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June 1, 2016 at 4:15 PM EDT

Guidewire Software Announces Third Quarter Fiscal 2016 Financial Results

Note: This press release has been updated from the original in conformance with corrections filed in a Form 8-K with the SEC on June 2, 2016.

FOSTER CITY, Calif.--(BUSINESS WIRE)--Jun. 1, 2016-- Guidewire Software, Inc. (NYSE: GWRE), a provider of software products to Property and Casualty insurers, today announced its financial results for the fiscal quarter ended April 30, 2016.

"Revenue and profitability exceeded the high end of our outlook in our third quarter," said Marcus Ryu, chief executive officer, Guidewire Software. "We see our results as reflective of the global P&C industry's pursuit of technology-driven business transformation and our own journey towards market leadership."

Ryu continued, "Our technology platform unifies core operations, digital engagement, and data for P&C insurers embracing the need for business transformation. Our acquisition of EagleEye Analytics in the quarter augments this platform with machine-learning-based models optimized for P&C in both underwriting and claims. These models naturally complement Guidewire InsuranceSuite by analyzing our customers' operational data and providing actionable insights to their business users. We continue to invest in opportunities to expand the scope of our product platform while further driving standardization — and thereby cost efficiency — for the industry as a whole."

Third Quarter Fiscal 2016 Financial Highlights

Revenue

  • License revenue for the third quarter of fiscal 2016 was $45.8 million, an increase of 38% from the third quarter of fiscal 2015. License revenue for the third quarter of fiscal 2016 included perpetual license revenue of $5.2 million compared with $2.5 million in the same period a year ago. Maintenance revenue was $14.7 million, an increase of 20% and services revenue was $38.4 million, a decrease of 4%. Total revenue was $98.9 million, an increase of 16% from the same quarter in fiscal 2015.
  • License revenue for the nine months ended April 30, 2016 was $131.5 million, an increase of 24% from the comparable period of fiscal 2015. License revenue for the nine months ended April 30, 2016 included perpetual license revenue of $5.6 million compared with $5.0 million in the same period a year ago. Maintenance revenue was $42.9 million, an increase of 16% and services revenue was $108.8 million, a decrease of 3%. Total revenue was $283.3 million, an increase of 11% from the same period in fiscal 2015.
  • Rolling four-quarter recurring term license and maintenance revenue was $250.6 million, an increase of 20% compared to the same period in fiscal 2015.

Profitability

  • GAAP operating loss was $5.8 million for the third quarter of fiscal 2016, compared with an operating loss of $6.7 million in the comparable period in fiscal 2015.
  • Non-GAAP operating income was $11.0 million for the third quarter of fiscal 2016, compared with $6.1 million in the comparable period in fiscal 2015.
  • GAAP net loss was $0.4 million for the third quarter of fiscal 2016, compared with net loss of $3.0 million for the comparable period in fiscal 2015. GAAP net loss per share was $0.01, based on diluted weighted average shares outstanding of 72.3 million, compared with net loss of $0.04 per share for the comparable period in fiscal 2015, based on diluted weighted average shares outstanding of 70.3 million.
  • Non-GAAP net income was $10.7 million for the third quarter of fiscal 2016, compared with $2.7 million in the comparable period in fiscal 2015. Non-GAAP net income per diluted share was $0.14, based on diluted weighted average shares outstanding of 73.6 million, compared with $0.04 in the comparable period in fiscal 2015, based on diluted weighted average shares outstanding of 72.3 million.

Balance Sheet

  • The Company had $680.8 million in cash, cash equivalents and investments at April 30, 2016, compared with $677.8 million at July 31, 2015. The Company generated $23.6 million cash flow from operations in the third quarter of fiscal 2016, compared with cash flow from operations of $26.6 million in the comparable period in fiscal 2015. The Company generated $50.6 million cash flow from operations in the nine months ended April 30, 2016, compared with cash flow from operations of $30.7 million in the comparable period in fiscal 2015.

Business Outlook

Guidewire is issuing the following outlook for the fourth quarter and fiscal 2016, based on current expectations:

     
(in $ millions, except per share outlook)    

Fourth Quarter
Fiscal 2016

 

Full Year
Fiscal 2016

Revenue 133.5 - 137.5 416.5 - 420.5
License revenue 79.5 - 83.5 211.0 - 215.0
Maintenance revenue 15.5 - 16.5 58.0 - 59.0
Services revenue 37.0 - 39.0 146.0 - 148.0
GAAP operating income 16.0 - 20.0 9.0 - 13.0
Non-GAAP operating income 33.3 - 37.3 75.5 - 79.5
GAAP net income 9.2 - 11.5 8.1 - 10.4
GAAP net income per share 0.13 - 0.16 0.11 - 0.14
Non-GAAP net income 22.5 - 25.2 55.8 - 58.5
Non-GAAP net income per share 0.30 - 0.34 0.76 - 0.80
 

Guidewire continues to target term license revenue growth of 20% or higher for the current fiscal year. Non-GAAP operating income and non-GAAP net income exclude stock-based compensation expense and amortization of intangible assets.

   

Conference Call Information

 
What: Guidewire Software third quarter fiscal 2016 financial results conference call
When: Wednesday, June 1, 2016
Time: 2:00 p.m. PT (5:00 p.m. ET)
Live Call: (800) 432-7890, Domestic
(913) 312-0939, International
Replay: (877) 870-5176, Passcode 4175700, Domestic
(858) 384-5517, Passcode 4175700, International
Webcast:

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

 

The webcast will be archived on Guidewire's website for a period of three months.

Non-GAAP Financial Measures

This press release contains the following non-GAAP financial measures: Non-GAAP operating income, Non-GAAP net income, Non-GAAP net income per share and Non-GAAP tax provision. These Non-GAAP financial measures exclude stock-based compensation and amortization of intangibles, and the tax effect of these adjustments for Non-GAAP net income and Non-GAAP net income per share.

Guidewire believes that these non-GAAP measures of financial results 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. In order to compensate for these limitations, management presents non-GAAP financial measures in connection with GAAP results. 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 this press release, and not to rely on any single financial measure to evaluate the Company's business.

Reconciliation tables of the most comparable GAAP financial measures to the non-GAAP financial measures used in this press release are included with the financial tables at the end of this release.

About Guidewire Software
Guidewire delivers the software that Property/Casualty (P/C) insurers need to adapt and succeed in a time of rapid industry change. We combine three elements - core processing, data and analytics, and digital engagement - into a technology platform that enhances insurers' ability to engage and empower their customers and employees. More than 200 P/C insurers around the world have selected Guidewire. For more information, please visit www.guidewire.com. Follow us on twitter: @Guidewire_PandC.

NOTE: Guidewire, Guidewire Software, Guidewire ClaimCenter, Guidewire PolicyCenter, and Guidewire BillingCenter are registered trademarks of Guidewire Software, Inc. in the United States and/or other countries.

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 revenues; our services revenues produce lower gross margins than our license and maintenance revenues; 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.

 
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
         
April 30,
2016
July 31,
2015
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 204,605 $ 212,362
Short-term investments 374,081 359,273
Accounts receivable 61,222 62,062
Deferred tax assets, current 13,845
Prepaid expenses and other current assets   14,457     14,102  
Total current assets 654,365 661,644
Long-term investments 102,161 106,117
Property and equipment, net 13,251 12,160
Intangible assets, net 15,205 3,999
Deferred tax assets, noncurrent 32,231 5,896
Goodwill 29,585 9,205
Other assets   11,623     926  
TOTAL ASSETS $ 858,421   $ 799,947  
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,614 $ 8,816
Accrued employee compensation 29,333 37,235
Deferred revenues, current 62,654 50,766
Other current liabilities   7,503     7,592  
Total current liabilities 108,104 104,409
Deferred revenues, noncurrent 5,638 1,800
Other liabilities   3,472     4,350  
Total liabilities 117,214 110,559
STOCKHOLDERS' EQUITY:
Common stock 7 7
Additional paid-in capital 715,253 662,869
Accumulated other comprehensive loss (5,787 ) (6,343 )
Retained earnings   31,734     32,855  
Total stockholders' equity   741,207     689,388  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 858,421   $ 799,947  
 
 
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands except share and per share data)
                 
Three Months Ended April 30,   Nine Months Ended April 30,

2016

 

2015

2016

 

2015

Revenues:
License $ 45,796 $ 33,302 $ 131,512 $ 105,777
Maintenance 14,676 12,183 42,945 36,866
Services   38,388     39,955     108,812     111,977  
Total revenues   98,860     85,440     283,269     254,620  
Cost of revenues: (1)
License 2,137 1,184 4,878 3,411
Maintenance 3,034 2,299 8,145 6,812
Services   33,836     34,421     96,055     97,532  
Total cost of revenues   39,007     37,904     109,078     107,755  
Gross profit:
License 43,659 32,118 126,634 102,366
Maintenance 11,642 9,884 34,800 30,054
Services   4,552     5,534     12,757     14,445  
Total gross profit   59,853     47,536     174,191     146,865  
Operating expenses: (1)
Research and development 29,273 24,575 80,354 67,167
Sales and marketing 22,908 18,801 64,860 56,506
General and administrative   13,449     10,860     36,015     30,195  
Total operating expenses   65,630     54,236     181,229     153,868  
Loss from operations (5,777 ) (6,700 ) (7,038 ) (7,003 )
Interest income 2,211 636 3,665 1,643
Other income (expense), net   804     77     (161 )   (1,267 )
Loss before income taxes (2,762 ) (5,987 ) (3,534 ) (6,627 )
Benefit from income taxes   (2,358 )   (3,000 )   (2,413 )   (4,619 )
Net loss $ (404 ) $ (2,987 ) $ (1,121 ) $ (2,008 )
Net loss per share:
Basic $ (0.01 ) $ (0.04 ) $ (0.02 ) $ (0.03 )
Diluted $ (0.01 ) $ (0.04 ) $ (0.02 ) $ (0.03 )
Shares used in computing net loss per share:
Basic   72,297,934     70,348,356     71,769,613     69,844,077  
Diluted   72,297,934     70,348,356     71,769,613     69,844,077  
 

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

         
Three Months Ended April 30, Nine Months Ended April 30,

2016

 

2015

2016

 

2015

(unaudited, in thousands)
Stock-based compensation expenses:
Cost of license revenue $ 107 $ 54 $ 299 $ 158
Cost of maintenance revenues 388 293 1,107 879
Cost of services revenues 4,450 3,774 13,486 11,165
Research and development 3,889 2,813 11,472 7,618
Marketing and sales 3,602 2,620 10,648 9,049
General and administrative   3,757   2,840   10,873   9,011
Total stock-based compensation expenses $ 16,193 $ 12,394 $ 47,885 $ 37,880
 
 
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
                 
Three Months Ended April 30, Nine Months Ended April 30,

2016

 

2015

2016

 

2015

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (404 ) $ (2,987 ) $ (1,121 )

$

(2,008

)

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 2,293 1,929 5,835 5,550
Stock-based compensation 16,193 12,394 47,885 37,880
Excess tax benefit from exercise of stock options and vesting of restricted stock units (566 )
Deferred tax assets (3,064 ) (4,397 ) (4,767 ) (7,856 )
Amortization of premium on available-for-sale securities 834 1,104 2,672 3,988
Other non-cash items affecting net loss (977 ) 1 (954 ) 1
Changes in operating assets and liabilities:
Accounts receivable (653 ) 2,718 1,568 (10,057 )
Prepaid expenses and other assets (2,669 ) (3,383 ) (4,977 ) (1,656 )
Accounts payable 700 2,946 (691 ) 3,763
Accrued employee compensation 6,869 4,473 (8,095 ) (8,742 )
Other liabilities (435 ) 534 (556 ) 991
Deferred revenues   4,924     11,265     14,408     8,810  
Net cash provided by operating activities   23,611     26,597     50,641     30,664  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (150,484 ) (124,300 ) (492,474 ) (361,141 )
Sales of available-for-sale securities 152,790 138,170 474,297 370,065
Purchase of property and equipment (1,376 ) (1,425 ) (5,243 ) (5,076 )
Acquisition of business, net of acquired cash   (39,530 )       (39,530 )    
Net cash provided by (used in) investing activities   (38,600 )   12,445     (62,950 )   3,848  
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon exercise of stock options 1,432 936 5,421 4,795
Taxes remitted on RSU awards vested (8,554 ) (1,488 ) (26,402 )
Excess tax benefit from exercise of stock options and vesting of restricted stock units           566      
Net cash provided by (used in) financing activities   1,432     (7,618 )   4,499     (21,607 )
Effect of foreign exchange rate changes on cash and cash equivalents   1,240     294     53     (4,064 )
NET CHANGE IN CASH AND CASH EQUIVALENTS (12,317 ) 31,718 (7,757 ) 8,841
CASH AND CASH EQUIVALENTS—Beginning of period   216,922     125,224     212,362     148,101  
CASH AND CASH EQUIVALENTS—End of period $ 204,605   $ 156,942   $ 204,605   $ 156,942  
 
 
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Operating Results
(unaudited, in thousands)
         
The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP operating results for the periods indicated below:
 
Three Months Ended April 30, Nine Months Ended April 30,

2016

2015

2016

2015

Income (loss) from operations reconciliation:
GAAP net income (loss) from operations $ (5,777 ) $ (6,700 ) $ (7,038 ) $ (7,003 )
Non-GAAP adjustments:
Stock-based compensation (1) 16,193 12,394 47,885 37,880
Amortization of intangibles (1)   574     360     1,294     1,080  
Non-GAAP income from operations $ 10,990   $ 6,054   $ 42,141   $ 31,957  
 
Net income (loss) reconciliation:
GAAP net income (loss) $ (404 ) $ (2,987 ) $ (1,121 ) $ (2,008 )
Non-GAAP adjustments:
Stock-based compensation (1) 16,193 12,394 47,885 37,880
Amortization of intangibles (1) 574 360 1,294 1,080
Non-GAAP tax impact (2)   (5,697 )   (7,039 )   (14,795 )   (16,109 )
Non-GAAP net income $ 10,666   $ 2,728   $ 33,263   $ 20,843  
 
 
Three Months Ended April 30, Nine Months Ended April 30,
2016 2015 2016 2015
Tax provision (benefits) reconciliation:
GAAP tax provision (benefits) $ (2,358 ) $ (3,000 ) $ (2,413 ) $ (4,619 )
Non-GAAP adjustments:
Stock-based compensation 5,172 4,438 15,323 12,901
Amortization of intangibles 184 129 414 368
ISO deduction 24 70 192 285
Tax effect on GAAP profit before taxes due to different tax rates between GAAP and non-GAAP   317     2,402     (1,134 )   2,555  
Non-GAAP tax provision $ 3,339   $ 4,039   $ 12,382   $ 11,490  
 

(1) Adjustments relate to amortization of acquired intangibles and stock-based compensation recognized during the period for GAAP purposes.

(2) Adjustment reflects the tax benefit resulting from all non-GAAP adjustments.

 
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Operating Results
(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 operating results for the periods indicated below:
Three Months Ended April 30, Nine Months Ended April 30,
Earnings per share reconciliation: 2016 2015 2016 2015
GAAP earnings per share - Diluted $ (0.01 ) $ (0.04 ) $ (0.02 ) $ (0.03 )
Amortization of intangibles acquired in business combinations 0.01 0.01 0.02 0.02
Stock-based compensation 0.22 0.18 0.67 0.54
Less tax benefit of non GAAP items (0.08 ) (0.10 ) (0.21 ) (0.23 )
Non-GAAP dilutive shares excluded from GAAP EPS calculation (1)       (0.01 )   (0.01 )   (0.01 )
Non-GAAP earnings per share - Diluted $ 0.14   $ 0.04   $ 0.45   $ 0.29  
 
(1) Due to the occurrence of a net loss on a GAAP basis, potentially dilutive securities were excluded from the calculation of GAAP earnings per share, as they would have an anti-dilutive effect. However, as net income was earned on a Non-GAAP basis, these shares have a dilutive effect on Non-GAAP earnings per share and are included here.
 
Three Months Ended April 30, Nine Months Ended April 30,
Shares used in computing non-GAAP per share amounts: 2016 2015 2016 2015
GAAP Weighted average shares - Diluted 72,297,934 70,348,356 71,769,613 69,844,077
Non-GAAP dilutive shares excluded from GAAP EPS calculation (1)   1,324,561     1,931,434     1,683,984     2,264,383  
Pro forma weighted average shares - Diluted   73,622,495     72,279,790     73,453,597     72,108,460  
 

(1) Due to the occurrence of a net loss on a GAAP basis, potentially dilutive securities were excluded from the calculation of GAAP earnings per share, as they would have an anti-dilutive effect. However, as net income was earned on a Non-GAAP basis, these shares have a dilutive effect on Non-GAAP earnings per share and are included here.

 
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)    

Fourth
Quarter Fiscal
2016

 

Full Year
Fiscal 2016

Outlook reconciliation: GAAP and non-GAAP operating income/(loss)
GAAP operating income 16.0 - 20.0 9.0 - 13.0
Non-GAAP adjustments:
Stock-based compensation 16.1 - 16.6 63.7 - 64.7
Amortization of intangibles 1.0 2.3
Non-GAAP income from operations 33.3 - 37.3 75.5 - 79.5
 
Outlook reconciliation: GAAP and non-GAAP net income/(loss)
GAAP net income 9.2 - 11.5 8.1 - 10.4
Non-GAAP adjustments:
Stock-based compensation 16.1 - 16.6 63.7 - 64.7
Amortization of intangibles 1.0 2.3
Non-GAAP tax impact (4.1) - (3.7) (18.8) - (18.4)
Non-GAAP net income 22.5 - 25.2 55.8 - 58.5
 

Source: Guidewire Software, Inc.

Media Contact:
Guidewire Software, Inc.
Diana Stott, 650-356-4941
dstott@guidewire.com
or
Investor Contact:
ICR, LLC
Garo Toomajanian, 650-357-5282
ir@guidewire.com