities of available-for-sale securities

360,237

 

238,389

Purchases of property and equipment

(9,625)

 

(2,945)

Capitalized software development costs

(1,346)

 

(459)

Net cash used in investing activities

(57,496)

 

(18,484)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

Proceeds from issuance of common stock upon exercise of stock options

368

 

689

Net cash provided by financing activities

368

 

689

Effect of foreign exchange rate changes on cash and cash equivalents

254

 

(776)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

(75,012)

 

(45,818)

CASH AND CASH EQUIVALENTS—Beginning of period

254,101

 

437,140

CASH AND CASH EQUIVALENTS—End of period

$

179,089

 

$

391,322

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 October 31,

 

2019

 

2018

Gross profit reconciliation:

 

 

 

GAAP gross profit

$

76,154

 

$

98,647

Non-GAAP adjustments:

 

 

 

Stock-based compensation (1)

7,145

 

6,836

Amortization of intangibles (1)

4,945

 

4,945

Non-GAAP gross profit

$

88,244

 

$

110,428

 

 

 

 

Income (loss) from operations reconciliation:

 

 

 

GAAP income (loss) from operations

$

(24,597)

 

$

2,487

Non-GAAP adjustments:

 

 

 

Stock-based compensation (1)

24,558

 

23,335

Amortization of intangibles (1)

7,167

 

7,309

Non-GAAP income from operations

$

7,128

 

$

33,131

 

 

 

 

Net income (loss) reconciliation:

 

 

 

GAAP net income (loss)

$

(14,991)

 

$

6,309

Non-GAAP adjustments:

 

 

 

Stock-based compensation (1)

24,558

 

23,335

Amortization of intangibles (1)

7,167

 

7,309

Amortization of debt discount and issuance costs (2)

3,156

 

2,986

Tax impact of non-GAAP adjustments (3)

(8,912)

 

(8,863)

Non-GAAP net income

$

10,978

 

$

31,076

 

 

 

 

Tax provision (benefit) reconciliation:

 

 

 

GAAP tax benefit

$

(6,650)

 

$

(2,704)

Non-GAAP adjustments:

 

 

 

Stock-based compensation (1)

4,200

 

3,865

Amortization of intangibles (1)

1,227

 

1,211

Amortization of debt discount and issuance costs (2)

540

 

495

Tax impact of non-GAAP adjustments (3)

2,945

 

3,292

Non-GAAP tax provision

$

2,262

 

$

6,159

(1) Adjustments relate to amortization of acquired intangibles and stock-based compensation recognized during the periods 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 periods 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 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.

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Financial Measures
(unaudited)

 

 

 

 

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 October 31,

 

2019

 

2018

 

 

 

 

Net income (loss) per share reconciliation:

 

 

 

GAAP net income (loss) per share — diluted

$

(0.18)

 

$

0.08

Non-GAAP adjustments:

 

 

 

Stock-based compensation (1)

0.30

 

0.28

Amortization of intangibles (1)

0.09

 

0.09

Amortization of debt discount and issuance costs (2)

0.04

 

0.04

Tax impact of non-GAAP adjustments (3)

(0.11)

 

(0.11)

Non-GAAP dilutive shares excluded from GAAP net income (loss) per share calculation (4)

(0.01)

 

Non-GAAP net income per share — diluted

$

0.13

 

$

0.38

 

 

 

 

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

 

 

 

GAAP weighted average shares — diluted

82,360,891

 

82,209,988

Non-GAAP dilutive shares excluded from GAAP income (loss) per share calculation (4)

788,902

 

Pro forma weighted average shares — diluted

83,149,793

 

82,209,988

(1) Adjustments relate to amortization of acquired intangibles and stock-based compensation recognized during the periods 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 periods 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 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.

 

Three Months Ended October 31,

 

2019

 

2018

Free cash flow:

 

 

 

Net cash used in operating activities

$

(18,138)

 

$

(27,247)

Net cash used for capital expenditures

(10,971)

 

(3,404)

Free cash flow

$

(29,109)

 

$

(30,651)

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)

 

Second Quarter Fiscal Year 2020

 

Fiscal Year 2020

Income (loss) from operations outlook reconciliation:

 

 

 

 

 

 

 

 

GAAP income (loss) from operations

 

(28.9)

-

(24.9)

 

(41.4)

-

(29.4)

Non-GAAP adjustments:

 

 

 

 

 

 

 

 

Stock-based compensation

 

26.2

-

28.2

 

103.3

-

113.3

Amortization of intangibles

 

6.7

-

6.7

 

29.1

-

29.1

Non-GAAP income (loss) from operations

 

5.0

-

9.0

 

96.0

-

108.0

 

Source: Guidewire Software, Inc.

Media Contact:
Diana Stott
Guidewire Software, Inc.
(650) 356-4941
dstott@guidewire.com

Investor Contact:
Garo Toomajanian
ICR, LLC
(650) 357-5282
ir@guidewire.com