Guidewire Software Announces Second Quarter Fiscal 2018 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, 2018.

“The breadth of Guidewire InsurancePlatform contributed to a successful second quarter in which we exceeded our guidance for revenue and non-GAAP profitability”

“The breadth of Guidewire InsurancePlatform contributed to a successful second quarter in which we exceeded our guidance for revenue and non-GAAP profitability,” said Marcus Ryu, chief executive officer, Guidewire Software. “We continue to benefit from the enduring demand for legacy core system replacement in all our major markets, as well as adoption of our complementary offerings for digital engagement, data management and visualization, and advanced analytics.”

Ryu continued, “By continuing to invest in new products, distribution in international markets, and delivery of InsurancePlatform in the cloud, we are enabling P&C insurers to adapt their products and operations to a time of rapid industry change.”

Second Quarter Fiscal 2018 Financial Highlights

Revenue

  • Total revenue for the second quarter of fiscal 2018 was $163.8 million, an increase of 42% from the same quarter in fiscal 2017. License and other revenue was $84.2 million, an increase of 31%, services revenue was $60.5 million, an increase of 73%, and maintenance revenue was $19.1 million, an increase of 15%. License and other revenue benefited from approximately $4.6 million of payments received in the quarter in advance of their due date.
  • Rolling four-quarter recurring revenue was $345.9 million for the period ended January 31, 2018, an increase of 21% compared to the same metric for the period ended January 31, 2017.

Profitability

  • GAAP loss from operations was $0.7 million for the second quarter of fiscal 2018, compared with income of $8.2 million in the comparable period in fiscal 2017.
  • Non-GAAP income from operations was $32.0 million for the second quarter of fiscal 2018, compared with income of $28.4 million in the comparable period in fiscal 2017.
  • GAAP net loss, adversely impacted by a net tax expense of $28.6 million, driven primarily by the effects of the provisions of The Tax and Jobs Act passed in December 2017, was $45.6 million for the second quarter of fiscal 2018, compared with a net income of $4.0 million for the comparable period in fiscal 2017. GAAP net loss per share was $0.59, based on diluted weighted average shares outstanding of 76.9 million, compared with $0.05 net income per share for the comparable period in fiscal 2017, based on diluted weighted average shares outstanding of 74.8 million. The net tax expense of $28.6 million resulted from the remeasurement of deferred tax assets and liabilities required by the passage of the Tax Cuts and Jobs Act which lowered the Company’s U.S. statutory tax rate.
  • Non-GAAP net income was $25.5 million for the second quarter of fiscal 2018, compared with a net income of $20.6 million in the comparable period in fiscal 2017. Non-GAAP net income per diluted share was $0.33, based on diluted weighted average shares outstanding of 78.3 million, compared with net income per diluted share of $0.28 in the comparable period in fiscal 2017, based on diluted weighted average shares outstanding of 74.8 million.

Liquidity

  • The Company had $569.5 million in cash, cash equivalents and investments at January 31, 2018, compared with $687.8 million at July 31, 2017. The decline was due to the use of approximately $130.1 million of cash in connection with the acquisition of Cyence, offset by approximately $47.7 million of cash generated from operations in the second quarter of fiscal 2018, compared to $42.6 million cash from operations in the second quarter of fiscal 2017.

Business Outlook

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

       
(in $ millions, except per share outlook)    

Third Quarter
Fiscal 2018

    Full Year
Fiscal 2018
Revenue 135.0 - 139.0 644.0 - 650.0
License and other revenue 47.0 - 49.0 304.0 - 312.0
Maintenance revenue 18.5 - 19.0 75.0 - 77.0
Services revenue 69.0 - 71.0 260.0 - 266.0
GAAP operating loss (38.5) - (34.5) (27.7) - (21.7)
Non-GAAP operating income (loss) (5.0) - (1.0) 97.0 - 103.0
GAAP net loss (39.7) - (35.4) (44.6) - (38.6)
GAAP net loss per share (0.51) - (0.46) (0.58) -

(0.51)

Non-GAAP net income (loss) (2.6) -

0.3

76.3 - 80.6
Non-GAAP net income (loss) per share (0.03) -

0.0

0.98 - 1.04
 

Non-GAAP operating income (loss) and non-GAAP net income (loss) 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 forecasted tax benefits related to stock-based compensation, and are impacted by the passage of the Tax Cuts and Jobs Act.

 

Conference Call Information

What:     Guidewire Software Second Quarter Fiscal 2018 Financial Results Conference Call
When: Tuesday, March 6, 2018
Time: 2:00 p.m. PT (5:00 p.m. ET)
Live Call: (800) 239-9838, Domestic
(323) 794-2551, International
Replay: (844) 512-2921, Passcode 3804361, Domestic
(412) 317-6671, Passcode 3804361, International
Webcast:

http://ir.guidewire.com (live and replay)

The webcast will be archived on Guidewire’s website (www.guidewire.com) 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 (loss), Non-GAAP income tax provision (benefit), and Non-GAAP net income (loss) per share. 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 (loss) and Non-GAAP net income (loss) 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: For information about Guidewire’s trademarks, visit https://www.guidewire.com/legal-notices.

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)
       
January 31,
2018
July 31,
2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 205,287 $ 263,176
Short-term investments 299,891 310,027
Accounts receivable 100,046 79,433
Prepaid expenses and other current assets 33,714   26,604  
Total current assets 638,938 679,240
Long-term investments 64,273 114,585
Property and equipment, net 16,205 14,376
Intangible assets, net 110,671 71,315
Deferred tax assets, net 89,701 37,430
Goodwill 343,248 141,851
Other assets 20,658   20,104  
TOTAL ASSETS $ 1,283,694   $ 1,078,901  
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 18,570 $ 13,416
Accrued employee compensation 33,681 48,882
Deferred revenues, current 109,047 91,243
Other current liabilities 11,431   10,075  
Total current liabilities 172,729 163,616
Deferred revenues, non-current 21,845 19,892
Other liabilities 1,631   2,112  
Total liabilities 196,205 185,620
STOCKHOLDERS’ EQUITY:
Common stock 8 8
Additional paid-in capital 993,559 830,014
Accumulated other comprehensive loss (4,778 ) (5,796 )
Retained earnings 98,700   69,055  
Total stockholders’ equity 1,087,489   893,281  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,283,694   $ 1,078,901  
 
 
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,
2018 2017 2018 2017
Revenues:
License and other $ 84,221 $ 64,075 $ 114,314 $ 102,796
Maintenance 19,110 16,582 38,040 33,114
Services 60,457   34,964   119,605   73,838  
Total revenues 163,788   115,621   271,959   209,748  
Cost of revenues: (1)
License and other 9,040 2,781 15,755 5,211
Maintenance 3,593 3,079 7,060 6,404
Services 55,136   34,951   107,848   71,215  
Total cost of revenues 67,769   40,811   130,663   82,830  
Gross profit:
License and other 75,181 61,294 98,559 97,585
Maintenance 15,517 13,503 30,980 26,710
Services 5,321   13   11,757   2,623  
Total gross profit 96,019   74,810   141,296   126,918  
Operating expenses: (1)
Research and development 43,657 30,025 79,368 60,775
Sales and marketing 31,961 23,520 55,571 49,020
General and administrative 21,066   13,060   39,737   27,220  
Total operating expenses 96,684   66,605   174,676   137,015  
Income (loss) from operations (665 ) 8,205 (33,380 ) (10,097 )
Interest income 1,566 1,544 3,474 2,886
Other income (expense), net 1,658   335   1,396   (346 )
Income (loss) before income taxes 2,559 10,084 (28,510 ) (7,557 )
Provision for (benefit from) income taxes 48,114   6,110   25,959   (3,673 )
Net income (loss) $ (45,555 ) $ 3,974   $ (54,469 ) $ (3,884 )
Net income (loss) per share:
Basic $ (0.59 ) $ 0.05   $ (0.72 ) $ (0.05 )
Diluted $ (0.59 ) $ 0.05   $ (0.72 ) $ (0.05 )
Shares used in computing net income (loss) per share:
Basic 76,859,040   73,738,810   76,023,237   73,516,140  
Diluted 76,859,040   74,793,240   76,023,237   73,516,140  
 

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

       
Three Months Ended January 31, Six Months Ended January 31,
2018   2017 2018   2017
(unaudited, in thousands)
Stock-based compensation expense:
Cost of license revenue $ 258 $ 90 $ 432 $ 141
Cost of maintenance revenues 481 436 936 849
Cost of services revenues 5,446 4,815 10,672 9,510
Research and development 7,697 4,650 12,609 9,117
Marketing and sales 5,024 4,283 9,241 8,506
General and administrative 6,126   4,313     10,765   8,341
Total stock-based compensation expense $ 25,032   $ 18,587     $ 44,655   $ 36,464
 
 
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
           

Three Months Ended
January 31,

Six Months Ended
January 31,

2018 2017 2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) (45,555 ) 3,974 $ (54,469 ) $ (3,884 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 9,681 3,309 16,315 6,383
Stock-based compensation 25,032 18,587 44,655 36,464
Deferred income tax 47,995 4,885 24,287 (5,617 )
Amortization of premium on available-for-sale securities, and other non-cash items 151 401 361 868
Changes in operating assets and liabilities:
Accounts receivable (17,200 ) (9,505 ) (16,345 ) (823 )
Prepaid expenses and other assets 436 (3,880 ) (3,139 ) (3,689 )
Accounts payable 2,966 (2,617 ) 4,834 (1,715 )
Accrued employee compensation 6,406 6,216 (17,547 ) (15,084 )
Other liabilities 1,160 636 804 (615 )
Deferred revenues 16,622     20,553   16,690   17,361  
Net cash provided by operating activities 47,694     42,559   16,446   29,649  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (43,977 ) (90,718 ) (110,820 ) (291,611 )
Sales of available-for-sale securities 77,277 141,508 170,316 298,671
Purchases of property and equipment (2,721 ) (143 ) (4,620 ) (2,617 )
Capitalized software development costs (252 ) (769 )
Acquisitions of business, net of acquired cash (130,376 ) 59   (130,376 ) (33,534 )
Net cash provided by (used in) investing activities (100,049 ) 50,706   (76,269 ) (29,091 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon exercise of stock options 362     922   727   2,034  
Net cash provided by financing activities 362   922   727   2,034  
Effect of foreign exchange rate changes on cash and cash equivalents 1,881     113   1,207   (811 )
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (50,112 ) 94,300 (57,889 ) 1,781
CASH AND CASH EQUIVALENTS—Beginning of period 255,399   131,063   263,176   223,582  
CASH AND CASH EQUIVALENTS—End of period $ 205,287   $ 225,363   $ 205,287   $ 225,363  
 
 
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 January 31, Six Months Ended January 31,
2018 2017 2018 2017
Income (loss) from operations reconciliation:
GAAP income (loss) from operations $ (665 ) $ 8,205 $ (33,380 ) $ (10,097 )
Non-GAAP adjustments:
Stock-based compensation (1) 25,032 18,587 44,655 36,464
Amortization of intangibles (1) 7,669   1,656   12,445   3,094  
Non-GAAP income from operations $ 32,036   $ 28,448   $ 23,720   $ 29,461  
 
Net income (loss) reconciliation:
GAAP net income (loss) $ (45,555 ) $ 3,974 $ (54,469 ) $ (3,884 )
Non-GAAP adjustments:
Stock-based compensation (1) 25,032 18,587 44,655 36,464
Amortization of intangibles (1) 7,669 1,656 12,445 3,094
Tax impact on non-GAAP adjustments (2) 38,364   (3,591 ) 18,081   (13,927 )
Non-GAAP net income $ 25,510   $ 20,626   $ 20,712   $ 21,747  
 
Tax provision (benefit) reconciliation:
GAAP tax provision (benefit) $ 48,114 $ 6,110 $ 25,959 $ (3,673 )
Non-GAAP adjustments:
Stock-based compensation 6,721 5,948 13,191 11,669
Amortization of intangibles 2,060 530 3,635 990
Other income tax effects and adjustments (47,145 ) (2,887 ) (34,907 ) 1,268  
Non-GAAP tax provision $ 9,750   $ 9,701   $ 7,878   $ 10,254  
 
Earnings (loss) per share reconciliation:
GAAP earnings (loss) per share - Diluted $ (0.59 ) $ 0.05 $ (0.72 ) $ (0.05 )
Stock-based compensation 0.33 0.25 0.59 0.49
Amortization of intangibles acquired in business combinations 0.10 0.02 0.16 0.04
Tax impact of non-GAAP adjustments 0.49 (0.04 ) 0.23 (0.18 )
Non-GAAP dilutive shares excluded from GAAP earnings (loss) per share calculation (3)       0.01  
Non-GAAP earnings per share - Diluted $ 0.33   $ 0.28   $ 0.26   $ 0.31  
 
Shares used in computing non-GAAP per share amounts:
GAAP weighted average shares - Diluted 76,859,040 74,793,240 76,023,237 73,516,140
Non-GAAP dilutive shares excluded from GAAP earnings (loss) per share calculation (3) 1,460,188     1,429,707   1,258,762  
Pro forma weighted average shares - Diluted 78,319,228   74,793,240   77,452,944   74,774,902  
 

(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 (provision) 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 a 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 2018

   

Full Year
Fiscal 2018

Outlook reconciliation: GAAP and non-GAAP operating income (loss)
GAAP operating loss (38.5) - (34.5) (27.7) - (21.7)
Non-GAAP adjustments:
Stock-based compensation 25.0 - 26.0 95.3 - 98.3
Amortization of intangibles 7.8 - 8.3 27.3 - 28.3
Non-GAAP operating income (loss) (5.0) - (1.0) 97.0 - 103.0
 
Outlook reconciliation: GAAP and non-GAAP net income (loss)
GAAP net loss (39.7) - (35.4) (44.6) - (38.6)
Non-GAAP adjustments:
Stock-based compensation 25.0 - 26.0 95.3 - 98.3
Amortization of intangibles 7.8 - 8.3 27.3 - 28.3
Non-GAAP tax impact 3.6 - 2.2 (3.8) - (5.4)
Non-GAAP net income (loss) (2.6) - 0.3 76.3 - 80.6
 

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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