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News Release

Guidewire Software Announces Third Quarter Fiscal 2018 Financial Results

FOSTER CITY, Calif.--(BUSINESS WIRE)--Jun. 5, 2018-- 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, 2018.

“We exceeded our revenue and non-GAAP profitability guidance for the third quarter of fiscal 2018 in the context of an incrementally increasing proportion of our new sales coming in the form of cloud-based subscriptions,” said Marcus Ryu, chief executive officer, Guidewire Software. “As part of their transformation journeys, P&C insurers are seeking their trusted technology partners to shoulder an increasing share of the complexity of their core system environments. Consonant with this trend, we closed two additional InsuranceSuite cloud sales during the quarter and advanced similar conversations with both new and existing customers.”

Ryu continued, “We also completed an important capital raise that strengthens our balance sheet and provides us the means to act on investment opportunities that advance our industry platform mission.”

Third Quarter Fiscal 2018 Financial Highlights

Revenue

  • Total revenue for the third quarter of fiscal 2018 was $140.5 million, an increase of 14% from the same quarter in fiscal 2017. License and other revenue was $50.4 million, a decrease of 15%, services revenue was $71.4 million, an increase of 50%, and maintenance revenue was $18.7 million, an increase of 11%.
  • Rolling four-quarter recurring revenue was $334.4 million for the period ended April 30, 2018, an increase of 10% compared to the same metric for the period ended April 30, 2017.

Profitability

  • GAAP loss from operations was $29.2 million for the third quarter of fiscal 2018, compared with loss of $4.3 million in the comparable period in fiscal 2017.
  • Non-GAAP income from operations was $2.3 million for the third quarter of fiscal 2018, compared with income of $17.1 million in the comparable period in fiscal 2017.
  • GAAP net loss was $48.6 million for the third quarter of fiscal 2018, compared with a net loss of $1.8 million for the comparable period in fiscal 2017. GAAP net loss per share was $0.62, based on diluted weighted average shares outstanding of 78.8 million, compared with $0.02 net loss per share for the comparable period in fiscal 2017, based on diluted weighted average shares outstanding of 74.2 million.
  • Non-GAAP net income was $3.9 million for the third quarter of fiscal 2018, compared with a net income of $12.3 million in the comparable period in fiscal 2017. Non-GAAP net income per diluted share was $0.05, based on diluted weighted average shares outstanding of 80.4 million, compared with net income per diluted share of $0.16 in the comparable period in fiscal 2017, based on diluted weighted average shares outstanding of 75.2 million.

Liquidity

  • The Company had $1,158.5 million in cash, cash equivalents and investments at April 30, 2018, compared with $687.8 million at July 31, 2017. The increase was due to total net proceeds of $608.2 million related to the public offering of our common stock and convertible notes offering, partially offset by the use of approximately $130.1 million of cash in connection with the acquisition of Cyence.

Business Outlook

Guidewire is issuing the following outlook for the fourth quarter and fiscal 2018 based on current expectations:

     
(in $ millions, except per share outlook)

Fourth Quarter
Fiscal 2018

Full Year
Fiscal 2018

Revenue 234.0 - 240.0 647.0 - 653.0
License and other revenue 141.0 - 147.0 306.0 - 312.0
Maintenance revenue 19.0 - 20.0 76.0 - 77.0
Services revenue 71.0 - 75.0 262.0 - 266.0
GAAP operating income (loss) 45.5 - 51.5 (17.1) - (11.1)
Non-GAAP operating income 78.0 - 84.0 104.0 - 110.0
GAAP net income (loss)

65.8

-

74.5

(37.3)

-

(28.6)

GAAP net income (loss) per share

0.80

-

0.91

(0.48)

-

(0.37)

Non-GAAP net income

58.8

-

63.2

83.3

-

87.7

Non-GAAP net income per share 0.72 -

0.77

1.05

- 1.11
 

Non-GAAP operating income (loss) excludes stock-based compensation expense and amortization of intangible assets. Non-GAAP net income (loss) excludes stock-based compensation expense, amortization of intangible assets, and the amortization of debt discount and issuance costs from our convertible notes and the related tax effects. The GAAP and non-GAAP estimated annual tax rates used to compute net income and EPS 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.

   

Conference Call Information

 
What: Guidewire Software Third Quarter Fiscal 2018 Financial Results Conference Call
When: Tuesday, June 5, 2018
Time: 2:00 p.m. PT (5:00 p.m. ET)
Live Call: (800) 239-9838, Domestic
(323) 794-2551, International
Replay: (844) 512-2921, Passcode 1354910, Domestic
(412) 317-6671, Passcode 1354910, 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 operating income, Non-GAAP net income (loss), Non-GAAP income tax provision (benefit), and Non-GAAP net income (loss) per share. These Non-GAAP financial measures exclude stock-based compensation, amortization of intangibles, and the amortization of debt discount and issuance costs from our convertible notes and the related tax effects of these adjustments for Non-GAAP net income (loss) and Non-GAAP net income (loss) 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. 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 and Casualty (P&C) insurers need to adapt and succeed in a time of rapid industry change. We combine three elements -- core operations, data and analytics, and digital engagement -- into an insurance platform that enhances insurers’ ability to engage and empower their customers and employees. More than 300 P&C insurers around the world have selected Guidewire. For more information, please visit www.guidewire.com. 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 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,
2018
July 31,
2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 476,101 $ 263,176
Short-term investments 518,151 310,027
Accounts receivable 101,146 79,433
Prepaid expenses and other current assets 31,229   26,604  
Total current assets 1,126,627 679,240
Long-term investments 164,206 114,585
Property and equipment, net 15,929 14,376
Intangible assets, net 103,001 71,315
Deferred tax assets, net 58,597 37,430
Goodwill 342,469 141,851
Other assets 21,704   20,104  
TOTAL ASSETS $ 1,832,533   $ 1,078,901  
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 19,357 $ 13,416
Accrued employee compensation 43,427 48,882
Deferred revenues, current 113,894 91,243
Other current liabilities 12,016   10,075  
Total current liabilities 188,694 163,616

Convertible senior notes, net

302,184
Deferred revenues, non-current 20,667 19,892
Other liabilities 1,121   2,112  
Total liabilities 512,666 185,620
STOCKHOLDERS’ EQUITY:
Common stock 8 8
Additional paid-in capital 1,276,379 830,014
Accumulated other comprehensive loss (6,598 ) (5,796 )
Retained earnings 50,078   69,055  
Total stockholders’ equity 1,319,867   893,281  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,832,533   $ 1,078,901  
 
 
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,

2018 2017 2018 2017
Revenues:
License and other $ 50,359 $ 58,971 $ 164,673 $ 161,767
Maintenance 18,749 16,858 56,789 49,972
Services 71,361   47,607   190,966   121,445  
Total revenues 140,469   123,436   412,428   333,184  
Cost of revenues: (1)
License and other 9,742 5,208 25,497 10,419
Maintenance 3,828 3,480 10,888 9,884
Services 60,751   42,780   168,599   113,995  
Total cost of revenues 74,321   51,468   204,984   134,298  
Gross profit:
License and other 40,617 53,763 139,176 151,348
Maintenance 14,921 13,378 45,901 40,088
Services 10,610   4,827   22,367   7,450  
Total gross profit 66,148   71,968   207,444   198,886  
Operating expenses: (1)
Research and development 46,787 34,090 126,155 94,865
Sales and marketing 30,378 28,788 85,949 77,808
General and administrative 18,170   13,429   57,907   40,649  
Total operating expenses 95,335   76,307   270,011   213,322  
Loss from operations (29,187 ) (4,339 ) (62,567 ) (14,436 )
Interest income 3,762 1,400 7,247 4,286
Interest expense (2,228 ) (6 ) (2,239 ) (6 )
Other income (expense), net (356 ) 11   1,040   (335 )
Loss before income taxes (28,009 ) (2,934 ) (56,519 ) (10,491 )
Provision for (benefit from) income taxes 20,613   (1,115 ) 46,572   (4,788 )
Net loss $ (48,622 ) $ (1,819 ) $ (103,091 ) $ (5,703 )
Net loss per share:
Basic $ (0.62 ) $ (0.02 ) $ (1.32 ) $ (0.08 )
Diluted $ (0.62 ) $ (0.02 ) $ (1.32 ) $ (0.08 )
Shares used in computing net loss per share:
Basic 78,777,484   74,175,603   78,246,146   73,731,132  
Diluted 78,777,484   74,175,603   78,246,146   73,731,132  
 

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

     

Three Months Ended
April 30,

Nine Months Ended
April 30,

2018   2017 2018   2017
(unaudited, in thousands)
Stock-based compensation expense:
Cost of license revenue $ 274 $ 90 $ 706 $ 231
Cost of maintenance revenues 462 416 1,398 1,265
Cost of services revenues 5,310 4,459 15,982 13,969
Research and development 7,236 4,508 19,845 13,625
Marketing and sales 4,527 3,992 13,768 12,498
General and administrative 6,030   3,732   16,795   12,073
Total stock-based compensation expense $ 23,839   $ 17,197   $ 68,494   $ 53,661
 
 
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
         

Three Months Ended
April 30,

Nine Months Ended
April 30,

2018 2017 2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (48,622 ) (1,819 ) $ (103,091 ) $ (5,703 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 9,802 5,825 26,117 12,208
Amortization of debt discount and issuance costs 1,568 1,568
Stock-based compensation 23,839 17,197 68,494 53,661
Excess tax benefit from stock-based compensation

962 962
Deferred income tax 19,134 (1,162 ) 43,421 (6,779 )
Amortization of premium on available-for-sale securities, and other non-cash items (395 ) 333 (34 ) 1,201
Changes in operating assets and liabilities:
Accounts receivable (464 ) (24,922 ) (16,809 ) (25,745 )
Prepaid expenses and other assets 1,167 (3,483 ) (1,972 ) (7,172 )
Accounts payable (265 ) 2,261 4,569 546
Accrued employee compensation 10,310 11,495 (7,237 ) (3,589 )
Other liabilities 82 (470 ) 886 (1,085 )
Deferred revenues 4,013   15,671   20,703   33,032  
Net cash provided by operating activities 20,169   21,888   36,615   51,537  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (424,490 ) (52,150 ) (535,310 ) (343,761 )
Sales of available-for-sale securities 106,370 144,159 276,686 442,830
Purchases of property and equipment (90 ) (619 ) (4,710 ) (3,236 )
Capitalized software development costs (1,081 ) (374 ) (1,850 ) (374 )
Strategic investment

(4,677 ) (4,677 )
Acquisitions of business, net of acquired cash 318   (154,056 ) (130,058 ) (187,590 )
Net cash used in investing activities (318,973 ) (67,717 ) (395,242 ) (96,808 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible senior notes, net of issuance costs 387,239 387,239
Proceeds from issuance of common stock, net of issuance costs 220,948 220,948
Purchase of capped calls (37,200 ) (37,200 )
Proceeds from issuance of common stock upon exercise of stock options 328 1,385 1,055 3,419
Excess tax benefit (shortfall) from exercise of stock options and vesting of restricted stock units   (962 )   (962 )
Net cash provided by financing activities 571,315   423   572,042   2,457  
Effect of foreign exchange rate changes on cash and cash equivalents (1,697 ) 209   (490 ) (602 )
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 270,814 (45,197 ) 212,925 (43,416 )
CASH AND CASH EQUIVALENTS—Beginning of period 205,287   225,363   263,176   223,582  
CASH AND CASH EQUIVALENTS—End of period $ 476,101   $ 180,166   $ 476,101   $ 180,166  
 
 
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
April 30,

Nine Months Ended
April 30,

2018 2017 2018 2017
Income (loss) from operations reconciliation:
GAAP loss from operations $ (29,187 ) $ (4,339 ) $ (62,567 ) $ (14,436 )
Non-GAAP adjustments:
Stock-based compensation (1) 23,839 17,197 68,494 53,661
Amortization of intangibles (1) 7,669   4,219   20,114   7,313  
Non-GAAP income from operations $ 2,321   $ 17,077   $ 26,041   $ 46,538  
 
Net income (loss) reconciliation:
GAAP net loss $ (48,622 ) $ (1,819 ) $ (103,091 ) $ (5,703 )
Non-GAAP adjustments:
Stock-based compensation (1) 23,839 17,197 68,494 53,661
Amortization of intangibles (1) 7,669 4,219 20,114 7,313
Amortization of debt discount and issuance costs (2) 1,568 1,568
Tax impact on non-GAAP adjustments (3) 19,461   (7,316 ) 37,542   (21,243 )
Non-GAAP net income $ 3,915   $ 12,281   $ 24,627   $ 34,028  
 
Tax provision (benefit) reconciliation:
GAAP tax provision (benefit) $ 20,613 $ (1,115 ) $ 46,572 $ (4,788 )
Non-GAAP adjustments:
Stock-based compensation 6,470 5,503 19,661 17,172
Amortization of intangibles 2,081 1,350 5,716 2,340
Amortization of debt discount and issuance costs 426 426
Other income tax effects and adjustments (28,438 ) 463   (63,345 ) 1,731  
Non-GAAP tax provision $ 1,152   $ 6,201   $ 9,030   $ 16,455  
 
Earnings (loss) per share reconciliation:
GAAP loss per share - Diluted $ (0.62 ) $ (0.02 ) $ (1.32 ) $ (0.08 )
Stock-based compensation 0.30 0.23 0.89 0.73
Amortization of intangibles acquired in business combinations 0.10 0.06 0.26 0.10
Amortization of debt discount and issuance costs 0.02 0.02
Tax impact of non-GAAP adjustments 0.25 (0.10 ) 0.48 (0.29 )
Non-GAAP dilutive shares excluded from GAAP earnings (loss) per share calculation (4)   (0.01 )   (0.01 )
Non-GAAP earnings per share - Diluted $ 0.05   $ 0.16   $ 0.33   $ 0.45  
 
Shares used in computing non-GAAP per share amounts:
GAAP weighted average shares - Diluted 78,777,484 74,175,603 78,246,146 73,731,132
Non-GAAP dilutive shares excluded from GAAP loss per share calculation (4) 1,581,552   1,053,252   1,561,424   1,293,010  
Pro forma weighted average shares - Diluted 80,359,036   75,228,855   79,807,570   75,024,142  
 

(1) Adjustments relate to amortization of acquired intangibles and stock-based compensation recognized during the period for GAAP purposes.
(2) Adjustment reflects 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) Adjustment reflects 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 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 a 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 2018

 

Full Year
Fiscal 2018

Outlook reconciliation: GAAP and non-GAAP operating income (loss)
GAAP operating income (loss) 45.5 - 51.5 (17.1 ) - (11.1)
Non-GAAP adjustments:
Stock-based compensation 24.6 - 25.6 92.1 - 95.1
Amortization of intangibles 7.1   - 7.6 27.0   - 28.0
Non-GAAP operating income 78.0   - 84.0 104.0   - 110.0
 
Outlook reconciliation: GAAP and non-GAAP net income (loss)
GAAP net income (loss)

65.8

-

74.5

(37.3

) -

(28.6)

Non-GAAP adjustments:
Stock-based compensation 24.6 - 25.6 92.1 - 95.1
Amortization of intangibles 7.1 - 7.6 27.0 - 28.0
Amortization of debt discount and issuance costs 2.9 - 2.9 4.5 - 4.5
Non-GAAP tax impact

(42.5

) -

(46.8)

(5.0

) -

(9.3)

Non-GAAP net income

58.8

  -

63.2

83.3

  -

87.7

 

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