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Guidewire Software Announces Second Quarter Fiscal 2014 Financial Results

Guidewire Software, Inc. (NYSE: GWRE), a provider of software products for Property/Casualty (P/C) insurers, today announced its financial results for the fiscal quarter ended January 31, 2014.

"Revenue and profit exceeded our expectations for the second quarter, owing to strong sales," said Marcus Ryu, chief executive officer, Guidewire Software. "We were also pleased the quarter included several key international sales, continued PolicyCenter and InsuranceSuite momentum, and transactions in our new initiatives of Data Management, Portals, and Guidewire Live."

Ryu continued, "We intend to sustain our long-term focus on customer implementation success and investment in both InsuranceSuite and complementary solutions that enable P/C insurers to replace obsolete legacy core systems and transform their operations."

Second Quarter Fiscal 2014 Financial Highlights

Revenue

  • Total revenue for the second quarter of fiscal 2014 was $83.5 million, an increase of 16% from the comparable period in fiscal 2013.
  • Total license revenue, including term and perpetual licenses, for the second quarter of fiscal 2014 was $35.2 million, an increase of 15% from the comparable period in fiscal 2013. Term license revenue was $34.0 million, a 15% increase from a year ago. Revenue from perpetual licenses was $1.2 million compared with $1.3 million a year ago. Maintenance revenue was $9.9 million, up 7% from the comparable period in fiscal 2013, and services revenue was $38.4 million, up 19% from the comparable period in fiscal 2013.
  • Rolling four-quarter recurring term license and maintenance revenue was $153.7 million, an increase of 21.0% from the comparable period in fiscal 2013.

Profitability

  • GAAP operating loss was $2.3 million for the second quarter of fiscal 2014, compared to $5.1 million GAAP operating income in the comparable period in fiscal 2013.
  • Non-GAAP operating income was $17.0 million for the second quarter of fiscal 2014, compared to $15.5 million non-GAAP operating income in the comparable period in fiscal 2013.
  • GAAP net loss was $0.9 million for the second quarter of fiscal 2014, compared to $5.5 million GAAP net income for the comparable period in fiscal 2013. GAAP net loss per share was $0.01, based on basic and diluted weighted average shares outstanding of 67.4 million, compared to GAAP diluted earnings per share of $0.09 for the comparable period in fiscal 2013, based on diluted weighted average shares outstanding of 61.7 million.
  • Non-GAAP net income was $11.6 million for the second quarter of fiscal 2014, compared to $13.4 million non-GAAP net income in the comparable period in fiscal 2013. Non-GAAP net income per diluted share was $0.16, based on diluted weighted average shares outstanding of 71.6 million, compared to $0.22 non-GAAP net income per diluted share for the second quarter of fiscal 2013, based on diluted weighted average shares outstanding of 61.7 million.

Balance Sheet

  • The Company had $588.4 million in cash, cash equivalents and investments at January 31, 2014, compared to $576.9 million at October 31, 2013. The Company had $20.3 million in cash flow from operations in the second quarter, compared to cash flow from operations of $19.4 million in the comparable period in fiscal 2013.

Conference Call Information

What:         Guidewire Software Second Quarter Fiscal 2014 Financial Results Conference Call
When: Monday, March 3, 2014
Time: 2:00 p.m. PT (5:00 p.m. ET)
Live Call: (877) 604-9665, domestic
(719) 325-4812, international
Replay: (877) 870-5176, passcode 1717361, domestic
(858) 384-5517, passcode 1717361, 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 and Non-GAAP earnings 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. 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 builds software products that help Property/Casualty insurers replace their legacy core systems and transform their business. Designed to be flexible and scalable, Guidewire products enable insurers to deliver excellent service, increase market share and lower operating costs. Guidewire InsuranceSuite™ provides the core systems used by insurers as operational systems of record. Additional products provide support for data management, business intelligence, anytime/anywhere access and guidance and monitoring. More than 150 Property/Casualty 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, Guidewire BillingCenter, Guidewire InsuranceSuite, Guidewire DataHub, Guidewire InfoCenter, Guidewire Live, Live Inside, Before & After, Claim Canvas, ViewPoint, Guidewire PartnerConnect, Guidewire SolutionConnect, Deliver Insurance Your Way, and the Guidewire logo are trademarks, service marks, or 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 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 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,
2014
July 31,
2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 217,629 $ 79,767
Short-term investments 226,563 76,932
Accounts receivable 56,471 40,885
Deferred tax assets, current 2,908 2,897
Prepaid expenses and other current assets 8,708   9,612  
Total current assets 512,279 210,093
Long-term investments 144,203 51,040
Property and equipment, net 12,651 12,914
Intangible assets, net 6,159 6,879
Deferred tax assets, noncurrent 30,822 21,091
Goodwill 9,143 9,048
Other assets 1,034   1,205  
TOTAL ASSETS $ 716,291   $ 312,270  
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,728 $ 6,517
Accrued employee compensation 21,303 26,302
Deferred revenues, current 46,273 37,351
Other current liabilities 3,987   4,614  
Total current liabilities 77,291 74,784
Deferred revenues, noncurrent 5,211 3,845
Other liabilities 4,900   5,212  
Total liabilities 87,402 83,841
STOCKHOLDERS’ EQUITY:
Common stock 7 6
Additional paid-in capital 650,148 237,769
Accumulated other comprehensive loss (1,971 ) (1,558 )
Accumulated deficit (19,295 ) (7,788 )
Total stockholders’ equity 628,889   228,429  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 716,291   $ 312,270  
 
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,
2014     2013 2014     2013
Revenues:
License $ 35,215 $ 30,752 $ 54,085 $ 51,564
Maintenance 9,890 9,210 19,529 18,580
Services 38,370   32,226   76,390   65,345  
Total revenues 83,475   72,188   150,004   135,489  
Cost of revenues: (1)
License 1,646 130 2,549 297
Maintenance 2,051 1,787 3,954 3,351
Services 35,024   29,471   72,138   55,297  
Total cost of revenues 38,721   31,388   78,641   58,945  
Gross profit:
License 33,569 30,622 51,536 51,267
Maintenance 7,839 7,423 15,575 15,229
Services 3,346   2,755   4,252   10,048  
Total gross profit 44,754   40,800   71,363   76,544  
Operating expenses: (1)
Research and development 19,060 15,885 37,810 30,649
Sales and marketing 18,769 12,389 35,903 24,765
General and administrative 9,213   7,445   18,078   16,111  
Total operating expenses 47,042   35,719   91,791   71,525  
Income (loss) from operations (2,288 ) 5,081 (20,428 ) 5,019
Interest income, net 346 132 504 222
Other income (expense), net (22 ) 23   182   164  
Income (loss) before benefit from income taxes (1,964 ) 5,236 (19,742 ) 5,405
Benefit from income taxes (1,072 ) (265 ) (8,235 ) (543 )
Net income (loss) $ (892 ) $ 5,501   $ (11,507 ) $ 5,948  
Earnings (loss) per share:
Basic $ (0.01 ) $ 0.10   $ (0.18 ) $ 0.11  
Diluted $ (0.01 ) $ 0.09   $ (0.18 ) $ 0.10  
Shares used in computing earnings (loss) per share:
Basic 67,360,775   55,868,308   63,005,064   55,341,176  
Diluted 67,360,775   61,706,457   63,005,064   61,452,245  
   
(1) Amounts include stock-based compensation expense as follows: Three Months Ended January 31, Six Months Ended January 31,
2014 2013 2014 2013
Stock-based compensation expenses:
Cost of license $ 102 $ $ 204 $
Cost of maintenance revenues 344 340 623 601
Cost of services revenues 5,382 3,439 9,942 6,055
Research and development 3,877 2,446 7,072 4,488
Marketing and sales 5,224 1,942 8,713 3,593
General and administrative 3,978   2,207   7,053   5,421  
Total stock-based compensation expenses $ 18,907   $ 10,374   $ 33,607   $ 20,158  
 
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
                       
Three Months Ended January 31, Six Months Ended January 31,
2014     2013 2014     2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (892 ) $ 5,501 $ (11,507 ) $ 5,948

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 1,617 945 3,208 2,045
Stock-based compensation 18,907 10,374 33,607 20,158
Excess tax benefit from exercise of stock options and vesting of RSUs (157 ) (72 ) (289 ) (186 )
Deferred taxes (2,277 ) (1,086 ) (9,708 ) (2,003 )
Other noncash items affecting net income (loss) 823 83 1,139 83
Changes in operating assets and liabilities:
Accounts receivable (9,908 ) (3,667 ) (16,118 ) (9,514 )
Prepaid expenses and other assets

(232

) (308 )

1,103

708
Accounts payable (1,327 ) (103 ) (443 ) 724
Accrued employee compensation 4,884 4,113 (5,063 ) (7,491 )
Other liabilities

614

2,172

(685

) 3,101
Deferred revenues 8,260   1,436   10,485   (10,464 )
Net cash provided by operating activities 20,312   19,388   5,729   3,109  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (310,944 ) (115,729 ) (354,101 ) (115,729 )
Sales and maturities of available-for-sale securities 79,126 13,889 110,228 13,889
Purchase of property and equipment (1,375 ) (1,046 ) (2,581 ) (5,856 )
Acquisition, net of cash acquired (95 )
Decrease in restricted cash   1,915     3,520  
Net cash used in investing activities (233,193 ) (100,971 ) (246,549 ) (104,176 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon exercise of stock options 2,080 2,468 4,143 5,631
Taxes remitted on RSU awards vested (7,896 ) (5,033 ) (15,198 ) (9,197 )
Proceeds from issuance of common stock in connection with public offerings, net of underwriting discounts and commission 389,949
Costs paid in connection with public offerings (303 ) (410 )
Excess tax benefit from exercise of stock options and vesting of RSUs 157   72   289   186  
Net cash provided by (used in) financing activities (5,962 ) (2,493 ) 378,773   (3,380 )
Effect of foreign exchange rate changes on cash and cash equivalents (673 ) 69   (91 ) 194  
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (219,516 ) (84,007 ) 137,862 (104,253 )
CASH AND CASH EQUIVALENTS—Beginning of period 437,145   185,472   79,767   205,718  
CASH AND CASH EQUIVALENTS—End of period $ 217,629   $ 101,465   $ 217,629   $ 101,465  
 
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,
Income (loss) from operations reconciliation: 2014 2013 2014 2013
GAAP net income (loss) from operations $ (2,288 ) $ 5,081 $ (20,428 ) $ 5,019
Non-GAAP adjustments:
Stock-based compensation (1) 18,907 10,374 33,607 20,158
Amortization of intangibles (1) 360     720    
Non-GAAP net income from operations $ 16,979   $ 15,455   $ 13,899   $ 25,177  
 
Net income (loss) reconciliation:
GAAP net income (loss) $ (892 ) $ 5,501 $ (11,507 ) $ 5,948
Non-GAAP adjustments:
Stock-based compensation (1) 18,907 10,374 33,607 20,158
Amortization of intangibles (1) 360 720
Tax effect on Non-GAAP adjustments (2) (6,774 )

(2,485

)

 

(13,084 ) (6,309 )
Non-GAAP net income $ 11,601   $ 13,390   $ 9,736   $ 19,797  
 

(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,
2014 2013 2014 2013
Earnings per share reconciliation:
GAAP earnings (loss) per share - Diluted $ (0.01 ) $ 0.09 $ (0.18 ) $ 0.10
Amortization of intangibles acquired in business combinations 0.01 0.01
Stock-based compensation 0.28 0.17 0.53 0.33
Less tax benefit of non-GAAP items (0.11 ) (0.04 ) (0.21 ) (0.11 )

Non-GAAP dilutive shares excluded from GAAP EPS calculation (3)

(0.01 )   (0.01 )  
Non-GAAP earnings per share - Diluted $ 0.16   $ 0.22   $ 0.14   $ 0.32  

(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 antidilutive 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,
2014 2013 2014 2013
Shares used in computing non-GAAP per share amounts:
Weighted average shares - Diluted 67,360,775 61,706,457 63,005,064 61,452,245

Non-GAAP dilutive shares excluded from GAAP EPS calculation (3)

4,214,297     4,394,828    
Pro forma weighted average shares - Diluted 71,575,072   61,706,457   67,399,892   61,452,245  

(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 antidilutive 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.

 

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