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Guidewire Software Announces Fourth Quarter and Fiscal Year 2017 Financial Results

FOSTER CITY, Calif., 6 de septiembre de 2017

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, 2017.

“Revenue and profitability exceeded our guidance for the fourth quarter and fiscal 2017,” said
Marcus Ryu, chief executive officer, Guidewire Software. “We look back on a year of significant progress toward our goal of industry leadership, with new core system mandates from major insurers in the United States and Europe, momentum for our data management and digital engagement solutions, acquisitions broadening our platform, and multiple cloud-based deployments of our two core system offerings.”

Ryu continued, “We see P&C insurers of all sizes responding with urgency to changing end market behavior, non-traditional competitors, and new analytical approaches to risk modeling and insurance product design. We see a wealth of opportunities to invest productively to serve the global industry as it progresses toward a more digital and automated future.”

Fiscal 2017 Financial Highlights

Revenue

  • License and other revenue for fiscal year 2017 was $271.5 million, an increase of 24% from fiscal year 2016. Maintenance revenue was $68.6 million, an increase of 15% and services revenue was $174.2 million, an increase of 20%. Total revenue for fiscal year 2017 was $514.3 million, an increase of 21% from fiscal year 2016.
  • Rolling four-quarter recurring term license and other and maintenance revenue was $327.0 million, an increase of 22% compared to fiscal year 2016.

Profitability

  • GAAP income from operations was $26.6 million for fiscal year 2017, compared with $16.4 million for fiscal year 2016.
  • Non-GAAP income from operations was $110.5 million for fiscal year 2017, compared with $84.9 million for fiscal year 2016.
  • GAAP net income was $21.2 million for fiscal year 2017, compared with $15.0 million for fiscal year 2016. GAAP earnings per diluted share was $0.28 for fiscal year 2017, based on diluted weighted average shares outstanding of 75.3 million, compared to $0.20 earnings per diluted share for fiscal year 2016, based on diluted weighted average shares outstanding of 73.8 million.
  • Non-GAAP net income was $78.8 million for fiscal year 2017, compared to $62.0 million for fiscal year 2016. Non-GAAP earnings per diluted share was $1.05 for fiscal year 2017, based on diluted weighted average shares outstanding of 75.3 million, compared to $0.84 earnings per diluted share for fiscal year 2016, based on diluted weighted average shares outstanding of 73.8 million.

Fourth Quarter Fiscal Year 2017 Financial Highlights

Revenue

  • License and other revenue for the fourth quarter of fiscal 2017 was $109.7 million, an increase of 24% from the fourth quarter of fiscal 2016. Maintenance revenue was $18.7 million, an increase of 10% and services revenue was $52.7 million, an increase of 47%. Total revenue was $181.1 million, an increase of 28% from the same quarter in fiscal 2016.

Profitability

  • GAAP income from operations was $41.0 million for the fourth quarter of fiscal 2017, compared with $23.5 million in the comparable period in fiscal 2016.
  • Non-GAAP income from operations was $64.0 million for the fourth quarter of fiscal 2017, compared with $42.7 million in the comparable period in fiscal 2016.
  • GAAP net income was $26.9 million for the fourth quarter of fiscal 2017, compared with $16.1 million for the comparable period in fiscal 2016. GAAP earnings per diluted share was $0.36 for the fourth quarter of fiscal 2017, based on diluted weighted average shares outstanding of 75.8 million, compared with $0.22 earnings per diluted share for the comparable period in fiscal 2016, based on diluted weighted average shares outstanding of 74.2 million.
  • Non-GAAP net income was $44.8 million for the fourth quarter of fiscal 2017, compared with $28.7 million in the comparable period in fiscal 2016. Non-GAAP earnings per diluted share was $0.59 for the fourth quarter of fiscal 2017, based on diluted weighted average shares outstanding of 75.8 million, compared with $0.39 earnings per diluted share in the comparable period in fiscal 2016, based on diluted weighted average shares outstanding of 74.2 million.

Balance Sheet

  • The Company had $687.8 million in cash, cash equivalents and investments at July 31, 2017, compared to $735.8 million at July 31, 2016. The decrease in cash, cash equivalents and investments was primarily due to $154.1 million cash used for the acquisition of ISCS and $33.5 million used for the acquisition of FirstBest. The Company generated $137.2 million cash flow from operations in fiscal year 2017, compared to cash flow from operations of $99.9 million in fiscal year 2016.

Business Outlook

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

(in $ millions, except per share outlook)    

First Quarter Fiscal Year
2018

    Full Year
Fiscal Year 2018
Revenue    

98.0

      -

102.0

      611.5       -     623.5
License and other revenue    

26.0

      -

28.0

      298.0       -     310.0
Maintenance revenue     17.5       - 18.5       72.0       -     75.0
Services revenue     54.0       - 56.0       235.0       -     245.0
GAAP income/(loss) from operations     (44.0 )     - (40.0 )     6.2       -     18.2
Non-GAAP income/(loss) from operations     (20.0 )     - (16.0 )     106.0       -     118.0
GAAP net income/(loss)     (28.4 )     - (25.8 )     6.7       -     14.6
GAAP net income/(loss) per share     (0.38 )     - (0.34 )     0.09       -     0.19
Non-GAAP net income/(loss)     (12.9 )     - (10.2 )     74.8       -     83.0
Non-GAAP net income/(loss) per share     (0.17 )     - (0.14 )     0.97       -     1.08

Non-GAAP operating income and non-GAAP net income exclude stock-based compensation expense and amortization of intangible assets. The GAAP and non-GAAP estimated annual tax rates used to compute net income and EPS exclude discrete items such as tax benefits related to share-based compensation.

Conference Call Information

What:       Guidewire Software Fourth Quarter Fiscal 2017 Financial Results Conference Call
When:       Wednesday, September 6, 2017
Time:       2:00 p.m. PT (5:00 p.m. ET)
Live Call:       (888) 778-9064, Domestic
        (719) 325-4910, International
Replay:       (844) 512-2921, Passcode 4055731, Domestic
        (412) 317-6671, Passcode 4055731, 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.

Acerca de Guidewire Software

Guidewire ofrece la plataforma en la que se basan las compañías de seguros generales para adaptarse y prosperar en un contexto de rápidos cambios. Proporcionamos software, servicios y un ecosistema de partners que permiten a nuestros clientes gestionar, diferenciar y hacer crecer su negocio. Tenemos el privilegio de prestar servicios a más de 350 compañías en 34 países. Para obtener más información, visite www.guidewire.es. Síganos en 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,
2017
    July 31,
2016
ASSETS            
CURRENT ASSETS:            
Cash and cash equivalents     $ 263,176       $ 223,582  
Short-term investments     310,027       404,655  
Accounts receivable     79,433       62,792  
Prepaid expenses and other current assets     26,604       16,643  
Total current assets     679,240       707,672  
Long-term investments     114,585       107,565  
Property and equipment, net     14,376       12,955  
Intangible assets, net     71,315       14,204  
Deferred tax assets, net     37,430       31,364  
Goodwill     141,851       30,080  
Other assets     20,104       12,338  
TOTAL ASSETS     1,078,901       916,178  
LIABILITIES AND STOCKHOLDERS’ EQUITY            
CURRENT LIABILITIES:            
Accounts payable     13,416       9,929  
Accrued employee compensation     48,882       41,267  
Deferred revenues, current     91,243       60,270  
Other current liabilities     10,075       7,617  
Total current liabilities     163,616       119,083  
Deferred revenues, noncurrent     19,892       9,745  
Other liabilities     2,112       3,415  
Total liabilities     185,620       132,243  
STOCKHOLDERS’ EQUITY:            
Common stock     8       7  
Additional paid-in capital     830,014       742,690  
Accumulated other comprehensive loss     (5,796 )     (6,593 )
Retained earnings     69,055       47,831  
Total stockholders’ equity     893,281       783,935  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY     $ 1,078,901       $ 916,178  
                     
 
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands except share and per share data)
                         
      Three Months Ended July 31,     Fiscal Year Ended July 31,
      2017     2016     2017     2016
Revenues:                        
License and other     $ 109,695       $ 88,239       $ 271,462       $ 219,751  
Maintenance     18,671       16,986       68,643       59,931  
Services     52,734       35,952       174,179       144,764  
Total revenues     181,100       141,177       514,284       424,446  
Cost of revenues: (1)                        
License and other     6,627       2,306       17,046       7,184  
Maintenance     3,513       3,402       13,397       11,547  
Services     47,121       37,048       161,116       133,103  
Total cost of revenues     57,261       42,756       191,559       151,834  

Gross profit:(1)

                       
License and other     103,068       85,933       254,416       212,567  
Maintenance     15,158       13,584       55,246       48,384  
Services     5,613       (1,096 )     13,063       11,661  
Total gross profit     123,839       98,421       322,725       272,612  
Operating expenses: (1)                        
Research and development     35,458       32,142       130,323       112,496  
Sales and marketing     31,431       27,905       109,239       92,765  
General and administrative     15,902       14,899       56,551       50,914  
Total operating expenses     82,791       74,946       296,113       256,175  
Income from operations     41,048       23,475       26,612       16,437  
Interest income, net     1,574       1,185       5,854       4,850  
Other income (expense), net     1,146       (344 )     811       (505 )
Income before provision for income taxes     43,768       24,316       33,277       20,782  
Provision for income taxes     16,841       8,219       12,053       5,806  
Net income     $ 26,927       $ 16,097       $ 21,224       $ 14,976  
Earnings per share:                        
Basic     $ 0.36       $ 0.22       $ 0.29       $ 0.21  
Diluted     $ 0.36       $ 0.22       $ 0.28       $ 0.20  
Shares used in computing earnings per share:                        
Basic     74,776,333       72,792,357       73,994,577       72,026,694  
Diluted     75,769,530       74,202,966       75,328,343       73,765,960  
                                 

(1) Amounts include stock-based compensation expense, see table below.

             
      Three Months Ended July 31,     Fiscal Year Ended July 31,
      2017     2016     2017     2016
      (unaudited, in thousands)
Stock-based compensation expenses:                        
Cost of license and other revenue     $ 142       $ 134       $ 373       $ 433
Cost of maintenance revenues     429       384       1,694       1,491
Cost of services revenues     4,652       4,392       18,622       17,878
Research and development     4,498       4,083       18,123       15,555
Sales and marketing     4,166       4,442       16,663       15,090
General and administrative     4,246       4,811       16,319       15,684
Total stock-based compensation expenses     $ 18,133       $ 18,246       $ 71,794       $ 66,131
                                       
 
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
                         
      Three Months Ended July 31,     Fiscal Year Ended July 31,
      2017     2016     2017     2016
CASH FLOWS FROM OPERATING ACTIVITIES:                        
Net income     $ 26,927       $ 16,097       $ 21,224       $ 14,976  
Adjustments to reconcile net income to net cash provided by operating activities:                        
Depreciation and amortization     6,517       3,007       18,725       8,842  
Stock-based compensation     18,133       18,246       71,794       66,131  
Excess tax benefit from exercise of stock options and vesting of restricted stock units ("RSUs")     (10,029 )     (6,536 )     (9,067 )     (7,102 )
Deferred taxes     5,552       199       (1,227 )     (4,568 )
Amortization of premium on available-for-sale securities     239       611       1,413       3,283  
Other non-cash items affecting net income     22       187       49       (767 )
Changes in operating assets and liabilities:                        
Accounts receivable     15,995       (1,643 )     (9,750 )     (75 )
Prepaid expenses and other assets     (2,291 )     (2,691 )     (9,463 )     (7,668 )
Accounts payable     765       1,294       1,311       603  
Accrued employee compensation     10,727       12,209       7,138       4,114  
Other liabilities     9,296       6,549       8,211       5,993  
Deferred revenues     3,770       1,730       36,802       16,138  
Net cash provided by operating activities     85,623       49,259       137,160       99,900  
CASH FLOWS FROM INVESTING ACTIVITIES:                        
Purchases of available-for-sale securities     (118,274 )     (159,543 )     (462,035 )     (652,017 )
Sales and maturities of available-for-sale securities     104,800       123,108       547,630       597,405  
Purchase of property and equipment     (2,650 )     (1,868 )     (5,886 )     (7,111 )
Capitalized software development costs     (410 )           (784 )      
Strategic investment                 (4,677 )      
Acquisitions of business, net of cash acquired                 (187,590 )     (39,530 )
Net cash used in investing activities     (16,534 )     (38,303 )     (113,342 )     (101,253 )
CASH FLOWS FROM FINANCING ACTIVITIES:                        
Proceeds from issuance of common stock upon exercise of stock options     2,144       2,419       5,563       7,840  
Taxes remitted on RSU awards vested                       (1,488 )
Excess tax benefit from exercise of stock options and vesting of RSUs     10,029       6,536       9,067       7,102  
Net cash provided by financing activities     12,173       8,955       14,630       13,454  
Effect of foreign exchange rate changes on cash and cash equivalents     1,748       (934 )     1,146       (881 )
Net Increase in Cash and Cash Equivalents     83,010       18,977       39,594       11,220  
Cash and Cash Equivalents — Beginning of period     180,166       204,605       223,582       212,362  
Cash and Cash Equivalents—End of period     $ 263,176       $ 223,582       $ 263,176       $ 223,582  
                                         
 
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 July 31,     Fiscal Year Ended July 31,
      2017     2016     2017     2016
Income from operations reconciliation:                        
GAAP income from operations     $ 41,048       $ 23,475       $ 26,612       $ 16,437  
Non-GAAP adjustments:                        
Stock-based compensation (1)     18,133       18,246       71,794       66,131  
Amortization of intangibles (1)     4,776       1,001       12,089       2,295  
Non-GAAP income from operations     $ 63,957       $ 42,722       $ 110,495       $ 84,863  
                         
Net income reconciliation:                        
GAAP net income     $ 26,927       $ 16,097       $ 21,224       $ 14,976  
Non-GAAP adjustments:                        
Stock-based compensation (1)     18,133       18,246       71,794       66,131  
Amortization of intangibles (1)     4,776       1,001       12,089       2,295  
Tax effect on non-GAAP adjustments (2)     (5,080 )     (6,649 )     (26,323 )     (21,444 )
Non-GAAP net income     $ 44,756       $ 28,695       $ 78,784       $ 61,958  
                         
Tax provision (benefits) reconciliation:                        
GAAP tax provision     $ 16,841       $ 8,219       $ 12,053       $ 5,806  
Non-GAAP adjustments:                        
Stock-based compensation     5,973       5,420       23,145       20,743  
Amortization of intangibles     1,573       306       3,913       720  
ISO deduction     55       52       166       244  
Tax effect on GAAP profit before taxes due to different tax rates between GAAP and non-GAAP     (2,521 )     871       (901 )     (263 )
Non-GAAP tax provision     $ 21,921       $ 14,868       $ 38,376       $ 27,250  
                         
Earnings per share reconciliation:                        
GAAP earnings per share - Diluted     $ 0.36       $ 0.22       $ 0.28       $ 0.20  
Amortization of intangibles acquired in business combinations     0.06       0.01       0.16       0.03  
Stock-based compensation     0.24       0.25       0.96       0.90  
Less: tax benefit of non GAAP items     (0.07 )     (0.09 )     (0.35 )     (0.29 )
Non-GAAP dilutive shares excluded from GAAP EPS calculation (3)                        
Non-GAAP earnings per share - Diluted     $ 0.59       $ 0.39       $ 1.05       $ 0.84  
                         
Shares used in computing non-GAAP per share amounts:                        
Weighted average shares - Diluted     75,769,530       74,202,966       75,328,343       73,765,960  
Non-GAAP dilutive shares excluded from GAAP EPS calculation (3)                        
Pro forma weighted average shares - Diluted     75,769,530       74,202,966       75,328,343       73,765,960  

 

(1) Adjustments relate to amortization of acquired intangibles and stock-based compensation recognized during the period for GAAP purposes.
(2) Adjustment reflects the tax benefit resulting from all non-GAAP adjustments.
(3) 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. The GAAP and non-GAAP estimated annual tax rates used to compute net income and EPS exclude discrete items such as tax benefits
related to share-based compensation.

             
(Dollar in millions)    

First Quarter Fiscal Year
2018

    Full Year
Fiscal Year 2018
Outlook reconciliation: GAAP and non-GAAP income/(loss) from operations                                
GAAP income/(loss) from operations     (44.0 )     - (40.0 )     6.2       -     18.2  
Non-GAAP adjustments:                                
Stock-based compensation     18.8       - 19.8       79.2       -     82.2  
Amortization of intangibles     4.5       - 5.0       18.6       -     19.6  
Non-GAAP income/(loss) from operations     (20.0 )     - (16.0 )     106.0       -     118.0  
                                 
Outlook reconciliation: GAAP and non-GAAP net income/(loss)                                
GAAP net income/(loss)     (28.4 )     - (25.8 )     6.7       -     14.6  
Non-GAAP adjustments:                                
Stock-based compensation     18.8       - 19.8       79.2       -     82.2  
Amortization of intangibles     4.5       - 5.0       18.6       -     19.6  
Non-GAAP tax impact     (8.6 )     - (8.5 )     (31.7 )     -     (31.5 )
Non-GAAP net income/(loss)     (12.9 )     - (10.2 )     74.8       -     83.0  
                                     

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