Guidewire Software Announces Second Quarter Fiscal 2017 Financial Results

FOSTER CITY, Calif.--()--Guidewire Software, Inc. (NYSE: GWRE), a provider of software products to Property and Casualty insurers, today announced its financial results for the fiscal quarter ended January 31, 2017.

“Revenue and profitability exceeded our guidance for the second quarter”

“Revenue and profitability exceeded our guidance for the second quarter,” said Marcus Ryu, chief executive officer, Guidewire Software. “Customer demand was healthy this quarter and our performance further benefited from a few license wins closing earlier than anticipated.”

Ryu continued, “Our recently completed acquisition of ISCS enlarges our total addressable market with an all-in-one core option which we have renamed InsuranceNow. Similar to our recently acquired solutions for Underwriting Management and Predictive Analytics, we will offer InsuranceNow as a cloud-based solution, continuing our strategy of delivering a growing portion of our platform as cloud services.”

Second Quarter Fiscal 2017 Financial Highlights

Revenue

  • License and other revenue for the second quarter of fiscal 2017 was $64.1 million, an increase of 20% from the second quarter of fiscal 2016. Maintenance revenue was $16.6 million, an increase of 16% and services revenue was $35.0 million, an increase of 1%. Total revenue was $115.6 million, an increase of 13% from the same quarter in fiscal 2016.
  • License and other revenue for the six months ended January 31, 2017 was $102.8 million, an increase of 20% from the comparable period in fiscal 2016. Maintenance revenue was $33.1 million, an increase of 17% and services revenue was $73.8 million, an increase of 5%. Total revenue was $209.7 million, an increase of 14% from the same period in fiscal 2016.
  • Rolling four-quarter recurring term license and maintenance revenue was $285.3 million as of January 31, 2017, an increase of 20% compared to the same metric as of January 31, 2016.

Profitability

  • GAAP operating income was $8.2 million for the second quarter of fiscal 2017, compared with $7.7 million in the comparable period in fiscal 2016.
  • Non-GAAP operating income was $28.4 million for the second quarter of fiscal 2017, compared with $24.6 million in the comparable period in fiscal 2016.
  • GAAP net income was $4.0 million for the second quarter of fiscal 2017, compared with net income of $0.9 million for the comparable period in fiscal 2016. GAAP net income per share was $0.05, based on diluted weighted average shares outstanding of 74.8 million, compared with net income of $0.01 per share for the comparable period in fiscal 2016, based on diluted weighted average shares outstanding of 73.4 million.
  • Non-GAAP net income was $20.6 million for the second quarter of fiscal 2017, compared with $17.8 million in the comparable period in fiscal 2016. Non-GAAP net income per diluted share was $0.28, based on diluted weighted average shares outstanding of 74.8 million, compared with $0.24 in the comparable period in fiscal 2016, based on diluted weighted average shares outstanding of 73.4 million.

Balance Sheet

  • The Company had $728.9 million in cash, cash equivalents and investments at January 31, 2017, compared with $735.8 million at July 31, 2016. The Company generated $42.6 million cash from operations in the second quarter of fiscal 2017, compared with cash flow from operations of $37.9 million in the comparable period in fiscal 2016.

Business Outlook

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

             
(in $ millions, except per share outlook)        

Third Quarter
Fiscal 2017

     

Full Year
Fiscal 2017

Revenue 102.0     106.0

491.0

   

499.0

License and other revenue 43.0 45.0

256.0

262.0
Maintenance revenue 16.0 17.0 66.0 68.0
Services revenue 42.0 45.0

166.0

172.0
GAAP operating income (28.1 ) (24.1 ) (14.6 ) (6.6 )
Non-GAAP operating income (6.0 ) (2.0 ) 70.0 78.0
GAAP net income (22.8 ) (19.6 ) (9.0 ) (3.1 )
GAAP net income per share (0.31 ) (0.26 ) (0.12 ) (0.04 )
Non-GAAP net income (3.7 ) (1.2 ) 50.1 55.6
Non-GAAP net income per share (0.05 ) (0.02 ) 0.67 0.74
 

Guidewire continues to target term license revenue growth of 20% or higher for the current fiscal year. 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 Second Quarter Fiscal 2017 Financial Results Conference Call
When: Thursday, March 2, 2017
Time: 2:00 p.m. PT (5:00 p.m. ET)
Live Call: (888) 684-1280, Domestic
(913) 312-0868, International
Replay: (844) 512-2921, Passcode 3047525, Domestic
(412) 317-6671, Passcode 3047525, 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 delivers the software that Property and Casualty (P&C) insurers need to adapt and succeed in a time of rapid industry change. We combine three elements - core operations, data and analytics, and digital engagement - into a technology platform that enhances insurers’ ability to engage and empower their customers and employees. More than 260 P&C insurers around the world have selected Guidewire. For more information, please visit www.guidewire.com. Follow us on twitter: @Guidewire_PandC.

NOTE: Guidewire, Guidewire Software, Guidewire ClaimCenter, Guidewire PolicyCenter, and Guidewire BillingCenter are registered trademarks of Guidewire Software, Inc. in the United States and/or other countries.

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 and the benefits of our acquisition. 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)
           
January 31,
2017
July 31,
2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 225,363 $ 223,582
Short-term investments 357,442 404,655
Accounts receivable 64,626 62,792
Prepaid expenses and other current assets 23,868   16,643  
Total current assets 671,299 707,672
Long-term investments 146,125 107,565
Property and equipment, net 11,738 12,955
Intangible assets, net 26,510 14,204
Deferred tax assets, net 41,521 31,364
Goodwill 45,605 30,080
Other assets 9,116   12,338  
TOTAL ASSETS $ 951,914   $ 916,178  
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,269 $ 9,929
Accrued employee compensation 25,762 41,267
Deferred revenues, current 86,572 60,270
Other current liabilities 7,972   7,617  
Total current liabilities 128,575 119,083
Deferred revenues, noncurrent 2,774 9,745
Other liabilities 2,866   3,415  
Total liabilities 134,215 132,243
STOCKHOLDERS’ EQUITY:
Common stock 7 7
Additional paid-in capital 781,635 742,690
Accumulated other comprehensive loss (7,890 ) (6,593 )
Retained earnings 43,947   47,831  
Total stockholders’ equity 817,699   783,935  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 951,914   $ 916,178  
 
 
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands except share and per share data)
                 
Three Months Ended January 31,   Six Months Ended January 31,
2017 2016   2017 2016
Revenues:
License and other $ 64,075 $ 53,376 $ 102,796 $ 85,716
Maintenance 16,582 14,256 33,114 28,269
Services 34,964   34,497     73,838   70,424  
Total revenues 115,621   102,129     209,748   184,409  
Cost of revenues: (1)
License and other 2,781 1,577 5,211 2,741
Maintenance 3,079 2,636 6,404 5,111
Services 34,951   30,688     71,215   62,219  
Total cost of revenues 40,811   34,901     82,830   70,071  
Gross profit:
License and other 61,294 51,799 97,585 82,975
Maintenance 13,503 11,620 26,710 23,158
Services 13   3,809     2,623   8,205  
Total gross profit 74,810   67,228     126,918   114,338  
Operating expenses: (1)
Research and development 30,025 25,409 60,775 51,081
Sales and marketing 23,520 22,661 49,020 41,952
General and administrative 13,060   11,456     27,220   22,566  
Total operating expenses 66,605   59,526     137,015   115,599  
Income (loss) from operations 8,205 7,702 (10,097 ) (1,261 )
Interest income 1,544 758 2,886 1,454
Other income (expense), net 335   (1,182 )   (346 ) (965 )
Income (loss) before income taxes 10,084 7,278 (7,557 ) (772 )
Provision for (benefit from) income taxes 6,110   6,365     (3,673 ) (55 )
Net income (loss) $ 3,974   $ 913     $ (3,884 ) $ (717 )
Net income (loss) per share:
Basic $ 0.05   $ 0.01     $ (0.05 ) $ (0.01 )
Diluted $ 0.05   $ 0.01     $ (0.05 ) $ (0.01 )
Shares used in computing net income (loss) per share:
Basic 73,738,810   71,779,496     73,516,140   71,511,198  
Diluted 74,793,240   73,402,064     73,516,140   71,511,198  
 

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

         
Three Months Ended January 31, Six Months Ended January 31,
2017   2016 2017   2016
(unaudited, in thousands)
Stock-based compensation expenses:
Cost of license revenue $ 90 $ 103 $ 141 $ 192
Cost of maintenance revenues 436 380 849 719
Cost of services revenues 4,815 4,673 9,510 9,036
Research and development 4,650 3,911 9,117 7,583
Marketing and sales 4,283 3,616 8,506 7,046
General and administrative 4,313   3,862     8,341   7,116
Total stock-based compensation expenses $ 18,587   $ 16,545     $ 36,464   $ 31,692
 
 
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
             
Three Months Ended January 31, Six Months Ended January 31,
2017 2016 2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,974 $ 913 $ (3,884 ) $ (717 )

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Depreciation and amortization 3,309 1,751 6,383 3,542
Stock-based compensation 18,587 16,545 36,464 31,692

Excess tax benefit from exercise of stock options and vesting of restricted stock units

(91 ) (566 )
Deferred tax assets 4,885 5,202 (5,617 ) (1,703 )

Amortization of premium on available-for-sale securities

397 961 860 1,838
Other non-cash items affecting net income (loss) 4 5 8 23

Changes in operating assets and liabilities:

Accounts receivable (9,505 ) (5,417 ) (823 ) 2,221
Prepaid expenses and other assets (3,880 ) (1,237 ) (3,689 ) (2,308 )
Accounts payable (2,617 ) 1,151 (1,715 ) (1,391 )
Accrued employee compensation 6,216 4,876 (15,084 ) (14,964 )
Other liabilities 636 918 (615 ) (121 )
Deferred revenues 20,553   12,343   17,361   9,484  

Net cash provided by operating activities

42,559   37,920   29,649   27,030  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (90,718 ) (146,654 ) (291,611 ) (341,990 )
Sales of available-for-sale securities 141,508 132,640 298,671 321,507
Purchase of property and equipment (143 ) (851 ) (2,617 ) (3,867 )
Acquisition of business, net of acquired cash 59     (33,534 )  

Net cash used in (provided by) investing activities

50,706   (14,865 ) (29,091 ) (24,350 )
CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock upon exercise of stock options

922 2,526 2,034 3,989
Taxes remitted on RSU awards vested (614 ) (1,488 )

Excess tax benefit from exercise of stock options and vesting of restricted stock units

  91     566  
Net cash provided by financing activities 922   2,003   2,034   3,067  

Effect of foreign exchange rate changes on cash and cash equivalents

113   (867 ) (811 ) (1,187 )
NET CHANGE IN CASH AND CASH EQUIVALENTS 94,300 24,191 1,781 4,560
CASH AND CASH EQUIVALENTS—Beginning of period 131,063   192,731   223,582   212,362  
CASH AND CASH EQUIVALENTS—End of period $ 225,363   $ 216,922   $ 225,363   $ 216,922  
 
 
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 January 31,     Six Months Ended January 31,
2017   2016 2017   2016
Income (loss) from operations reconciliation:
GAAP net income (loss) from operations $ 8,205 $ 7,702 $ (10,097 ) $ (1,261 )
Non-GAAP adjustments:
Stock-based compensation (1) 18,587 16,545 36,464 31,692
Amortization of intangibles (1) 1,656   360   3,094   720  
Non-GAAP income from operations $ 28,448   $ 24,607   $ 29,461   $ 31,151  
 
Net income (loss) reconciliation:
GAAP net income (loss) $ 3,974 $ 913 $ (3,884 ) $ (717 )
Non-GAAP adjustments:
Stock-based compensation (1) 18,587 16,545 36,464 31,692
Amortization of intangibles (1) 1,656 360 3,094 720
Non-GAAP tax impact (2) (3,591 ) 26   (13,927 ) (9,098 )
Non-GAAP net income $ 20,626   $ 17,844   $ 21,747   $ 22,597  
 
 
Three Months Ended January 31, Six Months Ended January 31,
2017 2016 2017 2016
Tax provision (benefits) reconciliation:
GAAP tax provision (benefits) $ 6,110 $ 6,365 $ (3,673 ) $ (55 )
Non-GAAP adjustments:
Stock-based compensation 5,948 5,143 11,669 10,142
Amortization of intangibles 530 111 990 230
ISO deduction 32 108 54 167

Tax effect on GAAP profit before taxes due to different tax rates between GAAP and non-GAAP

(2,919 ) (5,388 ) 1,214   (1,441 )
Non-GAAP tax provision $ 9,701   $ 6,339   $ 10,254   $ 9,043  
 

(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.

 
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Operating Results
(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 operating results for the periods indicated below:

      Three Months Ended January 31,   Six Months Ended January 31,
Earnings per share reconciliation: 2017   2016 2017   2016
GAAP earnings per share - Diluted $ 0.05 $ 0.01 $ (0.05 ) $ (0.01 )
Amortization of intangibles acquired in business combinations 0.02 0.01 0.04 0.01
Stock-based compensation 0.25 0.23 0.50 0.44
Less tax benefit of non GAAP items (0.04 ) (0.19 ) (0.13 )

Non-GAAP dilutive shares excluded from GAAP EPS calculation (1)

  (0.01 ) (0.01 )  
Non-GAAP earnings per share - Diluted $ 0.28   $ 0.24   $ 0.29   $ 0.31  
 

(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.

 
Three Months Ended January 31, Six Months Ended January 31,
Shares used in computing non-GAAP per share amounts: 2017 2016 2017 2016
GAAP Weighted average shares - Diluted 74,793,240 73,402,064 73,516,140 71,511,198

Non-GAAP dilutive shares excluded from GAAP EPS calculation (1)

    1,258,762   1,711,132  
Pro forma weighted average shares - Diluted 74,793,240   73,402,064   74,774,902   73,222,330  
 

(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)        

Third Quarter
Fiscal 2017

    Full Year
Fiscal 2017

Outlook reconciliation: GAAP and non-GAAP operating income/(loss)

GAAP operating income/(loss) (28.1 ) (24.1 ) (14.6 ) (6.6 )
Non-GAAP adjustments:
Stock-based compensation 17.0 18.0 70.8 73.8
Amortization of intangibles 4.4   4.9   11.8   12.8  
Non-GAAP income from operations (6.0 ) (2.0 ) 70.0   78.0  
 

Outlook reconciliation: GAAP and non-GAAP net income/(loss)

GAAP net income/(loss) (22.8 ) (19.6 ) (9.0 ) (3.1 )
Non-GAAP adjustments:
Stock-based compensation 17.0 18.0 70.8 73.8
Amortization of intangibles 4.4 4.9 11.8 12.8
Non-GAAP tax impact (2.9 ) (3.7 ) (25.6 ) (26.0 )
Non-GAAP net income (3.7 ) (1.2 ) 50.1   55.6  
 

Contacts

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

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