Guidewire Announces First Quarter Fiscal Year 2023 Financial Results

SAN MATEO, Calif., December 06, 2022--(BUSINESS WIRE)--Guidewire (NYSE: GWRE) today announced its financial results for the fiscal quarter ended October 31, 2022.

"We are off to a solid start to the fiscal year with first quarter ARR, revenue, and profitability all exceeding our guidance range, driven by subscription revenue growth and improved subscription and support gross margins," said Mike Rosenbaum, Chief Executive Officer, Guidewire. "We continued to build on the momentum and enthusiasm for our cloud platform with record in-person attendance at our annual customer conference, Connections."

First Quarter Fiscal Year 2023 Financial Highlights

Revenue

  • Total revenue for the first quarter of fiscal year 2023 was $195.3 million, an increase of 18% from the same quarter in fiscal year 2022. Subscription and support revenue was $99.1 million, an increase of 25%; services revenue was $55.3 million, an increase of 18%; and license revenue was $41.0 million, a decrease of 2%.

  • As of October 31, 2022, annual recurring revenue, or ARR, was $673 million, compared to $664 million as of July 31, 2022. ARR results for interim quarterly periods in fiscal year 2023 are based on actual currency rates at the end of fiscal year 2022, held constant throughout the year.

Profitability

  • GAAP loss from operations was $74.6 million for the first quarter of fiscal year 2023, compared with $65.4 million for the same quarter in fiscal year 2022.

  • Non-GAAP loss from operations was $35.9 million for the first quarter of fiscal year 2023, compared with $28.7 million for the same quarter in fiscal year 2022.

  • GAAP net loss was $69.3 million for the first quarter of fiscal year 2023, compared with $51.3 million for the same quarter in fiscal year 2022. GAAP net loss per share was $0.83, based on diluted weighted average shares outstanding of 83.3 million, compared with $0.62 for the same quarter in fiscal year 2022, based on diluted weighted average shares outstanding of 83.2 million.

  • Non-GAAP net loss was $9.9 million for the first quarter of fiscal year 2023, compared with $18.1 million for the same quarter in fiscal year 2022. Non-GAAP net loss per share was $0.12, based on diluted weighted average shares outstanding of 83.3 million, compared to Non-GAAP net loss per share of $0.21 for the same quarter in fiscal year 2022, based on diluted weighted average shares outstanding of 83.2 million.

Liquidity and Capital Resources

  • The Company had $0.9 billion in cash, cash equivalents, and investments at October 31, 2022, compared to $1.2 billion at July 31, 2022. The Company used $87.4 million in cash from operations during the first quarter of fiscal year 2023.

  • During the first quarter of fiscal year 2023, the Company authorized a $400 million share repurchase program. As part of this program, the Company entered into an accelerated share repurchase agreement ("ASR") to repurchase an aggregate of $200 million of Guidewire’s outstanding shares of common stock. Under the terms of the ASR, the Company received an aggregate initial share delivery of 2,581,478 shares, with the remainder expected to be delivered upon the final settlement under the ASR, which is scheduled to occur no later than the third quarter of its fiscal year 2023, upon completion of the repurchases.

Business Outlook

Guidewire is issuing the following outlook for the second quarter of fiscal year 2023 based on current expectations:

  • ARR between $695 million and $700 million

  • Total revenue between $221 million and $226 million

  • Operating income (loss) between $(41) million and $(37) million

  • Non-GAAP operating income (loss) between $(4) million and $0 million

Guidewire is issuing the following updated outlook for fiscal year 2023 based on current expectations:

  • ARR between $745 million and $760 million

  • Total revenue between $886 million and $896 million

  • Operating income (loss) between $(176) million and $(166) million

  • Non-GAAP operating income (loss) between $(28) million and $(18) million

  • Operating cash flow between $50 million and $80 million

Conference Call Information

What:

Guidewire First Quarter Fiscal Year 2023 Financial Results Conference Call

When:

Tuesday, December 6, 2022

Time:

2:00 p.m. PT (5:00 p.m. ET)

Live Call:

(877) 704-4453, Domestic

Live Call:

(201) 389-0920, International

Replay:

(844) 512-2921, Passcode 13734587, Domestic

Replay

(412) 317-6671, Passcode 13734587, 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 and Other Metrics

This press release contains the following non-GAAP financial measures: non-GAAP gross profit, non-GAAP income (loss) from operations, non-GAAP net income (loss), non-GAAP tax provision (benefit), non-GAAP net income (loss) per share, and free cash flow. Non-GAAP gross profit and non-GAAP income (loss) from operations exclude stock-based compensation, amortization of intangibles, the COVID-19 Canada Emergency Wage Subsidy benefit, and acquisition consideration holdback. Non-GAAP net income (loss), non-GAAP tax provision (benefit), and non-GAAP net income (loss) per share also exclude the amortization of debt discount and issuance costs from our convertible notes, changes in fair value of our strategic investments, and the related tax effects of the non-GAAP adjustments. Free cash flow consists of net cash flow provided by (used in) operating activities less cash used for purchases of property and equipment and capitalized software development costs. These non-GAAP measures enable us to analyze our financial performance without the effects of certain non-cash items such as amortization, stock-based compensation, and changes in fair value of strategic investments.

Annual recurring revenue ("ARR") is used to quantify the annualized recurring value outlined in active customer contracts at the end of a reporting period. ARR includes the annualized recurring value of term licenses, subscription agreements, support contracts, and hosting agreements based on customer contracts, which may not be the same as the timing and amount of revenue recognized. All components of the licensing and other arrangements that are not expected to recur (primarily perpetual licenses and professional services) are excluded. In some arrangements with multiple performance obligations, a portion of recurring license and support or subscription contract value is allocated to services revenue for revenue recognition purposes, but does not get allocated for purposes of calculating ARR. This allocation only impacts the initial term of the contract. This means that as we increase arrangements with multiple performance obligations that include services at discounted rates, more of the total contract value will be recognized as services revenue, but our reported ARR amount will not be impacted. During the fiscal quarter ended October 31, 2022, the recurring license and support or subscription contract value recognized as services revenue was $10.9 million.

Guidewire believes that these non-GAAP financial measures and other metrics 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 and other metrics 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 and other metrics 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 and other metrics 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 the financial tables at the end of this press release, and not to rely on any single financial measure to evaluate the Company’s business.

About Guidewire

Guidewire is the platform P&C insurers trust to engage, innovate, and grow efficiently. We combine digital, core, analytics, and AI to deliver our platform as a cloud service. Approximately 520 insurers in 38 countries, from new ventures to the largest and most complex in the world, run on Guidewire.

As a partner to our customers, we continually evolve to enable their success. We are proud of our unparalleled implementation track record, with 1,000+ successful projects, supported by the largest R&D team and partner ecosystem in the industry. Our marketplace provides hundreds of applications that accelerate integration, localization, and innovation.

For more information, please visit www.guidewire.com and follow us on twitter: @Guidewire_PandC and LinkedIn.

NOTE: For information about Guidewire’s trademarks, visit https://www.guidewire.com/legal-notices.

GWRE-F

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 and our future business momentum regarding our cloud sales, product innovation and cloud migration, and our associated cloud leadership, vision and strategy. 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: quarterly and annual operating results may fluctuate more than expected; seasonal and other variations related to our customer agreements and related 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 revenue; our ability to successfully manage any changes to our business model, including the transition of our products to cloud offerings and the costs related to cloud operations and security; recent global events (including, without limitation, the continuing COVID-19 pandemic, the ongoing conflict between Russia and Ukraine, inflation higher than we have seen in decades, and supply chain issues) and their impact on our employees and our business and the businesses of our customers, system integrator ("SI") partners, and vendors; data security breaches of our cloud-based services or products or unauthorized access to our customers’ data, particularly in connection with our transition to a hybrid in-person and remote workforce; our competitive environment and changes thereto; our services revenue produces lower gross margins than our license, subscription and support revenue; our product development and sales cycles are lengthy and may be affected by factors outside of our control; the impact of new regulations and laws, including tax laws and accounting standards; assertions by third parties that we violate their intellectual property rights; weakened global economic conditions may adversely affect the P&C insurance industry, including the rate of information technology spending; general political or destabilizing events, including war, conflict or acts of terrorism; our ability to sell our products is highly dependent on the quality of our professional services and SI partners; the risk of losing key employees; the challenges of international operations, including changes in foreign exchange rates; 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. Guidewire 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)

October 31,
2022

July 31,
2022

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

263,163

$

606,303

Short-term investments

442,023

369,865

Accounts receivable, net

88,273

143,797

Unbilled accounts receivable, net

90,742

71,515

Prepaid expenses and other current assets

59,355

61,223

Total current assets

943,556

1,252,703

Long-term investments

163,335

187,507

Unbilled accounts receivable, net

15,346

13,914

Property and equipment, net

79,040

80,740

Operating lease assets

86,519

90,287

Intangible assets, net

18,574

21,361

Goodwill

372,214

372,192

Deferred tax assets, net

218,769

191,461

Other assets

51,155

56,732

TOTAL ASSETS

$

1,948,508

$

2,266,897

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

$

41,649

$

40,440

Accrued employee compensation

43,171

90,962

Deferred revenue, net

137,546

170,776

Other current liabilities

30,398

35,340

Total current liabilities

252,764

337,518

Lease liabilities

100,614

105,123

Convertible senior notes, net

395,891

358,216

Deferred revenue, net

7,155

7,500

Other liabilities

6,923

6,883

Total liabilities

763,347

815,240

STOCKHOLDERS’ EQUITY:

Common stock

8

8

Additional paid-in capital

1,682,722

1,755,476

Accumulated other comprehensive income (loss)

(23,963

)

(19,845

)

Retained earnings (accumulated deficit)

(473,606

)

(283,982

)

Total stockholders’ equity

1,185,161

1,451,657

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

1,948,508

$

2,266,897

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands except share and per share data)

Three Months Ended October 31,

2022

2021

Revenue:

Subscription and support

$

99,068

$

78,990

License

40,952

40,153

Services

55,262

46,791

Total revenue

195,282

165,934

Cost of revenue(1):

Subscription and support

55,691

48,050

License

1,873

2,339

Services

65,566

47,151

Total cost of revenue

123,130

97,540

Gross profit:

Subscription and support

43,377

30,940

License

39,079

37,814

Services

(10,304

)

(360

)

Total gross profit

72,152

68,394

Operating expenses(1):

Research and development

58,170

55,124

Sales and marketing

46,468

41,005

General and administrative

42,067

37,642

Total operating expenses

146,705

133,771

Income (loss) from operations

(74,553

)

(65,377

)

Interest income

4,638

674

Interest expense

(1,674

)

(4,794

)

Other income (expense), net

(13,824

)

1,183

Income (loss) before provision for (benefit from) income taxes

(85,413

)

(68,314

)

Provision for (benefit from) income taxes

(16,095

)

(17,038

)

Net income (loss)

$

(69,318

)

$

(51,276

)

Net income (loss) per share:

Basic and diluted

$

(0.83

)

$

(0.62

)

Shares used in computing net income (loss) per share:

Basic and diluted

83,320,967

83,225,743

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

Three Months Ended October 31,

2022

2021

(unaudited, in thousands)

Stock-based compensation expense:

Cost of subscription and support revenue

$

3,468

$

3,030

Cost of license revenue

147

182

Cost of services revenue

5,349

5,189

Research and development

9,291

7,997

Sales and marketing

6,887

7,113

General and administrative

9,954

8,729

Total stock-based compensation expense

$

35,096

$

32,240

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

Three Months Ended October 31,

2022

2021

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

$

(69,318

)

$

(51,276

)

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

Depreciation and amortization

7,623

8,434

Amortization of debt discount and issuance costs

423

3,524

Amortization of contract costs

4,490

3,001

Stock-based compensation

35,096

32,240

Changes to allowance for credit losses and revenue reserves

(72

)

35

Deferred income tax

(18,035

)

(17,551

)

Amortization of premium (accretion of discount) on available-for-sale securities, net

98

1,601

Other non-cash items affecting net income (loss)

34

131

Changes in operating assets and liabilities:

Accounts receivable

55,245

24,088

Unbilled accounts receivable

(20,659

)

(6,137

)

Prepaid expenses and other assets

(839

)

(7,046

)

Operating lease assets

3,768

2,879

Accounts payable

847

(1,333

)

Accrued employee compensation

(45,548

)

(62,637

)

Deferred revenue

(33,575

)

(30,456

)

Lease liabilities

(4,441

)

(3,386

)

Other liabilities

(2,572

)

(3,153

)

Net cash provided by (used in) operating activities

(87,435

)

(107,042

)

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of available-for-sale securities

(169,232

)

(241,247

)

Sales of available-for-sale securities

97,023

27,331

Maturities of available-for-sale securities

22,268

272,943

Purchases of property and equipment

(604

)

(3,333

)

Capitalized software development costs

(3,697

)

(3,783

)

Acquisition of strategic investments

(181

)

Acquisition of business, net of acquired cash

(43,830

)

Net cash provided by (used in) investing activities

(54,423

)

8,081

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock upon exercise of stock options

17

Repurchase and retirement of common stock

(200,000

)

(26,262

)

Net cash provided by (used in) financing activities

(200,000

)

(26,245

)

Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash

(2,992

)

(984

)

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

(344,850

)

(126,190

)

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—Beginning of period

614,686

384,910

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—End of period

$

269,836

$

258,720

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES

Reconciliation of GAAP to Non-GAAP Financial Measures

(unaudited, in thousands)

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 October 31,

2022

2021

Gross profit reconciliation:

GAAP gross profit

$

72,152

$

68,394

Non-GAAP adjustments:

Stock-based compensation

8,964

8,401

Amortization of intangibles

1,905

1,944

Non-GAAP gross profit

$

83,021

$

78,739

Income (loss) from operations reconciliation:

GAAP income (loss) from operations

$

(74,553

)

$

(65,377

)

Non-GAAP adjustments:

Stock-based compensation

35,096

32,240

Amortization of intangibles

2,787

3,754

Acquisition consideration holdback

773

673

Non-GAAP income (loss) from operations

$

(35,897

)

$

(28,710

)

Net income (loss) reconciliation:

GAAP net income (loss)

$

(69,318

)

$

(51,276

)

Non-GAAP adjustments:

Stock-based compensation

35,096

32,240

Amortization of intangibles

2,787

3,754

Acquisition consideration holdback(1)

773

673

Amortization of debt discount and issuance costs

423

3,524

Tax impact of non-GAAP adjustments

20,378

(6,966

)

Non-GAAP net income (loss)

$

(9,861

)

$

(18,051

)

Tax provision (benefit) reconciliation:

GAAP tax provision (benefit)

$

(16,095

)

$

(17,038

)

Non-GAAP adjustments:

Stock-based compensation

27,626

11,548

Amortization of intangibles

2,194

1,345

Acquisition consideration holdback (1)

608

241

Amortization of debt discount and issuance costs

333

1,262

Tax impact of non-GAAP adjustments

(51,139

)

(7,430

)

Non-GAAP tax provision (benefit)

$

(36,473

)

$

(10,072

)

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 October 31,

2022

2021

Net income (loss) per share reconciliation:

GAAP net income (loss) per share – diluted

$

(0.83

)

$

(0.62

)

Non-GAAP adjustments:

Stock-based compensation

0.42

0.39

Amortization of intangibles

0.03

0.05

Acquisition consideration holdback (1)

0.01

0.01

Amortization of debt discount and issuance costs

0.01

0.04

Tax impact of non-GAAP adjustments

0.24

(0.08

)

Non-GAAP dilutive shares excluded from GAAP net income (loss) per share calculation

Non-GAAP net income (loss) per share – diluted

$

(0.12

)

$

(0.21

)

Shares used in computing Non-GAAP income (loss) per share amounts:

GAAP weighted average shares – diluted

83,320,967

83,225,743

Non-GAAP dilutive shares excluded from GAAP income (loss) per share calculation

Pro forma weighted average shares – diluted

83,320,967

83,225,743

The following table summarizes our free cash flow for the periods indicated below (in thousands):

Three Months Ended October 31,

2022

2021

Free cash flow:

Net cash provided by (used in) operating activities

$

(87,435

)

$

(107,042

)

Purchases of property and equipment

(604

)

(3,333

)

Capitalized software development costs

(3,697

)

(3,783

)

Free cash flow

$

(91,736

)

$

(114,158

)

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES

Reconciliation of GAAP to Non-GAAP Outlook

The following table reconciles the specific items excluded from GAAP outlook in the calculation of non-GAAP outlook for the periods indicated below (in millions):

Second Quarter

Fiscal Year 2023

Fiscal Year 2023

Income (loss) from operations outlook reconciliation:

GAAP income (loss) from operations

$(41)

$(37)

$(176)

$(166)

Non-GAAP adjustments:

Stock-based compensation

35

35

138

138

Amortization of intangibles

1

1

7

7

Acquisition consideration holdback

1

1

3

3

Non-GAAP income (loss) from operations

$(4)

$0

$(28)

$(18)

View source version on businesswire.com: https://www.businesswire.com/news/home/20221206005480/en/

Contacts

Investor Contact:
Alex Hughes
Guidewire
(650) 356-4921
ir@guidewire.com

Media Contact:
Diana Stott
Guidewire
(650) 781-9955
dstott@guidewire.com