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 fourth fiscal quarter and fiscal year ended July 31, 2019.
“Our fourth quarter performance reflects growing P&C industry demand for core system modernization and an increasing preference for cloud-based deployments,” said Marcus Ryu, co-founder and chairman of the board, Guidewire Software. “During the quarter, six insurers selected InsuranceSuite via Guidewire Cloud, representing a cross-section of the P&C industry, including insurers of multiple sizes and continents, and a mix of new and existing customers. Our strategic priority is to evolve and scale Guidewire Cloud to serve the operational and advanced analytic needs of the global P&C industry. With 65% of our new software sales in fiscal year 2019 from cloud products, we believe the industry is increasingly selecting Guidewire InsurancePlatform as its platform of choice.”
“It’s exciting to see the increasing demand and momentum for Guidewire Cloud offerings; earning the trust of industry leaders such as American Family Insurance, EMC Insurance Companies, and Gore Mutual Insurance marks a significant milestone for Guidewire and our industry,” said Michael Rosenbaum, chief executive officer, Guidewire Software.
As of the first quarter of fiscal year 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 and as revised to reflect the restatement more fully described in Guidewire’s Form 10-K/A for the year ended July 31, 2018, filed on June 3, 2019.
Fiscal Year 2019 Financial Highlights
Total revenue for fiscal year 2019 was $719.5 million, an increase of 10% from fiscal year 2018. License and subscription revenue was $385.3 million, an increase of 25%; services revenue was $248.8 million, a decrease of 7%; and maintenance revenue was $85.4 million, an increase of 10%.
GAAP income from operations was $1.5 million for fiscal year 2019, compared with a $15.6 million loss for fiscal year 2018.
Non-GAAP income from operations was $122.1 million for fiscal year 2019, compared with $101.5 million of non-GAAP income for fiscal year 2018.
GAAP net income was $20.7 million for fiscal year 2019, compared with a $26.7 million net loss for fiscal year 2018, which was adversely impacted by a net tax expense of $28.6 million in the second quarter of fiscal year 2018, as a result of the provisions of the Tax and Jobs Act (the “Tax Act”) passed in December 2017. GAAP net income per share was $0.25, based on diluted weighted average shares outstanding of 82.7 million, compared with net loss per share of $0.34 for fiscal year 2018, based on diluted weighted average shares outstanding of 77.7 million.
Non-GAAP net income was $119.9 million for fiscal year 2019, compared with $85.1 million non-GAAP net income for fiscal year 2018. Non-GAAP net income per share was $1.45, based on diluted weighted average shares outstanding of 82.7 million, compared with net income per share of $1.07 for fiscal year 2018, based on diluted weighted average shares outstanding of 79.5 million.
Fourth Quarter Fiscal Year 2019 Financial Highlights
Total revenue for the fourth quarter of fiscal year 2019 was $207.9 million, a decrease of 13% from the same quarter in fiscal year 2018. License and subscription revenue was $127.7 million, a decrease of 11%; services revenue was $58.3 million, a decrease of 23%; and maintenance revenue was $21.8 million, an increase of 6%.
GAAP income from operations was $21.1 million for the fourth quarter of fiscal year 2019, compared with $48.1 million income for the comparable period in fiscal year 2018.
Non-GAAP income from operations was $51.1 million for the fourth quarter of fiscal year 2019, compared with $76.6 million of non-GAAP income for the comparable period in fiscal year 2018.
GAAP net income was $23.0 million for the fourth quarter of fiscal year 2019, compared with $58.8 million net income for the comparable period in fiscal year 2018. GAAP net income per share was $0.28, based on diluted weighted average shares outstanding of 82.9 million, compared with net income per share of $0.72 for the comparable period in fiscal year 2018, based on diluted weighted average shares outstanding of 82.2 million.
Non-GAAP net income was $46.3 million for the fourth quarter of fiscal year 2019, compared with $61.3 million non-GAAP net income for the comparable period in fiscal year 2018. Non-GAAP net income per share was $0.56, based on diluted weighted average shares outstanding of 82.9 million, compared with net income per share of $0.75 for the comparable period in fiscal year 2018, based on diluted weighted average shares outstanding of 82.2 million.
The Company had $1.3 billion in cash, cash equivalents, and investments at July 31, 2019 and 2018. The Company generated $116.1 million in cash from operations during the twelve months ended July 31, 2019.
Guidewire is issuing the following outlook for the first fiscal quarter and fiscal year of 2020 based on current expectations:
Conference Call Information
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 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. More than 400 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.
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, business momentum and demand for Guidewire Cloud offerings. 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, 10-K/A 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; assertions by third parties that we violate their intellectual property rights could substantially harm our business; we face intense competition in our market; our products or cloud-based services may experience data security breaches; 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 ability to remediate our material weakness that arose in connection with the restatement of our financial statements for the years ended July 31, 2018 and 2017; 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.