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Guidewire Software Announces Fourth Quarter and Fiscal 2014 Financial Results

Companies mentioned in this article: Guidewire Software, Inc.

FOSTER CITY, Calif. -- (BUSINESS WIRE) -- Guidewire Software, Inc. (NYSE: GWRE), a provider of software products for property and casualty insurers, today announced its financial results for the fiscal quarter and fiscal year ended July 31, 2014.

"Fourth quarter revenue and profitability exceeded our expectations and completed a year of progress extending our market leadership," said Marcus Ryu, chief executive officer, Guidewire Software. "New licenses included key Tier 1 wins, full suite sales and expanded relationships with existing customers across the globe on our newer products. We also continued our record of implementation success with several significant customer go-lives and developed our system integrator ecosystem with additional trained consultants.”

Ryu continued, “In addition to continuing to win a leading share of new core system software selections, our goals for fiscal 2015 include investments in product enhancements to InsuranceSuite, as the industry’s leading core operational platform, as well as newer initiatives in data management, hosted analytics, and mobile/portal capabilities. We believe this strategy will enable us to continue to lead the ongoing transformation of how property and casualty insurance is delivered.”

Fourth Quarter Fiscal 2014 Financial Highlights

Revenue

  • Total revenue for the fourth quarter of fiscal 2014 was $118.2 million, an increase of 22% from the comparable period in fiscal 2013.
  • Total license revenue, including term and perpetual licenses, for the fourth quarter of fiscal 2014 was $65.9 million, an increase of 34%. Term license revenue was $59.3 million, a 32% increase. Revenue from perpetual licenses was $6.6 million compared with $4.2 million a year ago. Maintenance revenue was $11.9 million, up 21%, and services revenue was $40.4 million, an increase of 6%.
  • Rolling four-quarter recurring term license and maintenance revenue was $181.8 million, an increase of 21%.

Profitability

  • GAAP operating income was $26.4 million for the fourth quarter of fiscal 2014, compared to $19.1 million in the comparable period in fiscal 2013.
  • Non-GAAP operating income was $37.6 million for the fourth quarter of fiscal 2014, compared to $26.5 million in the comparable period in fiscal 2013.
  • GAAP net income was $19.8 million for the fourth quarter of fiscal 2014, compared to $13.8 million for the comparable period in fiscal 2013. GAAP net income per share was $0.28, based on diluted weighted average shares outstanding of 71.1 million, compared to $0.22 for the comparable period in fiscal 2013, based on diluted weighted average shares outstanding of 62.0 million.
  • Non-GAAP net income was $26.4 million for the fourth quarter of fiscal 2014, compared to $16.6 million in the comparable period in fiscal 2013. Non-GAAP net income per diluted share was $0.37, based on diluted weighted average shares outstanding of 71.1 million, compared to $0.27 for the fourth quarter of fiscal 2013, based on diluted weighted average shares outstanding of 62.0 million.

To be in line with peers, the Company changed its policy for recognizing stock-based compensation expense from the accelerated attribution method of accounting to the straight-line method of accounting for its time-based units in the fourth quarter of fiscal 2014. This change in accounting method has been retrospectively applied to all prior periods presented herein.

Fiscal 2014 Financial Highlights

Revenue

  • Total revenue for the fiscal year ended July 31, 2014 was $350.2 million, an increase of 17% from fiscal 2013.
  • Total license revenue, including term and perpetual licenses for fiscal year 2014 was $151.9 million, an increase of 23%. Term license revenue was $139.9 million, a 24% increase. Revenue from perpetual licenses was $12.0 million compared with $10.7 million a year ago. Maintenance revenue was $41.9 million, up 12%, and services revenue was $156.4 million, up 12%.
  • In fiscal 2014, 58% of total revenue was in the United States, and 42% was generated outside the United States compared to 57% in the United States and 43% outside of the United States in fiscal 2013.

Profitability

  • GAAP operating income was $18.4 million for fiscal year 2014, compared to $29.7 million in fiscal year 2013.
  • Non-GAAP operating income was $62.4 million for fiscal year 2014, compared to $55.6 million in fiscal year 2013.
  • GAAP net income was $14.7 million for fiscal year 2014, compared to $24.7 million in fiscal year 2013. GAAP net income per share was $0.21, based on diluted weighted average shares outstanding of 69.1 million, compared to $0.40 in fiscal year 2013, based on diluted weighted average shares outstanding of 61.6 million.
  • Non-GAAP net income was $43.5 million for fiscal year 2014, compared to $38.5 million in fiscal year 2013. Non-GAAP net income per share was $0.63, based on diluted weighted average shares outstanding of 69.1 million, compared to $0.62 for fiscal year 2013, based on pro forma diluted weighted average shares outstanding of 61.6 million.

Balance Sheet

  • The Company had $647.8 million in cash, cash equivalents and investments at July 31, 2014, compared to $600.1 million at April 30, 2014. The Company had $49.4 million in cash flow from operations in the fourth quarter, compared to cash flow from operations of $24.4 million in the comparable period in fiscal 2013.

Conference Call Information

What:         Guidewire Software fourth quarter fiscal 2014 financial results conference call
When: Tuesday, September 2, 2014
Time: 2:00 p.m. PT (5:00 p.m. ET)
Live Call: (877) 795-3599, domestic
(719) 325-4901, international
Replay: (877) 870-5176, passcode 2810991, domestic
(858) 384-5517, passcode 2810991, 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 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. 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 180 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)
               
July 31,
2014
July 31,
2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 148,101 $ 79,767
Short-term investments 296,231 76,932
Accounts receivable 49,839 40,885
Deferred tax assets, current 11,431 2,897
Prepaid expenses and other current assets 10,828   9,612  
Total current assets 516,430 210,093
Long-term investments 203,449 51,040
Property and equipment, net 12,607 12,914
Intangible assets, net 5,439 6,879
Deferred tax assets, noncurrent (1) 8,681 14,494
Goodwill 9,205 9,048
Other assets 1,416   1,205  
TOTAL ASSETS $ 757,227   $ 305,673  
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,030 $ 6,517
Accrued employee compensation 34,912 26,302
Deferred revenues, current 48,937 37,351
Other current liabilities 4,507   4,614  
Total current liabilities 95,386 74,784
Deferred revenues, noncurrent 6,395 3,845
Other liabilities 4,760   5,212  
Total liabilities 106,541 83,841
STOCKHOLDERS’ EQUITY:
Common stock 7 6
Additional paid-in capital (1) 629,076 215,151
Accumulated other comprehensive loss (1,367 ) (1,574 )
Retained earnings (1) 22,970   8,249  
Total stockholders’ equity 650,686   221,832  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 757,227   $ 305,673  
 

(1) Prior year amounts have been adjusted to reflect a change in accounting method for the attribution of stock-based compensation. Refer to supplemental schedules posted on our IR website at ir.guidewire.com.

 
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands except share and per share data)
                               
Three Months Ended July 31,     Fiscal Year Ended July 31,
2014       2013   2014       2013  
Revenues:    
License $ 65,909 $ 49,078 $ 151,921 $ 123,560
Maintenance 11,919 9,871 41,888 37,561
Services 40,379   37,961   156,437   139,528  
Total revenues 118,207   96,910   350,246   300,649  

Cost of revenues: (1) (2)

License 1,154 484 4,442 920
Maintenance 2,301 2,096 8,118 7,216
Services 35,193   32,873   136,387   117,515  
Total cost of revenues 38,648   35,453   148,947   125,651  
Gross profit:
License 64,755 48,594 147,479 122,640
Maintenance 9,618 7,775 33,770 30,345
Services 5,186   5,088   20,050   22,013  
Total gross profit 79,559   61,457   201,299   174,998  
Operating expenses: (1) (2)
Research and development 21,365 18,311 76,178 62,991
Sales and marketing 21,609 15,783 71,295 50,948
General and administrative 10,164   8,231   35,404   31,320  
Total operating expenses 53,138   42,325   182,877   145,259  
Income from operations 26,421 19,132 18,422 29,739
Interest income, net 431 139 1,350 498
Other income (expense), net 2   (31 ) 174   (114 )
Income before provision for income taxes (1) 26,854 19,240 19,946 30,123
Provision for income taxes (1) 7,097   5,406   5,225   5,465  
Net income (1) $ 19,757   $ 13,834   $ 14,721   $ 24,658  
Earnings per share: (1)
Basic $ 0.29   $ 0.24   $ 0.22   $ 0.44  
Diluted $ 0.28   $ 0.22   $ 0.21   $ 0.40  
Shares used in computing earnings per share: (1)
Basic 68,850,440   57,646,262   65,748,896   56,331,018  
Diluted 71,083,713   61,981,098   69,112,733   61,569,195  
 

(1) Prior year amounts have been adjusted to reflect a change in accounting method for the attribution of stock-based compensation. Refer to supplemental schedules posted on our IR website at ir.guidewire.com.

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

           
Three Months Ended July 31, Fiscal Year Ended July 31,
2014       2013   2014       2013
Stock-based compensation expenses: (1)  
Cost of license revenue $ 43 $ $ 184 $
Cost of maintenance revenues 225 218 797 830
Cost of services revenues 3,067 2,049 11,929 6,910
Research and development 2,351 2,066 9,008 5,843
Marketing and sales 2,604 880 10,744 3,672
General and administrative 2,556   1,811   9,876   8,250
Total stock-based compensation expenses $ 10,846   $ 7,024   $ 42,538   $ 25,505
 

(1) Prior year amounts have been adjusted to reflect a change in accounting method for the attribution of stock-based compensation. Refer to supplemental schedules posted on our IR website at ir.guidewire.com.

 
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
                               
Three Months Ended July 31, Fiscal Year Ended July 31,
2014       2013   2014       2013  
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (1) $ 19,757 $ 13,834 $ 14,721 $ 24,658
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,773 1,639 6,751 4,821
Stock-based compensation (1) 10,846 7,024 42,538 25,505
Excess tax benefit from exercise of stock options and vesting of RSUs

(6,569

) (2,263 )

(7,067

) (2,586 )
Deferred tax assets (1) 635 2,088 (2,718 ) (265 )
Other noncash items affecting net income 1,362 282 3,589 554
Changes in operating assets and liabilities:
Accounts receivable 8,544 7,471 (9,276 ) (8,478 )
Prepaid expenses and other assets 815 (3,093 ) (1,372 ) (2,690 )
Accounts payable 258 (345 ) 393 355
Accrued employee compensation 10,542 5,219 8,463 147
Other liabilities 4,466 2,615 5,288 4,574
Deferred revenues (2,991 ) (10,036 ) 14,181   (14,048 )
Net cash provided by operating activities

49,438

  24,435  

75,491

  32,547  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (166,414 ) (41,522 ) (687,419 ) (212,035 )
Sales and maturities of available-for-sale securities 106,103 26,311 312,149 83,567
Purchase of property and equipment (1,324 ) (2,167 ) (4,993 ) (9,228 )
Acquisition, net of cash acquired (14,749 ) (157 ) (14,749 )
Decrease in restricted cash   12     3,532  
Net cash used in investing activities (61,635 ) (32,115 ) (380,420 ) (148,913 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon exercise of stock options 1,401 1,159 8,755 9,123
Taxes remitted on RSU awards vested (7,145 ) (5,635 ) (32,799 ) (20,330 )
Proceeds from issuance of common stock in connection with stock offerings, net of underwriting discounts and commission 389,949
Costs paid in connection with stock offerings (408 )
Excess tax benefit from exercise of stock options and vesting of RSUs

6,569

  2,263  

7,067

  2,586  
Net cash provided by (used in) financing activities

825

 

(2,213 )

372,564

  (8,621 )
Effect of foreign exchange rate changes on cash and cash equivalents 137   (870 ) 699   (964 )
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (11,235 ) (10,763 ) 68,334 (125,951 )
CASH AND CASH EQUIVALENTS—Beginning of period 159,336   90,530   79,767   205,718  
CASH AND CASH EQUIVALENTS—End of period $ 148,101   $ 79,767   $ 148,101   $ 79,767  
 

(1) Prior year amounts have been adjusted to reflect a change in accounting method for the attribution of stock-based compensation. Refer to supplemental schedules posted on our IR website at ir.guidewire.com.

 
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 July 31, Fiscal Year Ended July 31,
Income from operations reconciliation: (1) 2014   2013   2014   2013  
GAAP net income from operations $ 26,421 $ 19,132 $ 18,422 $ 29,739
Non-GAAP adjustments:
Stock-based compensation 10,846 7,024 42,538 25,505
Amortization of intangibles (2) 360   321   1,440   321  
Non-GAAP net income from operations $ 37,627   $ 26,477   $ 62,400   $ 55,565  
 
Net income reconciliation: (1)
GAAP net income $ 19,757 $ 13,834 $ 14,721 $ 24,658
Non-GAAP adjustments:
Stock-based compensation 10,846 7,024 42,538 25,505
Amortization of intangibles (2) 360 321 1,440 321
Tax effect on non-GAAP adjustments (3) (4,586 ) (4,535 ) (15,202 ) (12,025 )
Non-GAAP net income $ 26,377   $ 16,644   $ 43,497   $ 38,459  
 

(1) Prior year amounts have been adjusted to reflect a change in accounting method for the attribution of stock-based compensation. Refer to supplemental schedules posted on our IR website at ir.guidewire.com.

(2) Adjustments relate to amortization of acquired intangibles and stock-based compensation recognized during the period for GAAP purposes.

(3) 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 July 31, Fiscal Year Ended July 31,
Earnings per share reconciliation: (1) 2014   2013 2014   2013
GAAP earnings per share - Diluted $ 0.28 $ 0.22 $ 0.21 $ 0.40
Amortization of intangibles acquired in business combinations 0.01 0.01 0.02 0.01
Stock-based compensation 0.15 0.11 0.62 0.41
Less tax benefit of non GAAP items (0.07 ) (0.07 ) (0.22 ) (0.20 )
Non-GAAP dilutive shares excluded from GAAP EPS calculation (2)        
Non-GAAP earnings per share - Diluted $ 0.37   $ 0.27   $ 0.63   $ 0.62  
(1) Prior year per share amounts have been adjusted to reflect a change in accounting method for the attribution of stock-based compensation. Refer to supplemental schedules posted on our IR website at ir.guidewire.com.
(2) 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 July 31, Fiscal Year Ended July 31,
Shares used in computing non-GAAP per share amounts: (1) 2014   2013 2014 2013
Weighted average shares - Diluted 71,083,713 61,981,098 69,112,733 61,569,195
Non-GAAP dilutive shares excluded from GAAP EPS calculation (2)        
Pro forma weighted average shares - Diluted 71,083,713   61,981,098   69,112,733   61,569,195  
(1) Prior year per share amounts have been adjusted to reflect a change in accounting method for the attribution of stock-based compensation. Refer to supplemental schedules posted on our IR website at ir.guidewire.com.
(2) 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.
 


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Contact:

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