Guidewire Software Announces Third Quarter Fiscal 2018 Financial Results

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, 2018.

“We exceeded our revenue and non-GAAP profitability guidance for the third quarter of fiscal 2018 in the context of an incrementally increasing proportion of our new sales coming in the form of cloud-based subscriptions,” said Marcus Ryu, chief executive officer, Guidewire Software. “As part of their transformation journeys, P&C insurers are seeking their trusted technology partners to shoulder an increasing share of the complexity of their core system environments. Consonant with this trend, we closed two additional InsuranceSuite cloud sales during the quarter and advanced similar conversations with both new and existing customers.”

Ryu continued, “We also completed an important capital raise that strengthens our balance sheet and provides us the means to act on investment opportunities that advance our industry platform mission.”

Third Quarter Fiscal 2018 Financial Highlights

Revenue

• Total revenue for the third quarter of fiscal 2018 was $140.5 million, an increase of 14% from the same quarter in fiscal 2017. License and other revenue was $50.4 million, a decrease of 15%, services revenue was $71.4 million, an increase of 50%, and maintenance revenue was $18.7 million, an increase of 11%.
• Rolling four-quarter recurring revenue was $334.4 million for the period ended April 30, 2018, an increase of 10% compared to the same metric for the period ended April 30, 2017.

Profitability

• GAAP loss from operations was $29.2 million for the third quarter of fiscal 2018, compared with loss of $4.3 million in the comparable period in fiscal 2017.
• Non-GAAP income from operations was $2.3 million for the third quarter of fiscal 2018, compared with income of $17.1 million in the comparable period in fiscal 2017.
• GAAP net loss was $48.6 million for the third quarter of fiscal 2018, compared with a net loss of $1.8 million for the comparable period in fiscal 2017. GAAP net loss per share was $0.62, based on diluted weighted average shares outstanding of 78.8 million, compared with $0.02 net loss per share for the comparable period in fiscal 2017, based on diluted weighted average shares outstanding of 74.2 million.
• Non-GAAP net income was $3.9 million for the third quarter of fiscal 2018, compared with a net income of $12.3 million in the comparable period in fiscal 2017. Non-GAAP net income per diluted share was $0.05, based on diluted weighted average shares outstanding of 80.4 million, compared with net income per diluted share of $0.16 in the comparable period in fiscal 2017, based on diluted weighted average shares outstanding of 75.2 million.

Liquidity

• The Company had $1,158.5 million in cash, cash equivalents and investments at April 30, 2018, compared with $687.8 million at July 31, 2017. The increase was due to total net proceeds of $608.2 million related to the public offering of our common stock and convertible notes offering, partially offset by the use of approximately $130.1 million of cash in connection with the acquisition of Cyence.

Business Outlook

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

Non-GAAP operating income (loss) excludes stock-based compensation expense and amortization of intangible assets. Non-GAAP net income (loss) excludes stock-based compensation expense, amortization of intangible assets, and the amortization of debt discount and issuance costs from our convertible notes and the related tax effects. 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.

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, amortization of intangibles, and the amortization of debt discount and issuance costs from our convertible notes and the related tax effects 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.

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

(1) Adjustments relate to amortization of acquired intangibles and stock-based compensation recognized during the period for GAAP purposes.
(2) Adjustment reflects the amortization of debt discount and issuance costs related to the issuance of our Senior Convertible Notes recognized during the period for GAAP purposes.
(3) Adjustment reflects the tax benefit (provision) resulting from all non-GAAP adjustments.
(4) 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.

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