Guidewire Software Announces First Quarter Fiscal 2013 Financial Results

FOSTER CITY, Calif.--()--Guidewire Software, Inc. (NYSE: GWRE), a provider of core system software to property and casualty insurers, today announced its financial results for the fiscal quarter ended October 31, 2012.

“We are reporting revenue and profitability that exceeded our guidance for the first quarter of fiscal year 2013”

“We are reporting revenue and profitability that exceeded our guidance for the first quarter of fiscal year 2013,” said Marcus Ryu, Chief Executive Officer of Guidewire Software. “Term license revenue increased by 67%, contributing to 31% growth in our rolling four-quarter recurring revenue metric. Underlying this strong financial performance is our further penetration into the Tier 1 segment of the market, continued international traction, and multiple go-lives that expand our track record of successful customer deployments. We are pleased with the fact that we continue to see positive returns on the investments we are making in engineering, sales and services.”

Ryu added, “We hosted our largest-ever user conference in the first quarter, during which we launched Guidewire Live, a network over which we are delivering hosted, data-driven apps that work in concert with our InsuranceSuite. We believe that Guidewire Live further expands our technology leadership position and contributes to our growth opportunity as we focus on serving the demand from P&C insurers seeking to replace their legacy core systems with flexible and upgradeable software products.”

First Quarter Fiscal 2013 Financial Highlights

Revenue

  • Total revenue for the first quarter of fiscal 2013 was $63.3 million, an increase of 21% from the comparable period in fiscal 2012.
  • License revenue for the first quarter of fiscal 2013 was $20.8 million, consistent with the comparable period in fiscal 2012. Reflecting the company's focus on recurring revenue, term license revenue was $20.6 million, a 67% increase from a year ago and revenue from perpetual licenses was $0.2 million compared with $8.5 million a year ago. Maintenance revenue was $9.4 million, up 32% from the comparable period in fiscal 2012, and services revenue was $33.1 million, up 35% from the comparable period in fiscal 2012.
  • Rolling four-quarter recurring term license and maintenance revenue was $114.9 million, an increase of 31% from the comparable period in fiscal 2012.

Profitability

  • GAAP operating loss was $0.1 million for the first quarter of fiscal 2013, compared to operating income of $8.1 million in the comparable period in fiscal 2012.
  • Non-GAAP operating income was $9.7 million for the first quarter of fiscal 2013, compared to $11.4 million in the comparable period in fiscal 2012.
  • Adjusted EBITDA was $10.8 million for the first quarter of fiscal 2013, compared to $12.1 million in the comparable period in fiscal 2012.
  • GAAP net income was $0.4 million for the first quarter of fiscal 2013, compared to $4.8 million for the comparable period in fiscal 2012. GAAP net income per share was $0.01, based on diluted weighted average shares outstanding of 61.2 million, compared to a GAAP net income per share of $0.09 for the comparable period in fiscal 2012, based on diluted weighted average shares outstanding of 21.2 million.
  • Non-GAAP net income was $6.7 million for the first quarter of fiscal 2013, compared to $7.0 million in the comparable period in fiscal 2012. Non-GAAP net income per diluted share was $0.11, based on diluted weighted average shares outstanding of 61.2 million, compared to $0.15 for the first quarter of fiscal 2012, based on pro forma diluted weighted average shares outstanding of 46.5 million.
  • The year-over-year decline in profitability metrics during the first quarter of 2012 was due primarily to greater investment across the business and increased stock-based compensation expense.

Balance Sheet

  • The Company had $185.5 million in cash and cash equivalents at October 31, 2012, a decrease from $205.7 million at July 31, 2012. The Company used $16.3 million in cash flow for operations in the first quarter, an improvement from $27.1 million used in cash flow for operations in the comparable period in fiscal 2012. The company used $10.0 million in cash during the first quarter of fiscal 2012 to pay for a litigation settlement.

Conference Call Information

 
What:         Guidewire Software first quarter fiscal 2013 financial results conference call
When: Tuesday, November 27, 2012
Time: 2:00 p.m. PT (5:00 p.m. ET)
Live Call: (888) 329-8903, domestic
(719) 457-2621, international
Replay: (877) 870-5176, passcode 7694345, domestic
(858) 384-5517, passcode 7694345, 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, Adjusted EBITDA, 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 analyses, for purposes of determining executive and senior management incentive compensation and for budgeting and planning purposes. These measures are used in monthly financial reports prepared for management and in monthly and quarterly financial reports presented to the Company's board of directors. 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. In order to compensate for these limitations, management presents non-GAAP financial measures in connection with GAAP results. 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 Software is a provider of core system software to the global Property/Casualty (general) insurance industry. Designed to be flexible and scalable, Guidewire solutions give insurers the capability to deliver excellent service, increase market share and lower operating costs. Guidewire InsuranceSuite™, consisting of Guidewire PolicyCenter®, Guidewire ClaimCenter® and Guidewire BillingCenter® spans the key functional areas in insurance - underwriting and policy administration, claims management, and billing. Guidewire is headquartered in Foster City, California, with offices in Beijing, Dublin, Hong Kong, London, Munich, Paris, Sydney, Tokyo, and Toronto. For more information, please visit www.guidewire.com.

NOTE: Guidewire, Guidewire Software, Guidewire ClaimCenter, Guidewire PolicyCenter, Guidewire BillingCenter, Guidewire InsuranceSuite, Deliver Insurance Your Way, and the Guidewire logo are trademarks or registered trademarks of Guidewire Software, Inc.

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 market positioning, future adoption of our products 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 Form 10-K 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.
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
   
October 31, July 31,
  2012  

2012

 
Assets
Current assets:
Cash and cash equivalents $ 185,472 $ 205,718
Restricted cash, current portion 2,121 3,726
Accounts receivable 38,132 32,313
Deferred tax asset, current portion 14,359 13,442
Prepaid expenses and other current assets   6,275   7,266
Total current assets 246,359 262,465
 
Property and equipment, net 11,535 11,924
Deferred tax asset, net of current portion 9,313 9,313
Other assets   534   545
Total assets $ 267,741 $ 284,247
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 6,517 $ 9,781
Accrued employee compensation 14,695 26,502
Deferred revenues, current portion 41,549 52,947
Other current liabilities   3,942   3,957
Total current liabilities 66,703 93,187
Deferred revenues, net of current portion 2,057 2,569
Other liabilities   5,362   4,529
Total liabilities 74,122 100,285
 
Stockholders’ Equity
Common stock 5 5
Additional paid-in capital 216,850 207,624
Accumulated other comprehensive loss (512) (496)
Accumulated deficit   (22,724)   (23,171)
Total stockholders’ equity   193,619   183,962
Total liabilities and stockholders’ equity $ 267,741 $ 284,247
 
 
GUIDEWIRE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands except share and per share amounts)
   
Three Months Ended October 31,
  2012   2011

Revenues:

License $ 20,812 $ 20,815
Maintenance 9,370 7,106
Services   33,119   24,459
Total revenues   63,301   52,380
 
Cost of revenues:
License 167 299
Maintenance 1,564 1,266
Services   25,826   17,925
Total cost of revenues (1)   27,557   19,490
 

Gross profit:

License 20,645 20,516
Maintenance 7,806 5,840
Services   7,293   6,534
Total gross profit   35,744   32,890
 
Operating expenses: (1)
Research and development 14,764 10,959
Sales and marketing 12,376 7,361
General and administrative   8,666   6,438
Total operating expenses   35,806   24,758
Income (loss) from operations (62) 8,132
Interest income, net 90 40
Other income (expense), net   141   (316)
Income before provision for (benefit from) income taxes 169 7,856
Provision for (benefit from) Income taxes   (278)   3,044
Net income $ 447 $ 4,812
 
 
Net income per share:
Basic $ 0.01 $ 0.10
Diluted $ 0.01 $ 0.09
 
Shares used in computing net income per share:
Basic   54,814,044   14,554,428
Diluted   61,185,270   21,153,440
 
(1) Amounts include stock-based compensation expense, as follows:

Three Months Ended October 31,

  2012   2011
 
Cost of maintenance revenues $ 261 $ 72
Cost of services revenues 2,616 686
Research and development 2,042 845
Sales and marketing 1,651 497
General and administrative   3,214   1,212
$ 9,784 $ 3,312
 
 
GUIDEWIRE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
   

Three Months Ended October 31,

  2012   2011
Cash flows from operating activities:
Net income $ 447 $ 4,812
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 1,100 679
Stock-based compensation 9,784 3,312
Excess tax benefit related to the exercise of stock options and vesting of restricted stock (114) -
Deferred tax assets (917) 2,819
Changes in operating assets and liabilities:
Accounts receivable (5,847) (7,749)
Prepaid expenses and other assets 1,016 1,543
Accounts payable 827 644
Accrued employee compensation (11,604) (9,000)
Other liabilities 929 (10,366)
Deferred revenues   (11,900)   (13,779)
Net cash used in operating activities   (16,279)   (27,085)
 
Cash flows from investing activities:
Purchase of property and equipment (4,810) (490)
Increase in restricted cash   1,605   -
Net cash used in investing activities   (3,205)   (490)
 
Cash flows from financing activities:
Proceeds from issuance of common stock upon exercise of stock options 3,163 402
Taxes remitted on RSU awards vested (4,164) -
Costs paid in connection with initial public offering - (973)
Excess tax benefit related to the exercise of stock options and vesting of restricted stock   114   -
Net cash used in investing activities   (887)   (571)
 
Effect of foreign exchange rate changes on cash and cash equivalents   125   (308)
Net decrease in cash and cash equivalents (20,246) (28,454)
 
Cash and cash equivalents at beginning of the period   205,718   59,625
Cash and cash equivalents at end of the period $ 185,472 $ 31,171
 
 
GUIDEWIRE SOFTWARE, INC.
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 October 31,
  2012     2011  
Gross profit reconciliation:
GAAP gross profit $ 35,744 $ 32,890
Stock-based compensation   2,877     758  
Non-GAAP gross profit $ 38,621   $ 33,648  
 
Three Months Ended October 31,
  2012     2011  
Gross margin reconciliation - maintenance:
GAAP gross margin - maintenance 83.3 % 82.2 %
Stock-based compensation - maintenance   2.8 %   1.0 %
Non-GAAP gross margin - maintenance   86.1 %   83.2 %
 
Three Months Ended October 31,
  2012     2011  
Gross margin reconciliation - services:
GAAP gross margin - services 22.0 % 26.7 %
Stock-based compensation - services   7.9 %   2.8 %
Non-GAAP gross margin - services   29.9 %   29.5 %
 
Three Months Ended October 31,
  2012     2011  
Gross margin reconciliation - total:
GAAP gross margin 56.5 % 62.8 %
Stock-based compensation   4.5 %   1.4 %
Non-GAAP gross margin   61.0 %   64.2 %
 
Three Months Ended October 31,
  2012     2011  
Operating expense reconciliation:
Total GAAP operating expenses $ 35,806 $ 24,758
Less Stock-based compensation   6,907     2,554  
Total non-GAAP operating expenses $ 28,899   $ 22,204  
 
Three Months Ended October 31,
  2012     2011  
Operating income (loss) reconciliation:
GAAP operating income (loss) $ (62 ) $ 8,132
Stock-based compensation   9,784     3,312  
Non-GAAP operating income $ 9,722   $ 11,444  
 
Three Months Ended October 31,
  2012     2011  
Pre-tax income reconciliation:
GAAP pre-tax income $ 169 $ 7,856
Stock-based compensation   9,784     3,312  
Non-GAAP pre-tax income $ 9,953   $ 11,168  
 
Three Months Ended October 31,
  2012     2011  
Net income reconciliation:
GAAP net income $ 447 $ 4,812
Stock-based compensation 9,784 3,312
Less tax benefit of non-GAAP items   (3,532 )   (1,159 )
Non-GAAP net income $ 6,699   $ 6,965  
 
Three Months Ended October 31,
  2012     2011  
Computation of net income per share:
GAAP net income $ 447 $ 4,812

Non-cumulative dividends to preferred stockholders

- (823 )

Undistributed earnings allocated to preferred stockholders

  -     (2,534 )
Net income, Basic 447 1,455

Adjustments to net income for dilutive options and restricted stock options

  -     358  
Net income, Diluted $ 447   $ 1,813  
 
GAAP net income per share - Basic $ 0.01   $ 0.10  
GAAP net income per share - Diluted $ 0.01   $ 0.09  
 
Weighted average shares - Basic   54,814,044     14,554,428  
Weighted average shares - Diluted   61,185,270     21,153,440  
 
Three Months Ended October 31,
  2012     2011  
Net income per share reconciliation:
GAAP net income per share - Diluted $ 0.01 $ 0.09
Stock-based compensation 0.16 0.16
Less tax benefit of non GAAP items (0.06 ) (0.05 )
Pro forma conversion of preferred shares   -     (0.05 )
Non-GAAP net income per share - Diluted $ 0.11   $ 0.15  
 
Three Months Ended October 31,
  2012     2011  
Shares used in computing non-GAAP per share amounts:
Weighted average shares - Diluted 61,185,270 21,153,440
Pro forma conversion of preferred shares   -     25,357,721  
Pro forma weighted average shares - Diluted   61,185,270     46,511,161  
 
Three Months Ended October 31,
  2012     2011  
Adjusted EBITDA reconciliation:
GAAP net income $ 447 $ 4,812
Non-GAAP adjustments:
Provision for (benefit from) income taxes (278 ) 3,044
Other (income) expense, net (141 ) 316
Interest income, net (90 ) (40 )
Depreciation and amortization 1,100 679
Stock-based compensation   9,784     3,312  

Adjusted EBITDA

$ 10,822   $ 12,123  

Contacts

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

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