Press Release

Guidewire Software Announces Fourth Quarter and Fiscal Year 2016 Financial Results

FOSTER CITY, Calif., September 7, 2016

Guidewire Software, Inc., (NYSE: GWRE), a provider of software products for property and casualty (P/C) insurers, today announced its financial results for the fiscal fourth quarter and fiscal year ended July 31, 2016.

“Revenue and profitability exceeded our guidance for the fourth quarter and fiscal year 2016,” said Marcus Ryu, chief executive officer, Guidewire Software. “Our momentum continues to build as new customers join the Guidewire community and as we broaden relationships with insurers of all sizes.

Ryu continued, “This quarter we also released a new version of the Guidewire InsurancePlatform™, which supports deployment on public cloud infrastructure and, combined with our recent Predictive Analytics and Underwriting Management acquisitions, provides insurers with the industry’s most comprehensive operational platform. Our continuing investments in R&D reflect our commitments to reduce insurers’ cost of ownership and lead the way in providing the key capabilities they need to compete during this time of rapid change in the P/C insurance market.”

Fiscal 2016 Financial Highlights

Revenue

  • Total license revenue for fiscal year 2016 was $219.8 million, an increase of 23% from fiscal year 2015. License revenue for fiscal year 2016 included perpetual licenses of $11.3 million compared with $9.8 million for fiscal year 2015. Maintenance revenue was $59.9 million, an increase of 20% and services revenue was $144.8 million, a decrease of 4%. Total revenue for fiscal year 2016 was $424.4 million, an increase of 12% from fiscal year 2015.
  • Rolling four-quarter recurring term license and maintenance revenue was $268.4 million, an increase of 22% compared to fiscal year 2015.

Profitability

  • GAAP operating income was $16.4 million for fiscal year 2016, compared with $16.5 million for fiscal year 2015.
  • Non-GAAP operating income was $84.9 million for fiscal year 2016, compared with $69.3 million for fiscal year 2015.
  • GAAP net income was $15.0 million for fiscal year 2016, compared with $9.9 million for fiscal year 2015. GAAP net income per share was $0.20 for fiscal year 2016, based on diluted weighted average shares outstanding of 73.8 million, compared to $0.14 for fiscal year 2015, based on diluted weighted average shares outstanding of 72.3 million.
  • Non-GAAP net income was $62.0 million for fiscal year 2016, compared to $46.5 million for fiscal year 2015. Non-GAAP net income per share was $0.84 for fiscal year 2016, based on diluted weighted average shares outstanding of 73.8 million, compared to $0.65 for fiscal year 2015, based on diluted weighted average shares outstanding of 72.3 million.

Fourth Quarter Fiscal Year 2016 Financial Highlights

Revenue

  • License revenue for the fourth quarter of fiscal 2016 was $88.2 million, an increase of 20% from the fourth quarter of fiscal 2015. License revenue for the fourth quarter of fiscal 2016 included perpetual license revenue of $5.7 million compared with $4.8 million for the same period a year ago. Maintenance revenue was $17.0 million, an increase of 29% and services revenue was $36.0 million, a decrease of 9%. Total revenue was $141.2 million, an increase of 12% from the same quarter in fiscal 2015.

Profitability

  • GAAP operating income was $23.5 million for the fourth quarter of fiscal 2016, compared with $23.5 million in the comparable period in fiscal 2015.
  • Non-GAAP operating income was $42.7 million for the fourth quarter of fiscal 2016, compared with $37.4 million in the comparable period in fiscal 2015.
  • GAAP net income was $16.1 million for the fourth quarter of fiscal 2016, compared with $11.9 million for the comparable period in fiscal 2015. GAAP net income per share was $0.22 for the fourth quarter of fiscal 2016, based on diluted weighted average shares outstanding of 74.2 million, compared with $0.16 per share for the comparable period in fiscal 2015, based on diluted weighted average shares outstanding of 72.5 million.
  • Non-GAAP net income was $28.7 million for the fourth quarter of fiscal 2016, compared with $25.7 million in the comparable period in fiscal 2015. Non-GAAP net income per diluted share was $0.39 for the fourth quarter of fiscal 2016, based on diluted weighted average shares outstanding of 74.2 million, compared with $0.35 in the comparable period in fiscal 2015, based on diluted weighted average shares outstanding of 72.5 million.

Balance Sheet

  • The Company had $735.8 million in cash, cash equivalents and investments at July 31, 2016, compared to $677.8 million at July 31, 2015. The Company had $99.9 million in cash flow from operations in fiscal year 2016, compared to cash flow from operations of $63.7 million in fiscal year 2015.

Business Outlook

Guidewire is issuing the following outlook for the first quarter and fiscal year 2017, based on current expectations:

         
(in $ millions, except per share outlook)  

First Quarter
Fiscal Year 2017

 

Full Year
Fiscal Year 2017

Revenue   84.5     -   88.5     471.5     -   483.5
License revenue   35.0     -   37.0     252.0     -   262.0
Maintenance revenue   15.0     -   16.0     65.0     -   68.0
Services revenue   34.0     -   36.0     150.0     -   158.0
GAAP operating income/(loss)   (27.6 )   -   (23.6 )   (2.2 )   -   9.8
Non-GAAP operating income/(loss)   (8.0 )   -   (4.0 )   76.0     -   88.0
GAAP net income/(loss)   (17.7 )   -   (15.1 )   0.5     -   8.2
GAAP net income/(loss) per share   (0.24 )   -   (0.21 )   0.01     -   0.11
Non-GAAP net income/(loss)   (5.3 )   -   (2.6 )   52.2     -   60.1
Non-GAAP net income/(loss) per share   (0.07 )   -   (0.04 )   0.69     -   0.79
                               

Guidewire continues to target term license revenue growth of 20% or higher for fiscal year 2017. 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 Fourth Quarter Fiscal 2016 Financial Results Conference Call
When:         Wednesday, September 7, 2016
Time:         2:00 p.m. PT (5:00 p.m. ET)
Live Call:         (888) 637-7734, Domestic
          (913) 981-5597, International
Replay:         (877) 870-5176, Passcode 9250232, Domestic
          (858) 384-5517, Passcode 9250232, 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. 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 is the platform P&C insurers trust to engage, innovate, and grow efficiently. ​We combine digital, core, analytics, and AI to deliver our platform as a cloud service. As of the end of our fiscal year 2019, more than 380 insurers, from new ventures to the largest and most complex in the world, run on Guidewire.

As a partner to our customers, we continually evolve to enable their success. We are proud of our unparalleled implementation track record, with 1,000+ successful projects, supported by the largest R&D team and partner ecosystem in the industry. Our marketplace provides hundreds of applications that accelerate integration, localization, and innovation.

For more information, please visit www.guidewire.com and follow us on Twitter: @Guidewire_PandC.

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)
         
    July 31,
2016
  July 31,
2015
ASSETS        
CURRENT ASSETS:        
Cash and cash equivalents   $ 223,582     $ 212,362  
Short-term investments   404,655     359,273  
Accounts receivable   62,792     62,062  
Deferred tax assets, current       13,845  
Prepaid expenses and other current assets   16,643     14,102  
Total current assets   707,672     661,644  
Long-term investments   107,565     106,117  
Property and equipment, net   12,955     12,160  
Intangible assets, net   14,204     3,999  
Deferred tax assets, noncurrent   31,364     5,896  
Goodwill   30,080     9,205  
Other assets   12,338     926  
TOTAL ASSETS   $ 916,178     $ 799,947  
LIABILITIES AND STOCKHOLDERS’ EQUITY        
CURRENT LIABILITIES:        
Accounts payable   $ 9,929     $ 8,816  
Accrued employee compensation   41,267     37,235  
Deferred revenues, current   60,270     50,766  
Other current liabilities   7,617     7,592  
Total current liabilities   119,083     104,409  
Deferred revenues, noncurrent   9,745     1,800  
Other liabilities   3,415     4,350  
Total liabilities   132,243     110,559  
STOCKHOLDERS’ EQUITY:        
Common stock   7     7  
Additional paid-in capital   742,690     662,869  
Accumulated other comprehensive loss   (6,593 )   (6,343 )
Retained earnings   47,831     32,855  
Total stockholders’ equity   783,935     689,388  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 916,178     $ 799,947  
                 

 

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands except share and per share data)
                 
    Three Months Ended July 31,   Fiscal Year Ended July 31,
    2016   2015   2016   2015
Revenues:                
License   $ 88,239     $ 73,395     $ 219,751     $ 179,172  
Maintenance   16,986     13,158     59,931     50,024  
Services   35,952     39,364     144,764     151,341  
Total revenues   141,177     125,917     424,446     380,537  
Cost of revenues: (1)                
License   2,306     1,194     7,184     4,605  
Maintenance   3,402     2,261     11,547     9,073  
Services   37,048     35,974     133,103     133,506  
Total cost of revenues   42,756     39,429     151,834     147,184  

Gross profit: (1)

               
License   85,933     72,201     212,567     174,567  
Maintenance   13,584     10,897     48,384     40,951  
Services   (1,096 )   3,390     11,661     17,835  
Total gross profit   98,421     86,488     272,612     233,353  

Operating expenses: (1)

               
Research and development   32,142     26,273     112,496     93,440  
Sales and marketing   27,905     25,517     92,765     82,023  
General and administrative   14,899     11,202     50,914     41,397  
Total operating expenses   74,946     62,992     256,175     216,860  
Income from operations   23,475     23,496     16,437     16,493  
Interest income, net   1,185     602     4,850     2,245  
Other income (expense), net   (344 )   (731 )   (505 )   (1,998 )
Income before provision for income taxes   24,316     23,367     20,782     16,740  
Provision for income taxes   8,219     11,474     5,806     6,855  
Net income   $ 16,097     $ 11,893     $ 14,976     $ 9,885  
Earnings per share:                
Basic   $ 0.22     $ 0.17     $ 0.21     $ 0.14  
Diluted   $ 0.22     $ 0.16     $ 0.20     $ 0.14  
Shares used in computing earnings per share:                
Basic   72,792,357     70,763,837     72,026,694     70,075,908  
Diluted   74,202,966     72,522,026     73,765,960     72,314,433  
                         

 

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

   
         
    Three Months Ended July 31,   Fiscal Year Ended July 31,
    2016   2015   2016   2015
Stock-based compensation expenses:   (in thousands)
Cost of license revenue   $ 134   $ 64     $ 433     $ 222
Cost of maintenance revenues   384   279     1,491     1,158
Cost of services revenues   4,392   3,857     17,878     15,022
Research and development   4,083   3,065     15,555     10,683
Sales and marketing   4,442   3,041     15,090     12,090
General and administrative   4,811   3,189     15,684     12,200
Total stock-based compensation expenses   $ 18,246   $ 13,495     $ 66,131     $ 51,375
                             

 

 
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
                 
    Three Months Ended July 31,   Fiscal Year Ended July 31,
    2016   2015   2016   2015
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net income   $ 16,097     $ 11,893     $ 14,976     $ 9,885  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization   3,007     1,930     8,842     7,480  
Provision for doubtful accounts                
Stock-based compensation   18,246     13,495     66,131     51,375  
Excess tax benefit from exercise of stock options and vesting of RSUs   (6,536 )   (3,538 )   (7,102 )   (3,538 )
Deferred taxes   199     8,151     (4,568 )   295  
Amortization of premium on available-for-sale securities   611     851     3,283     4,839  
Other non-cash items affecting net income   187         (767 )   1  
Changes in operating assets and liabilities:                
Accounts receivable   (1,643 )   (2,942 )   (75 )   (12,999 )
Prepaid expenses and other assets   (2,691 )   (1,522 )   (7,668 )   (3,178 )
Accounts payable   1,294     (1,497 )   603     2,266  
Accrued employee compensation   12,209     12,003     4,114     3,261  
Other liabilities   6,549     5,262     5,993     6,253  
Deferred revenues   1,730     (11,073 )   16,138     (2,263 )
Net cash provided by operating activities   49,259     33,013     99,900     63,677  
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchases of available-for-sale securities   (159,543 )   (130,485 )   (652,017 )   (491,626 )
Sales and maturities of available-for-sale securities   123,108     150,932     597,405     520,997  
Purchase of property and equipment   (1,868 )   (1,225 )   (7,111 )   (6,301 )
Acquisition, net of cash acquired           (39,530 )    
Net cash provided by (used in) investing activities   (38,303 )   19,222     (101,253 )   23,070  
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from issuance of common stock upon exercise of stock options   2,419     1,499     7,840     6,294  
Taxes remitted on RSU awards vested       (781 )   (1,488 )   (27,183 )
Excess tax benefit from exercise of stock options and vesting of RSUs   6,536     3,538     7,102     3,538  
Net cash provided by (used in) financing activities   8,955     4,256     13,454     (17,351 )
Effect of foreign exchange rate changes on cash and cash equivalents   (934 )   (1,071 )   (881 )   (5,135 )
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   18,977     55,420     11,220     64,261  
CASH AND CASH EQUIVALENTS—Beginning of period   204,605     156,942     212,362     148,101  
CASH AND CASH EQUIVALENTS—End of period   $ 223,582     $ 212,362     $ 223,582     $ 212,362  
                                 

 

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 July 31,   Fiscal Year Ended July 31,
Income from operations reconciliation:   2016   2015   2016   2015
GAAP net income from operations   $ 23,475     $ 23,496     $ 16,437     $ 16,493  
Non-GAAP adjustments (1):                
Stock-based compensation   18,246     13,495     66,131     51,375  
Amortization of intangibles   1,001     360     2,295     1,440  
Non-GAAP net income from operations   $ 42,722     $ 37,351     $ 84,863     $ 69,308  
                 
Net income reconciliation:                
GAAP net income   $ 16,097     $ 11,893     $ 14,976     $ 9,885  
Non-GAAP adjustments (1):                
Stock-based compensation   18,246     13,495     66,131     51,375  
Amortization of intangibles   1,001     360     2,295     1,440  
Tax effect on non-GAAP adjustments   (6,649 )   (81 )   (21,444 )   (16,190 )
Non-GAAP net income   $ 28,695     $ 25,667     $ 61,958     $ 46,510  
                 
                 
    Three Months Ended July 31,   Fiscal Year Ended July 31,
    2016   2015   2016   2015
Tax provision (benefits) reconciliation:                
GAAP tax provision (benefits)   $ 8,219     $ 11,474     $ 5,806     $ 6,855  
Non-GAAP adjustments:                
Stock-based compensation   5,420     3,775     20,743     15,823  
Amortization of intangibles   306     101     720     444  
ISO deduction   52     103     244     389  
Tax effect on GAAP profit before taxes due to different tax rates between GAAP and non-GAAP   871     (3,898 )   (263 )   (466 )
Non-GAAP tax provision   $ 14,868     $ 11,555     $ 27,250     $ 23,045  
                                 

(1) Adjustments relate to amortization of acquired intangibles and stock-based compensation recognized during the period for GAAP purposes and the tax benefit resulting from these adjustments.

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Operating Results
(unaudited)
                 
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 July 31,   Fiscal Year Ended July 31,
Earnings per share reconciliation:   2016   2015   2016   2015
GAAP earnings per share - Diluted   $ 0.22     $ 0.16     $ 0.20     $ 0.14  
Amortization of intangibles acquired in business combinations   0.01         0.03     0.02  
Stock-based compensation   0.25     0.19     0.90     0.71  
Less tax benefit of non GAAP items   (0.09 )       (0.29 )   (0.22 )
Non-GAAP dilutive shares excluded from GAAP EPS calculation (1)                
Non-GAAP earnings per share - Diluted   $ 0.39     $ 0.35     $ 0.84     $ 0.65  
                 
                 
    Three Months Ended July 31,   Fiscal Year Ended July 31,
Shares used in computing non-GAAP per share amounts:   2016   2015   2016   2015
Weighted average shares - Diluted   74,202,966     72,522,026     73,765,960     72,314,433  
Non-GAAP dilutive shares excluded from GAAP EPS calculation (1)                
Pro forma weighted average shares - Diluted   74,202,966     72,522,026     73,765,960     72,314,433  
                 

(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)  

First Quarter
Fiscal Year 2017

 

Full Year
Fiscal Year 2017

Outlook reconciliation: GAAP and non-GAAP operating income/(loss)                        
GAAP operating income/(loss)   (27.6 )   -   (23.6 )   (2.2 )   -   9.8  
Non-GAAP adjustments:                        
Stock-based compensation   17.5     -   18.5     69.7     -   72.7  
Amortization of intangibles   1.4     -   1.9     6.4     -   7.4  
Non-GAAP income from operations   (8.0 )   -   (4.0 )   76.0     -   88.0  
                         
Outlook reconciliation: GAAP and non-GAAP net income/(loss)                        
GAAP net income/(loss)   (17.7 )   -   (15.1 )   0.5     -   8.2  
Non-GAAP adjustments:                        
Stock-based compensation   17.5     -   18.5     69.7     -   72.7  
Amortization of intangibles   1.4     -   1.9     6.4     -   7.4  
Non-GAAP tax impact   (7.2 )   -   (7.1 )   (26.6 )   -   (26.3 )
Non-GAAP net income/(loss)   (5.3 )   -   (2.6 )   52.2     -   60.1  

 

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

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