Guidewire Software Announces Second Quarter Fiscal 2019 Financial Results

FOSTER CITY, Calif.–(BUSINESS WIRE)–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 January 31, 2019.

“We exceeded our guidance ranges for revenue and profitability in the
second quarter,” said Marcus Ryu, chief executive officer, Guidewire
Software. “During the quarter, we extended our overall market momentum
and demonstrated particular success with our cloud and digital
initiatives, completing another InsuranceSuite Cloud deal and signing
significant new business for digital enablement. We continue to invest
in Guidewire Insurance Platform to service the growing demand we see for
cloud-based core systems and to strengthen our role as a trusted partner
for enabling digital transformation in the $2 trillion global P&C
industry.”

As of the first quarter of fiscal 2019, Guidewire began reporting
results under Accounting Standards Codification Topic 606, Revenue
Recognition (“ASC 606”), using the modified retrospective method.
Financial results for reporting periods prior to fiscal year 2019 are
presented as previously disclosed in conformity with then existing
guidance.

Second Quarter Fiscal 2019 Financial Highlights

Revenue

  • Total revenue for the second quarter of fiscal year 2019 was $169.3
    million, an increase of 3% from the same quarter in fiscal year 2018.
    License and subscription revenue was $87.1 million, an increase of 3%;
    services revenue was $60.9 million, an increase of 1%; and maintenance
    revenue was $21.3 million, an increase of 11%.

Profitability

  • GAAP loss from operations was $5.5 million for the second quarter of
    fiscal year 2019, compared with a $0.7 million loss in the comparable
    period in fiscal year 2018.
  • Non-GAAP income from operations was $26.1 million for the second
    quarter of fiscal year 2019, compared with a $32.0 million non-GAAP
    income in the comparable period in fiscal year 2018.
  • GAAP net income was $0.8 million for the second quarter of fiscal year
    2019, compared with a $45.6 million loss for the comparable period in
    fiscal year 2018, which was adversely impacted by the effects of the
    provisions of The Tax and Jobs Act passed in December 2017. GAAP net
    income per share was $0.01, based on diluted weighted average shares
    outstanding of 82.2 million, compared with a $0.59 net loss per share
    for the comparable period in fiscal year 2018, based on diluted
    weighted average shares outstanding of 76.9 million.
  • Non-GAAP net income was $27.9 million for the second quarter of fiscal
    year 2019, compared with $25.5 million non-GAAP net income in the
    comparable period in fiscal year 2018. Non-GAAP net income per share
    was $0.34, based on diluted weighted average shares outstanding of
    82.2 million, compared with a $0.33 net income per share in the
    comparable period in fiscal year 2018, based on diluted weighted
    average shares outstanding of 76.9 million.

Liquidity

  • The Company had $1.24 billion in cash, cash equivalents, and
    investments at January 31, 2019, compared with $1.26 billion at
    July 31, 2018. The Company used $13.0 million in cash from operations
    during the six months ended January 31, 2019.

Business Outlook

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

(in $ millions, except per share outlook)  

Third Quarter Fiscal 2019

 

Fiscal Year 2019

Revenue 152.5     156.5 725.0     732.0
License and subscription revenue 68.0 72.0 381.0 389.0
Maintenance revenue 19.5 20.5 82.0 84.0
Services revenue 63.0 66.0 257.0 265.0
GAAP operating loss (31.1) (27.1) (13.6) (7.6)
Non-GAAP operating income 4.0 112.0 118.0
GAAP net income (loss) (9.7) (8.4) 4.5 6.5
GAAP net income (loss) per share (0.12) (0.10) 0.06 0.08
Non-GAAP net income 4.1 7.5 110.8 115.8
Non-GAAP net income per share 0.05 0.09 1.35 1.41
 

Conference Call Information

What:   Guidewire Software Second Quarter Fiscal 2019 Financial Results
Conference Call
When: Wednesday, March 6, 2019
Time: 2:00 p.m. PT (5:00 p.m. ET)
Live Call: (866) 548-4713, Domestic
(323) 794-2093, International
Replay: (844) 512-2921, Passcode 1442591, Domestic
(412) 317-6671, Passcode 1442591, 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 (loss), Non-GAAP net income (loss), Non-GAAP
income tax provision (benefit), and Non-GAAP net income (loss) per
share. Non-GAAP operating income (loss) excludes stock-based
compensation and amortization of intangibles. Non-GAAP net income
(loss), Non-GAAP income tax provision (benefit), and Non-GAAP net income
(loss) per share also exclude the amortization of debt discount and
issuance costs from our convertible notes and the related tax effects of
the non-GAAP adjustments. The estimated annual tax rates used in the
business outlook to compute GAAP and Non-GAAP net income exclude
discrete items such as forecasted tax benefits related to stock-based
compensation.

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

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

About Guidewire Software

Guidewire delivers the industry platform that P&C insurers rely upon to
adapt and succeed in a time of accelerating change. We provide the
software, services, and partner ecosystem to enable our customers to
run, differentiate, and grow their business. We are privileged to serve
more than 350 companies in 40 countries. For more information, please
visit www.guidewire.com
and follow us on twitter: @Guidewire_PandC.

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

Cautionary Language Concerning Forward-Looking Statements

This press release contains “forward-looking statements” within the
meaning of the “safe harbor” provisions of the Private Securities
Litigation Reform Act of 1995, including but not limited to, statements
regarding our financial outlook, market positioning and future
investments. These forward-looking statements are made as of the date
they were first issued and were based on current expectations,
estimates, forecasts and projections as well as the beliefs and
assumptions of management. Words such as “expect,” “anticipate,”
“should,” “believe,” “hope,” “target,” “project,” “goals,” “estimate,”
“potential,” “predict,” “may,” “will,” “might,” “could,” “intend,”
variations of these terms or the negative of these terms and similar
expressions are intended to identify these forward-looking statements.
Forward-looking statements are subject to a number of risks and
uncertainties, many of which involve factors or circumstances that are
beyond Guidewire’s control. Guidewire’s actual results could differ
materially from those stated or implied in forward-looking statements
due to a number of factors, including but not limited to, risks detailed
in Guidewire’s most recent Forms 10-K and 10-Q filed with the Securities
and Exchange Commission as well as other documents that may be filed by
the Company from time to time with the Securities and Exchange
Commission. In particular, the following factors, among others, could
cause results to differ materially from those expressed or implied by
such forward-looking statements: the market for our software may develop
more slowly than expected or than it has in the past; quarterly and
annual operating results may fluctuate more than expected; seasonal and
other variations related to our revenue recognition may cause
significant fluctuations in our results of operations and cash flows;
our reliance on sales to and renewals from a relatively small number of
large customers for a substantial portion of our revenue; our services
revenue produce lower gross margins than our license and maintenance
revenue; assertions by third parties that we violate their intellectual
property rights could substantially harm our business; we face intense
competition in our market; weakened global economic conditions may
adversely affect the P&C insurance industry including the rate of
information technology spending; our product development and sales
cycles are lengthy; the risk of losing key employees; changes in foreign
exchange rates; general political or destabilizing events, including
war, conflict or acts of terrorism; 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;
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)
   
January 31,
2019
July 31,
2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 360,169 $ 437,140
Short-term investments 706,203 630,008
Accounts receivable, net 119,699 124,849
Unbilled accounts receivable, net 47,493
Prepaid expenses and other current assets 30,234   30,510  
Total current assets 1,263,798 1,222,507
Long-term investments 171,873 190,952
Unbilled accounts receivable, net 11,459
Property and equipment, net 30,017 18,595
Intangible assets, net 81,037 95,654
Goodwill 340,877 340,877
Deferred tax assets, net 83,922 87,482
Other assets 35,330   22,525  
TOTAL ASSETS $ 2,018,313   $ 1,978,592  
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 20,967 $ 30,635
Accrued employee compensation 44,448 60,135
Deferred revenue, net 90,979 114,138
Other current liabilities 13,276   20,280  
Total current liabilities 169,670 225,188
Convertible senior notes, net 311,141 305,128
Deferred revenue, net 21,381 23,758
Other liabilities 1,739   774  
Total liabilities 503,931 554,848
STOCKHOLDERS’ EQUITY:
Common stock 8 8
Additional paid-in capital 1,346,620 1,297,979
Accumulated other comprehensive loss (7,554 ) (7,748 )
Retained earnings 175,308   133,505  
Total stockholders’ equity 1,514,382   1,423,744  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 2,018,313   $ 1,978,592  
 
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands except share and per share data)
       
Three Months Ended January 31, Six Months Ended January 31,
2019 2018 2019 2018
Revenue:
License and subscription $ 87,124 $ 84,221 $ 181,393 $ 114,314
Maintenance 21,264 19,110 42,267 38,040
Services 60,878   60,457   125,289   119,605  
Total revenue 169,266   163,788   348,949   271,959  
Cost of revenue:
License and subscription 14,739 9,040 28,069 15,755
Maintenance 3,954 3,593 7,822 7,060
Services 60,937   55,136   126,198   107,848  
Total cost of revenue 79,630   67,769   162,089   130,663  
Gross profit:
License and subscription 72,385 75,181 153,324 98,559
Maintenance 17,310 15,517 34,445 30,980
Services (59 ) 5,321   (909 ) 11,757  
Total gross profit 89,636   96,019   186,860   141,296  
Operating expenses:
Research and development 46,471 43,657 91,967 79,368
Sales and marketing 31,173 31,961 63,492 55,571
General and administrative 17,541   21,066   35,886   39,737  
Total operating expenses 95,185   96,684   191,345   174,676  
Loss from operations (5,549 ) (665 ) (4,485 ) (33,380 )
Interest income 7,553 1,573 14,404 3,485
Interest expense (4,287 ) (7 ) (8,531 ) (11 )
Other income (expense), net 1,148   1,658   (341 ) 1,396  
Income (loss) before income taxes (1,135 ) 2,559 1,047 (28,510 )
Provision for (benefit from) income taxes (1,891 ) 48,114   (5,198 ) 25,959  
Net income (loss) $ 756   $ (45,555 ) $ 6,245   $ (54,469 )
Net income (loss) per share:
Basic $ 0.01   $ (0.59 ) $ 0.08   $ (0.72 )
Diluted $ 0.01   $ (0.59 ) $ 0.08   $ (0.72 )
Shares used in computing net income (loss) per share:
Basic 81,217,511   76,859,040   81,058,562   76,023,237  
Diluted 82,191,668   76,859,040   82,289,773   76,023,237  

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

  Three Months Ended January 31,   Six Months Ended January 31,
2019   2018 2019   2018
(unaudited, in thousands)
Stock-based compensation expense:
Cost of license and subscription revenue $ 535 $ 258 $ 869 $ 432
Cost of maintenance revenue 558 481 1,092 936
Cost of services revenue 6,191 5,446 12,159 10,672
Research and development 6,440 7,697 12,844 12,609
Sales and marketing 5,074 5,024 9,695 9,241
General and administrative 5,555   6,126   11,027   10,765
Total stock-based compensation expense $ 24,353   $ 25,032   $ 47,686   $ 44,655
 
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
       
Three Months Ended January 31, Six Months Ended January 31,
2019 2018 2019 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 756 $ (45,555 ) $ 6,245 $ (54,469 )
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 9,789 9,681 19,442 16,315
Amortization of debt discount and issuance costs 3,027 6,013
Stock-based compensation 24,353 25,032 47,686 44,655
Charges to bad debt and revenue reserves 114 352
Deferred income tax (3,355 ) 47,995 (7,340 ) 24,287
Amortization of premium (accretion of discount) on
available-for-sale securities
(2,026 ) 151 (3,816 ) 361
Other non-cash items affecting net income (loss) 141 515
Changes in operating assets and liabilities:
Accounts receivable (24,198 ) (17,200 ) 4,414 (16,345 )
Unbilled accounts receivable (4,529 ) (30,190 )
Prepaid expenses and other assets (4,815 ) 436 (66 ) (3,139 )
Accounts payable (6,544 ) 2,966 (14,475 ) 4,834
Accrued employee compensation 13,786 6,406 (15,262 ) (17,547 )
Other liabilities 2,802 1,160 1,111 804
Deferred revenue 4,925   16,622   (27,650 ) 16,690  
Net cash provided by (used in) operating activities 14,226   47,694   (13,021 ) 16,446  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (209,433 ) (43,977 ) (462,902 ) (110,820 )
Sales and maturities of available-for-sale securities 172,194 77,277 410,583 170,316
Purchases of property and equipment (8,061 ) (2,721 ) (11,006 ) (4,620 )
Capitalized software development costs (644 ) (252 ) (1,103 ) (769 )
Acquisitions of business, net of acquired cash   (130,376 )   (130,376 )
Net cash used in investing activities (45,944 ) (100,049 ) (64,428 ) (76,269 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon exercise of stock options 414   362   1,103   727  
Net cash provided by financing activities 414   362   1,103   727  
Effect of foreign exchange rate changes on cash and cash equivalents 151   1,881   (625 ) 1,207  
NET DECREASE IN CASH AND CASH EQUIVALENTS (31,153 ) (50,112 ) (76,971 ) (57,889 )
CASH AND CASH EQUIVALENTS—Beginning of period 391,322   255,399   437,140   263,176  
CASH AND CASH EQUIVALENTS—End of period $ 360,169   $ 205,287   $ 360,169   $ 205,287  
 
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 January 31, Six Months Ended January 31,
2019 2018 2019 2018
Income (loss) from operations reconciliation:
GAAP income (loss) from operations $ (5,549 ) $ (665 ) $ (4,485 ) $ (33,380 )
Non-GAAP adjustments:
Stock-based compensation (1) 24,353 25,032 47,686 44,655
Amortization of intangibles (1) 7,309   7,669   14,618   12,445  
Non-GAAP income (loss) from operations $ 26,113   $ 32,036   $ 57,819   $ 23,720  
 
Net income (loss) reconciliation:
GAAP net income (loss) $ 756 $ (45,555 ) $ 6,245 $ (54,469 )
Non-GAAP adjustments:
Stock-based compensation (1) 24,353 25,032 47,686 44,655
Amortization of intangibles (1) 7,309 7,669 14,618 12,445
Amortization of debt discount and issuance costs (2) 3,027 6,013
Tax impact of non-GAAP adjustments (3) (7,501 ) 38,364   (16,724 ) 18,081  
Non-GAAP net income (loss) $ 27,944   $ 25,510   $ 57,838   $ 20,712  
 
Tax provision (benefit) reconciliation:
GAAP tax provision (benefit) $ (1,891 ) $ 48,114 $ (5,198 ) $ 25,959
Non-GAAP adjustments:
Stock-based compensation (1) 4,030 6,721 7,890 13,191
Amortization of intangibles (1) 1,210 2,060 2,419 3,635
Amortization of debt discount and issuance costs (2) 501 995
Other income tax effects and adjustments (3) 1,760   (47,145 ) 5,420   (34,907 )
Non-GAAP tax provision (benefit) $ 5,610   $ 9,750   $ 11,526   $ 7,878  
 
Net income (loss) per share reconciliation:
GAAP net income (loss) per share – diluted $ 0.01 $ (0.59 ) $ 0.08 $ (0.72 )
Non-GAAP adjustments:
Stock-based compensation (1) 0.30 0.33 0.58 0.59
Amortization of intangibles (1) 0.09 0.10 0.18 0.16
Amortization of debt discount and issuance costs (2) 0.04 0.07
Tax impact of non-GAAP adjustments (3) (0.10 ) 0.49   (0.20 ) 0.23  
Non-GAAP net income (loss) per share – diluted $ 0.34   $ 0.33   $ 0.71   $ 0.26  
 
Shares used in computing Non-GAAP income (loss) per share amounts:
GAAP weighted average shares – diluted 82,191,668 76,859,040 82,289,773 76,023,237
Non-GAAP dilutive shares excluded from GAAP loss per share
calculation (4)
  1,460,188     1,429,707  
Pro forma weighted average shares – diluted 82,191,668   78,319,228   82,289,773   77,452,944  

(1) Adjustments relate to amortization of acquired intangibles and
stock-based compensation recognized during the period for GAAP purposes.
(2)
Adjustments reflect the amortization of debt discount and issuance costs
related to the issuance of our Senior Convertible Notes recognized
during the period for GAAP purposes.
(3) Adjustments reflect the
tax benefit (provision) resulting from all non-GAAP adjustments.
(4)
Due to the occurrence of a net loss on a GAAP basis, potentially
dilutive securities were excluded from the calculation of GAAP 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
outlook in the calculation of non-GAAP outlook for the periods
indicated below:
   
(in $ millions) Third Quarter Fiscal 2019 Fiscal Year 2019
Operating income (loss) outlook reconciliation:        
GAAP operating loss (31.1) (27.1) (13.6) (7.6)
Non-GAAP adjustments:
Stock-based compensation 23.3 24.3 95.0 98.0
Amortization of intangibles 7.0     7.5 28.6     29.6
Non-GAAP operating income     4.0 112.0     118.0
 
Net income (loss) outlook reconciliation
GAAP net income (loss) (9.7) (8.4) 4.5 6.5
Non-GAAP adjustments:
Stock-based compensation 23.3 24.3 95.0 98.0
Amortization of intangibles 7.0 7.5 28.6 29.6
Amortization of debt discount and issuance costs 3.1 3.1 12.2 12.2
Tax impact of non-GAAP adjustments (20.3)     (18.3) (31.4)     (28.5)
Non-GAAP net income 4.1     7.5 110.8     115.8

Contacts

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

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