GWRE

GUIDEWIRE SOFTWARE INC

Technology | Large Cap

$0.09

EPS Forecast

$268.7

Revenue Forecast

Announcing earnings for the quarter ending 2024-10-31 soon
EX-99.1 2 ex991q22020earningsrel.htm EX-99.1 Document

Exhibit 99.1

Guidewire Software Announces Second Quarter Fiscal Year 2020 Financial Results

SAN MATEO, Calif., March 4, 2020 - 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, 2020.

“Our second quarter was highlighted by two Tier 1 insurers selecting InsuranceSuite Cloud and one new customer selecting InsuranceNow," said Mike Rosenbaum, chief executive officer, Guidewire Software. "Total revenue and profitability exceeded our outlook in the quarter, and we continue to see a clear shift to cloud-based core systems. However, the growing interest in cloud-based systems is dampening self-managed demand, impacting our full year outlook. Ultimately, this trend is a positive validation of our cloud strategy and reinforces our confidence in serving the more than $2 trillion P&C industry."

Second Quarter Fiscal Year 2020 Financial Highlights

Revenue
•Total revenue for the second quarter of fiscal year 2020 was $173.5 million, an increase of 3% from the same quarter in fiscal year 2019. License and subscription revenue was $105.0 million, an increase of 21%; services revenue was $47.4 million, a decrease of 22%; and maintenance revenue was $21.1 million, which remained relatively flat.
•Annual recurring revenue, or ARR, was $474 million as of January 31, 2020, 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 $18.0 million for the second quarter of fiscal year 2020, compared with $6.3 million for the comparable period in fiscal year 2019.
•Non-GAAP income from operations was $15.4 million for the second quarter of fiscal year 2020, compared with $25.4 million for the comparable period in fiscal year 2019.
•GAAP net loss was $19.9 million for the second quarter of fiscal year 2020, compared with less than $0.1 million for the comparable period in fiscal year 2019. GAAP net loss per share was $0.24, based on diluted weighted average shares outstanding of 82.7 million, compared with less than $0.01 for the comparable period in fiscal year 2019, based on diluted weighted average shares outstanding of 81.2 million.
•Non-GAAP net income was $17.6 million for the second quarter of fiscal year 2020, compared with $27.3 million for the comparable period in fiscal year 2019. Non-GAAP net income per share was $0.21, based on diluted weighted average shares outstanding of 83.6 million, compared with $0.33 for the comparable period in fiscal year 2019, based on diluted weighted average shares outstanding of 82.7 million.

Liquidity
•The Company had $1.3 billion in cash, cash equivalents, and investments at January 31, 2020, the same as at July 31, 2019. The Company generated $1.3 million in cash from operations and had negative free cash flow of $12.1 million during the six months ended January 31, 2020.



Business Outlook
Guidewire is issuing the following outlook for the third fiscal quarter and revised outlook for fiscal year 2020 based on current expectations:
(in $ millions)Third Quarter Fiscal Year 2020Fiscal Year 2020
Revenue153.0  -  157.0  702.0  -  714.0  
License and subscription78.0  -  82.0  413.0  -  425.0  
Maintenance20.0  -  20.5  83.0  -  84.0  
Services53.0  -  57.0  202.0  -  208.0  
GAAP income (loss) from operations(45.6) -  (41.6) (75.0) -  (63.0) 
Non-GAAP income (loss) from operations(11.0) -  (7.0) 61.0  -  73.0  
GAAP net income (loss)(34.0) -  (30.9) (67.0) -  (55.4) 
GAAP net income (loss) per share(0.41) -  (0.37) (0.81) -  (0.67) 
Non-GAAP net income (loss)(5.1) -  (1.7) 68.6  -  78.6  
Non-GAAP net income (loss) per share(0.06) -  (0.02) 0.82  -  0.94  

ARR growth on a constant currency basis is now expected to be between 11% and 12% in fiscal year 2020 compared to our previous range of 14% to 16%.

Conference Call Information
What:  Guidewire Software Second Quarter Fiscal Year 2020 Financial Results Conference Call
When:  Wednesday, March 4, 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 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 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 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 purchases of property and equipment and capitalized software development costs, enables us to analyze our financial performance without the effects of certain non-cash items such as depreciation, amortization, and stock-based compensation expenses. 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, 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 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 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, growing customer interest in cloud-based core systems, and validation of our long-term product strategy. 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; our products or cloud-based services may experience data security breaches; we face intense competition in our market; assertions by third parties that we violate their intellectual property rights could substantially harm our business; 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; our product development and sales cycles are lengthy and may be affected by factors outside of our control; 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 system integrator partners; the risk of losing key employees; 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.

Media Contact:
Melissa Cobb
Guidewire Software, Inc.
(650) 357-5324
mcobb@guidewire.com

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



GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
January 31,
2020		July 31,
2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$218,463  $254,101  
Short-term investments836,939  870,136  
Accounts receivable, net101,171  138,443  
Unbilled accounts receivable, net50,297  36,728  
Prepaid expenses and other current assets41,114  35,566  
Total current assets1,247,984  1,334,974  
Long-term investments274,563  213,524  
Unbilled accounts receivable, net12,824  9,375  
Property and equipment, net66,673  65,809  
Operating lease assets88,520  —  
Intangible assets, net52,633  66,542  
Goodwill340,877  340,877  
Deferred tax assets, net94,424  90,308  
Other assets43,092  45,554  
TOTAL ASSETS$2,221,590  $2,166,963  
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable$25,988  $34,255  
Accrued employee compensation44,425  73,365  
Deferred revenue, net89,043  108,304  
Other current liabilities23,130  16,348  
Total current liabilities182,586  232,272  
Lease liabilities102,083  —  
Convertible senior notes, net323,676  317,322  
Deferred revenue, net19,205  23,527  
Other liabilities1,475  19,641  
Total liabilities629,025  592,762  
STOCKHOLDERS’ EQUITY:
Common stock8  8  
Additional paid-in capital 1,444,597  1,391,904  
Accumulated other comprehensive income (loss)(7,259) (7,758) 
Retained earnings155,219  190,047  
Total stockholders’ equity1,592,565  1,574,201  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$2,221,590  $2,166,963  



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,
2020201920202019
Revenue:
License and subscription$104,954  $86,713  $187,377  $181,393  
Maintenance21,116  21,264  42,087  42,267  
Services47,388  60,557  101,004  125,129  
Total revenue173,458  168,534  330,468  348,789  
Cost of revenue(1):
License and subscription27,032  14,739  50,828  28,069  
Maintenance4,084  3,954  7,778  7,822  
Services52,480  60,987  105,846  125,397  
Total cost of revenue83,596  79,680  164,452  161,288  
Gross profit:
License and subscription77,922  71,974  136,549  153,324  
Maintenance17,032  17,310  34,309  34,445  
Services(5,092) (430) (4,842) (268) 
Total gross profit89,862  88,854  166,016  187,501  
Operating expenses(1):
Research and development49,954  46,471  96,450  91,967  
Sales and marketing37,339  31,173  70,355  63,492  
General and administrative20,599  17,541  41,838  35,886  
Total operating expenses107,892  95,185  208,643  191,345  
Income (loss) from operations(18,030) (6,331) (42,627) (3,844) 
Interest income6,958  7,553  14,594  14,404  
Interest expense(4,462) (4,287) (8,891) (8,531) 
Other income (expense), net(182) 1,148  (433) (341) 
Income (loss) before provision for income taxes(15,716) (1,917) (37,357) 1,688  
Provision for (benefit from) income taxes4,228  (1,916) (2,422) (4,620) 
Net income (loss)$(19,944) $(1) $(34,935) $6,308  
Net income (loss) per share:
Basic$(0.24) $—  $(0.42) $0.08  
Diluted$(0.24) $—  $(0.42) $0.08  
Shares used in computing net income (loss) per share:
Basic82,725,641  81,217,511  82,543,267  81,058,562  
Diluted82,725,641  81,217,511  82,543,267  82,289,773  



(1)Amounts include stock-based compensation expense as follows:
Three Months Ended January 31,Six Months Ended January 31,
2020201920202019
(unaudited, in thousands)
 Stock-based compensation expense:
 Cost of license and subscription revenue$1,617  $535  $2,980  $869  
 Cost of maintenance revenue457  558  907  1,092  
 Cost of services revenue5,469  6,210  10,801  12,178  
 Research and development6,668  6,440  12,849  12,846  
 Sales and marketing5,996  5,074  11,153  9,695  
 General and administrative6,529  5,555  12,604  11,027  
 Total stock-based compensation expense$26,736  $24,372  $51,294  $47,707  




GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 Three Months Ended January 31,Six Months Ended January 31,
 2020201920202019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)$(19,944) $(1) $(34,935) $6,308  
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization10,758  9,789  21,644  19,441  
Amortization of debt discount and issuance costs3,198  3,027  6,354  6,013  
Stock-based compensation26,736  24,372  51,294  47,707  
Charges to bad debt and revenue reserves521  114  878  352  
Deferred income tax3,014  (3,380) (4,361) (6,762) 
Accretion of discount on available-for-sale securities, net(652) (2,026) (2,012) (3,816) 
Other non-cash items affecting net income (loss)572  201  572  575  
Changes in operating assets and liabilities:
Accounts receivable(22,308) (23,786) 36,259  4,414  
Unbilled accounts receivable6,085  (4,529) (17,018) (30,190) 
Prepaid expenses and other assets(2,081) (4,783) (3,527) (885) 
Operating lease assets2,153  —  4,493  —  
Accounts payable(1,023) (6,544) (4,032) (14,475) 
Accrued employee compensation10,986  13,786  (28,794) (15,262) 
Deferred revenue1,126  5,246  (23,583) (27,490) 
Lease liabilities(44) —  241  —  
Other liabilities377  2,802  (2,137) 1,111  
Net cash provided by (used in) operating activities19,474  14,288  1,336  (12,959) 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities(194,641) (209,433) (601,403) (462,902) 
Sales and maturities of available-for-sale securities216,512  172,194  576,749  410,583  
Purchases of property and equipment(1,629) (8,061) (11,254) (11,006) 
Capitalized software development costs(864) (704) (2,210) (1,163) 
Net cash provided by (used in) investing activities19,378  (46,004) (38,118) (64,488) 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon exercise of stock options871  414  1,239  1,103  
Net cash provided by (used in) financing activities871  414  1,239  1,103  
Effect of foreign exchange rate changes on cash and cash equivalents(349) 149  (95) (627) 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS39,374  (31,153) (35,638) (76,971) 
CASH AND CASH EQUIVALENTS—Beginning of period179,089  391,322  254,101  437,140  
CASH AND CASH EQUIVALENTS—End of period$218,463  $360,169  $218,463  $360,169  




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 January 31,Six Months Ended January 31,
2020201920202019
Gross profit reconciliation:
GAAP gross profit$89,862  $88,854  $166,016  $187,501  
Non-GAAP adjustments:
Stock-based compensation (1)
7,543  7,303  14,688  14,139  
Amortization of intangibles (1)
4,945  4,945  9,890  9,890  
Non-GAAP gross profit$102,350  $101,102  $190,594  $211,530  
Income (loss) from operations reconciliation:
GAAP income (loss) from operations$(18,030) $(6,331) $(42,627) $(3,844) 
Non-GAAP adjustments:
Stock-based compensation (1)
26,736  24,372  51,294  47,707  
Amortization of intangibles (1)
6,742  7,309  13,909  14,618  
Non-GAAP income (loss) from operations$15,448  $25,350  $22,576  $58,481  
Net income (loss) reconciliation:
GAAP net income (loss)$(19,944) $(1) $(34,935) $6,308  
Non-GAAP adjustments:
Stock-based compensation (1)
26,736  24,372  51,294  47,707  
Amortization of intangibles (1)
6,742  7,309  13,909  14,618  
Amortization of debt discount and issuance costs (2)
3,198  3,027  6,354  6,013  
Tax impact of non-GAAP adjustments (3)
826  (7,411) (8,086) (16,274) 
Non-GAAP net income (loss)$17,558  $27,296  $28,536  $58,372  
Tax provision (benefit) reconciliation:
GAAP tax provision (benefit)$4,228  $(1,916) $(2,422) $(4,620) 
Non-GAAP adjustments:
Stock-based compensation (1)
4,329  4,037  8,529  7,902  
Amortization of intangibles (1)
1,092  1,212  2,319  2,423  
Amortization of debt discount and issuance costs (2)
518  509  1,058  1,004  
Tax impact of non-GAAP adjustments (3)
(6,765) 1,653  (3,820) 4,945  
Non-GAAP tax provision (benefit)$3,402  $5,495  $5,664  $11,654  

(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.




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 January 31,Six Months Ended January 31,
2020201920202019
Net income (loss) per share reconciliation:
GAAP net income (loss) per share — diluted$(0.24) $—  $(0.42) $0.08  
Non-GAAP adjustments:
Stock-based compensation (1)
0.32  0.30  0.62  0.58  
Amortization of intangibles (1)
0.08  0.09  0.17  0.18  
Amortization of debt discount and issuance costs (2)
0.04  0.04  0.08  0.08  
Tax impact of non-GAAP adjustments (3)
0.01  (0.10) (0.10) (0.21) 
Non-GAAP dilutive shares excluded from GAAP net income (loss) per share calculation (4)
—  —  (0.01) —  
Non-GAAP net income (loss) per share — diluted$0.21  $0.33  $0.34  $0.71  
Shares used in computing Non-GAAP income (loss) per share amounts:
GAAP weighted average shares — diluted82,725,641  81,217,511  82,543,267  82,289,773  
Non-GAAP dilutive shares excluded from GAAP income (loss) per share calculation (4)
842,001  1,488,107  854,608  —  
Pro forma weighted average shares — diluted83,567,642  82,705,618  83,397,875  82,289,773  

(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 impact on 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.

(unaudited, in thousands)
Six Months Ended January 31,  
20202019
Free cash flow:
Net cash provided by (used in) operating activities$1,336  $(12,959) 
Purchases of property and equipment(11,254) (11,006) 
Capitalized software development costs(2,210) (1,163) 
Free cash flow$(12,128) $(25,128) 



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 Year 2020Fiscal Year 2020
Income (loss) from operations outlook reconciliation:
GAAP income (loss) from operations(45.6) -  (41.6) (75.0) -  (63.0) 
Non-GAAP adjustments:
Stock-based compensation 25.8  -  27.8  103.9  -  109.9  
Amortization of intangibles7.8  -  7.8  29.1  -  29.1  
Non-GAAP income (loss) from operations(11.0) -  (7.0) 61.0  -  73.0  
Net income (loss) outlook reconciliation:
GAAP net income (loss)(34.0) -  (30.9) (67.0) -  (55.4) 
Non-GAAP adjustments:
Stock-based compensation25.8  -  27.8  103.9  -  109.9  
Amortization of intangibles7.8  -  7.8  29.1  -  29.1  
Amortization of debt discount and issuance costs3.1  -  3.1  12.5  -  12.5  
Tax impact of non-GAAP adjustments(8.8) -  (8.4) (13.0) -  (14.6) 
Non-GAAP net income (loss)(5.1) -  (1.7) 68.6  -  78.6