Guidewire Software Announces Third 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 April 30, 2017.

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

“Revenue and profitability exceeded our guidance for the third quarter,” said Marcus Ryu, chief executive officer, Guidewire Software. “Our quarter benefited from the completion of a significant expansion of our relationship with an existing Tier 1 customer earlier in the fiscal year than we expected, as well as sales across our core, data, and digital product families.”

Ryu continued, “We also advanced the delivery of our software as cloud-based solutions. We completed the first sale of our all-in-one cloud-based system, InsuranceNow, and our first cloud-based implementation of InsuranceSuite went live in May with its first line of business. This latter engagement, which we have described as a digital greenfield project, represents a major milestone in our strategy to offer the full breadth of Guidewire InsurancePlatform in both cloud-based and on-premises models to serve our customers’ diverse needs.”

Third Quarter Fiscal 2017 Financial Highlights

Revenue

  • License and other revenue for the third quarter of fiscal 2017 was $59.0 million, an increase of 29% from the third quarter of fiscal 2016. Maintenance revenue was $16.9 million, an increase of 15% and services revenue was $47.6 million, an increase of 24%. Total revenue was $123.4 million, an increase of 25% from the same quarter in fiscal 2016.
  • License and other revenue for the nine months ended April 30, 2017 was $161.8 million, an increase of 23% from the comparable period in fiscal 2016. Maintenance revenue was $50.0 million, an increase of 16% and services revenue was $121.4 million, an increase of 12%. Total revenue was $333.2 million, an increase of 18% from the same period in fiscal 2016.
  • Rolling four-quarter recurring term license and maintenance revenue was $304.9 million as of April 30, 2017, an increase of 22% compared to the same metric as of April 30, 2016.

Profitability

  • GAAP loss from operations was $4.3 million for the third quarter of fiscal 2017, compared with a loss of $5.8 million in the comparable period in fiscal 2016.
  • Non-GAAP income from operations was $17.1 million for the third quarter of fiscal 2017, compared with $11.0 million in the comparable period in fiscal 2016.
  • GAAP net loss was $1.8 million for the third quarter of fiscal 2017, compared with a net loss of $0.4 million for the comparable period in fiscal 2016. GAAP net loss per share was $0.02, based on diluted weighted average shares outstanding of 74.2 million, compared with $0.01 net loss per share for the comparable period in fiscal 2016, based on diluted weighted average shares outstanding of 72.3 million.
  • Non-GAAP net income was $12.3 million for the third quarter of fiscal 2017, compared with $10.7 million in the comparable period in fiscal 2016. Non-GAAP net income per diluted share was $0.16, based on diluted weighted average shares outstanding of 75.2 million, compared with $0.14 in the comparable period in fiscal 2016, based on diluted weighted average shares outstanding of 73.6 million.

Balance Sheet

  • The Company had $591.4 million in cash, cash equivalents and investments at April 30, 2017, compared with $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 $21.9 million cash from operations in the third quarter of fiscal 2017, compared with cash flow from operations of $23.6 million in the comparable period in fiscal 2016.

Business Outlook

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

         
(in $ millions, except per share outlook)    

Fourth Quarter
Fiscal 2017

      Full Year
Fiscal 2017
Revenue 165.8       169.8 499.0       503.0
License and other revenue 96.2 100.2 258.0 262.0
Maintenance revenue 17.5 18.5 67.5 68.5
Services revenue 50.6 52.6 172.0 174.0

GAAP income from operations

16.5 20.5 2.0 6.0

Non-GAAP income from operations

39.4 43.4 86.0 90.0
GAAP net income 9.1 11.2 3.4 5.5
GAAP net income per share 0.12 0.15 0.05 0.07
Non-GAAP net income 27.3 30.1 61.4 64.1
Non-GAAP net income per share 0.36 0.40 0.82 0.86
 

Guidewire continues to target term license revenue growth of 20% or higher for the current fiscal year. Non-GAAP income from operations and non-GAAP net income exclude stock-based compensation expense and amortization of intangible assets.

     

Conference Call Information

 

What:

Guidewire Software Third Quarter Fiscal 2017 Financial Results Conference Call

When:

Thursday, June 1, 2017

Time

2:00 p.m. PT (5:00 p.m. ET)

Live Call:

(877) 857-6163, Domestic

 

(719) 325-4763, International

Replay:

(844) 512-2921, Passcode 9703680, Domestic

 

(412) 317-6671, Passcode 9703680, 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 income from operations, 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 an insurance platform that enhances insurers’ ability to engage and empower their customers and employees. More than 300 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. 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)
           
April 30,
2017
July 31,
2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 180,166 $ 223,582
Short-term investments 297,307 404,655
Accounts receivable 94,955 62,792
Prepaid expenses and other current assets 30,743   16,643  
Total current assets 603,171 707,672
Long-term investments 113,913 107,565
Property and equipment, net 11,896 12,955
Intangible assets, net 76,091 14,204
Deferred tax assets, net 42,960 31,364
Goodwill 142,027 30,080
Other assets 13,156   12,338  
TOTAL ASSETS $ 1,003,214   $ 916,178  
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 11,768 $ 9,929
Accrued employee compensation 37,451 41,267
Deferred revenues, current 104,335 60,270
Other current liabilities 10,511   7,617  
Total current liabilities 164,065 119,083
Deferred revenues, noncurrent 2,848 9,745
Other liabilities 2,393   3,415  
Total liabilities 169,306 132,243
STOCKHOLDERS’ EQUITY:
Common stock 7 7
Additional paid-in capital 799,491 742,690
Accumulated other comprehensive loss (7,718 ) (6,593 )
Retained earnings 42,128   47,831  
Total stockholders’ equity 833,908   783,935  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,003,214   $ 916,178  
 
 
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands except share and per share data)
                 
Three Months Ended April 30,   Nine Months Ended April 30,
2017 2016   2017 2016
Revenues:
License and other $ 58,971 $ 45,796 $ 161,767 $ 131,512
Maintenance 16,858 14,676 49,972 42,945
Services 47,607   38,388     121,445   108,812  
Total revenues 123,436   98,860     333,184   283,269  
Cost of revenues: (1)
License and other 5,208 2,137 10,419 4,878
Maintenance 3,480 3,034 9,884 8,145
Services 42,780   33,836     113,995   96,055  
Total cost of revenues 51,468   39,007     134,298   109,078  
Gross profit:
License and other 53,763 43,659 151,348 126,634
Maintenance 13,378 11,642 40,088 34,800
Services 4,827   4,552     7,450   12,757  
Total gross profit 71,968   59,853     198,886   174,191  
Operating expenses: (1)
Research and development 34,090 29,273 94,865 80,354
Sales and marketing 28,788 22,908 77,808 64,860
General and administrative 13,429   13,449     40,649   36,015  
Total operating expenses 76,307   65,630     213,322   181,229  
Loss from operations (4,339 ) (5,777 ) (14,436 ) (7,038 )
Interest income 1,394 2,211 4,280 3,665
Other income (expense), net 11   804     (335 ) (161 )
Loss before income taxes (2,934 ) (2,762 ) (10,491 ) (3,534 )
Benefit from income taxes (1,115 ) (2,358 )   (4,788 ) (2,413 )
Net loss $ (1,819 ) $ (404 )   $ (5,703 ) $ (1,121 )
Net loss per share:
Basic $ (0.02 ) $ (0.01 )   $ (0.08 ) $ (0.02 )
Diluted $ (0.02 ) $ (0.01 )   $ (0.08 ) $ (0.02 )
Shares used in computing net loss per share:
Basic 74,175,603   72,297,934     73,731,132   71,769,613  
Diluted 74,175,603   72,297,934     73,731,132   71,769,613  
 

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

         
Three Months Ended April 30, Nine Months Ended April 30,
2017   2016 2017   2016
(unaudited, in thousands)
Stock-based compensation expenses:
Cost of license revenue $ 90 $ 107 $ 231 $ 299
Cost of maintenance revenues 416 388 1,265 1,107
Cost of services revenues 4,459 4,450 13,969 13,486
Research and development 4,508 3,889 13,625 11,472
Marketing and sales 3,992 3,602 12,498 10,648
General and administrative 3,732   3,757     12,073   10,873
Total stock-based compensation expenses $ 17,197   $ 16,193     $ 53,661   $ 47,885
 
 
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
             
Three Months Ended April 30, Nine Months Ended April 30,
2017 2016 2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,819 ) $ (404 ) $ (5,703 ) $ (1,121 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 5,825 2,293 12,208 5,835
Stock-based compensation 17,197 16,193 53,661 47,885
(Excess tax benefit) shortfall from exercise of stock options and vesting of restricted stock units 962 962 (566 )
Deferred income tax (1,162 ) (3,064 ) (6,779 ) (4,767 )
Amortization of premium on available-for-sale securities 314 834 1,174 2,672
Other non-cash items affecting net income (loss) 19 (977 ) 27 (954 )
Changes in operating assets and liabilities:
Accounts receivable (24,922 ) (653 ) (25,745 ) 1,568
Prepaid expenses and other assets (3,483 ) (2,669 ) (7,172 ) (4,977 )
Accounts payable 2,261 700 546 (691 )
Accrued employee compensation 11,495 6,869 (3,589 ) (8,095 )
Other liabilities (470 ) (435 ) (1,085 ) (556 )
Deferred revenues 15,671   4,924   33,032   14,408  
Net cash provided by operating activities 21,888   23,611   51,537   50,641  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (52,150 ) (150,484 ) (343,761 ) (492,474 )
Sales of available-for-sale securities 144,159 152,790 442,830 474,297
Purchases of property and equipment (619 ) (1,376 ) (3,236 ) (5,243 )
Capitalized software development costs (374 ) (374 )
Strategic investment (4,677 ) (4,677 )
Acquisitions of business, net of acquired cash (154,056 ) (39,530 ) (187,590 ) (39,530 )
Net cash used in investing activities (67,717 ) (38,600 ) (96,808 ) (62,950 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon exercise of stock options 1,385 1,432 3,419 5,421
Taxes remitted on RSU awards vested (1,488 )
Excess tax benefit (shortfall) from exercise of stock options and vesting of restricted stock units (962 )   (962 ) 566  
Net cash provided by financing activities 423   1,432   2,457   4,499  
Effect of foreign exchange rate changes on cash and cash equivalents 209   1,240   (602 ) 53  
NET CHANGE IN CASH AND CASH EQUIVALENTS (45,197 ) (12,317 ) (43,416 ) (7,757 )
CASH AND CASH EQUIVALENTS—Beginning of period 225,363   216,922   223,582   212,362  
CASH AND CASH EQUIVALENTS—End of period $ 180,166   $ 204,605   $ 180,166   $ 204,605  
 
 
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 April 30, Nine Months Ended April 30,
2017 2016 2017 2016
Income (loss) from operations reconciliation:

GAAP loss from operations

$ (4,339 ) $ (5,777 ) $ (14,436 ) $ (7,038 )
Non-GAAP adjustments:
Stock-based compensation (1) 17,197 16,193 53,661 47,885
Amortization of intangibles (1) 4,219   574   7,313   1,294  
Non-GAAP income from operations $ 17,077   $ 10,990   $ 46,538   $ 42,141  
 
Net income (loss) reconciliation:
GAAP net loss $ (1,819 ) $ (404 ) $ (5,703 ) $ (1,121 )
Non-GAAP adjustments:
Stock-based compensation (1) 17,197 16,193 53,661 47,885
Amortization of intangibles (1) 4,219 574 7,313 1,294
Non-GAAP tax impact (2) (7,316 ) (5,697 ) (21,243 ) (14,795 )
Non-GAAP net income $ 12,281   $ 10,666   $ 34,028   $ 33,263  
 
 
Three Months Ended April 30, Nine Months Ended April 30,
2017 2016 2017 2016
Tax provision (benefits) reconciliation:
GAAP tax provision (benefits) $ (1,115 ) $ (2,358 ) $ (4,788 ) $ (2,413 )
Non-GAAP adjustments:
Stock-based compensation 5,503 5,172 17,172 15,323
Amortization of intangibles 1,350 184 2,340 414
ISO deduction 57 24 111 192
Tax effect on GAAP profit before taxes due to different tax rates between GAAP and non-GAAP 406   317   1,620   (1,134 )
Non-GAAP tax provision $ 6,201   $ 3,339   $ 16,455   $ 12,382  
 

(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 April 30, Nine Months Ended April 30,
Earnings per share reconciliation: 2017 2016 2017 2016
GAAP earnings per share - Diluted $ (0.02 ) $ (0.01 ) $ (0.08 ) $ (0.02 )
Amortization of intangibles acquired in business combinations 0.06 0.01 0.10 0.02
Stock-based compensation 0.23 0.22 0.73 0.67
Less tax benefit of non GAAP items (0.10 ) (0.08 ) (0.29 ) (0.21 )
Non-GAAP dilutive shares excluded from GAAP EPS calculation (1) (0.01 )   (0.01 ) (0.01 )
Non-GAAP earnings per share - Diluted $ 0.16   $ 0.14   $ 0.45   $ 0.45  
 
(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 April 30, Nine Months Ended April 30,
Shares used in computing non-GAAP per share amounts: 2017 2016 2017 2016
GAAP Weighted average shares - Diluted 74,175,603 72,297,934 73,731,132 71,769,613
Non-GAAP dilutive shares excluded from GAAP EPS calculation (1) 1,053,252   1,324,561   1,293,010   1,683,984  
Pro forma weighted average shares - Diluted 75,228,855   73,622,495   75,024,142   73,453,597  
 
(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)        

Fourth Quarter
Fiscal 2017

    Full Year
Fiscal 2017
Outlook reconciliation: GAAP and non-GAAP operating income
GAAP operating income 16.5 20.5 2.0 6.0
Non-GAAP adjustments:
Stock-based compensation 17.5 18.5 70.2 73.2
Amortization of intangibles 4.7   5.2   11.7   12.7  
Non-GAAP operating income 39.4   43.4   86.0   90.0  
 
Outlook reconciliation: GAAP and non-GAAP net income
GAAP net income 9.1 11.2 3.4 5.5
Non-GAAP adjustments:
Stock-based compensation 17.5 18.5 70.2 73.2
Amortization of intangibles 4.7 5.2 11.7 12.7
Non-GAAP tax impact (4.7 ) (4.1 ) (25.9 ) (25.3 )
Non-GAAP net income 27.3   30.1   61.4   64.1  
 

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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