Guidewire Software Announces First Quarter Fiscal Year 2022 Financial Results - Form 8-K

Guidewire Software Announces First Quarter Fiscal Year 2022 Financial Results

SAN MATEO, Calif., December 2, 2021 - Guidewire (NYSE: GWRE) today announced its financial results for the fiscal quarter ended October 31, 2021.

"We're off to a strong start to the fiscal year with record first quarter deal activity, ARR exceeding the high-end of our guidance range, and subscription revenue growing over 50% year-over-year," said Mike Rosenbaum, chief executive officer, Guidewire Software. "I was particularly pleased to see this level of activity after the strong finish to last fiscal year, which speaks to Guidewire Cloud's growing momentum."

First Quarter Fiscal Year 2022 Financial Highlights

Revenue

•Total revenue for the first quarter of fiscal year 2022 was $165.9 million, a decrease of 2% from the same quarter in fiscal year 2021. Subscription and support revenue was $79.0 million, an increase of 36%; services revenue was $46.8 million, an increase of 1%; and license revenue was $40.2 million, a decrease of 38%.

•Annual recurring revenue, or ARR, was $594 million as of October 31, 2021, compared to $582 million as of July 31, 2021. ARR results for interim quarterly periods in fiscal year 2022 are based on actual currency rates at the end of fiscal year 2021, held constant throughout the year.

Profitability

•GAAP loss from operations was $65.4 million for the first quarter of fiscal year 2022, compared with $31.6 million for the same quarter in fiscal year 2021.

•Non-GAAP loss from operations was $28.7 million for the first quarter of fiscal year 2022, compared with income of $2.8 million for the same quarter in fiscal year 2021.

•GAAP net loss was $51.3 million for the first quarter of fiscal year 2022, compared with $20.2 million for the same quarter in fiscal year 2021. GAAP net loss per share was $0.62, based on diluted weighted average shares outstanding of 83.2 million, compared with $0.24 for the same quarter in fiscal year 2021, based on diluted weighted average shares outstanding of 83.6 million.

•Non-GAAP net loss was $18.1 million for the first quarter of fiscal year 2022, compared with net income of $14.4 million for the same quarter in fiscal year 2021. Non-GAAP net loss per share was $0.21, based on diluted weighted average shares outstanding of 83.2 million, compared with net income per share of $0.17 for the same quarter in fiscal year 2021, based on diluted weighted average shares outstanding of 84.2 million.

Liquidity

•The Company had $1.1 billion in cash, cash equivalents, and investments at October 31, 2021, compared to $1.3 billion at July 31, 2021. The Company used $107.0 million in cash from operations and $43.8 million for the acquisition of Hazard Hub during the first quarter of fiscal year 2022.

•During the first quarter of fiscal year 2022, the Company used $26.3 million to repurchase 0.2 million shares of its common stock.

Business Outlook

Guidewire is issuing the following outlook for the second quarter of fiscal year 2022 based on current expectations:

•ARR between $613 million and $616 million

•Total revenue between $195 million and $199 million

•Operating income (loss) between $(52) million and $(49) million

•Non-GAAP operating income (loss) between $(15) million and $(11) million

Guidewire is issuing the following updated outlook for fiscal year 2022 based on current expectations:

•ARR between $659 million and $669 million

•Total revenue between $780 million and $790 million

•Operating income (loss) between $(205) million and $(195) million

•Non-GAAP operating income (loss) between $(58) million and $(48) million

•Operating cash flow between $10 million and $20 million

Conference Call Information

What: Guidewire Software First Quarter Fiscal Year 2022 Financial Results Conference Call

When: Thursday, December 2, 2021

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

Live Call: (877) 705-6003, Domestic

(201) 493-6725, International

Replay: (844) 512-2921, Passcode 13725080, Domestic

(412) 317-6671, Passcode 13725080, 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 income 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, and acquisition consideration holdback. Non-GAAP net income (loss), non-GAAP income 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 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 depreciation, 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 three months ended October 31, 2021, the recurring license and support or subscription contract value recognized as services revenue was $0.9 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 Software

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. More than 450 insurers, 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.

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 and our future business momentum regarding our cloud sales, product enhancements 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; the impact of the COVID-19 pandemic on our employees and our business and the businesses of our customers, system integrator ("SI") partners, and vendors; 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; our products or cloud-based services may experience data security breaches; we face intense competition in our market; 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; changes in accounting guidance, such as revenue recognition, which have and may cause us to experience greater volatility in our quarterly and annual results; assertions by third parties that we violate their intellectual property rights could substantially harm our business; 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. 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.

Investor Contact:

Alex Hughes

Guidewire Software, Inc.

(650) 356-4921

[email protected]

Media Contact:

Diana Stott

Guidewire Software, Inc.

(650) 781-9955

[email protected]

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
October 31, 2021	July 31, 2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	239,620	$	384,910
Short-term investments	602,162	734,517
Accounts receivable, net	80,407	104,068
Unbilled accounts receivable, net	87,030	79,061
Prepaid expenses and other current assets	71,444	52,729
Total current assets	1,080,663	1,355,285
Long-term investments	297,841	227,164
Unbilled accounts receivable, net	22,642	24,361
Property and equipment, net	82,774	80,061
Operating lease assets	94,568	97,447
Intangible assets, net	31,688	19,743
Goodwill	372,062	340,877
Deferred tax assets, net	153,367	138,428
Other assets	42,742	38,479
TOTAL ASSETS	$	2,178,347	$	2,321,845
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	27,396	$	27,830
Accrued employee compensation	38,405	102,137
Deferred revenue, net	110,363	138,699
Other current liabilities	28,001	31,648
Total current liabilities	204,165	300,314
Lease liabilities	112,300	115,374
Convertible senior notes, net	347,349	343,825
Deferred revenue, net	5,893	7,237
Other liabilities	10,257	10,201
Total liabilities	679,964	776,951
STOCKHOLDERS' EQUITY:
Common stock	8	8
Additional paid-in capital	1,649,754	1,617,204
Accumulated other comprehensive income (loss)	(7,741)	(6,218)
Retained earnings (accumulated deficit)	(143,638)	(66,100)
Total stockholders' equity	1,498,383	1,544,894
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	2,178,347	$	2,321,845

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands except share and per share data)
Three Months Ended October 31,
2021	2020
Revenue:
Subscription and support	$	78,990	$	57,966
License	40,153	65,283
Services	46,791	46,553
Total revenue	165,934	169,802
Cost of revenue(1):
Subscription and support	50,331	37,006
License	2,339	2,937
Services	50,509	51,024
Total cost of revenue	103,179	90,967
Gross profit:
Subscription and support	28,659	20,960
License	37,814	62,346
Services	(3,718)	(4,471)
Total gross profit	62,755	78,835
Operating expenses(1):
Research and development	59,926	52,615
Sales and marketing	43,631	36,644
General and administrative	24,575	21,180
Total operating expenses	128,132	110,439
Income (loss) from operations	(65,377)	(31,604)
Interest income	674	2,789
Interest expense	(4,794)	(4,620)
Other income (expense), net	1,183	2,568
Income (loss) before provision for (benefit from) income taxes	(68,314)	(30,867)
Provision for (benefit from) income taxes	(17,038)	(10,677)
Net income (loss)	$	(51,276)	$	(20,190)
Net income (loss) per share:
Basic	$	(0.62)	$	(0.24)
Diluted	$	(0.62)	$	(0.24)
Shares used in computing net income (loss) per share:
Basic	83,225,743	83,613,287
Diluted	83,225,743	83,613,287

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

Three Months Ended October 31,
2021	2020
(unaudited, in thousands)
Stock-based compensation expense:
Cost of subscription and support revenue	$	3,348	$	2,602
Cost of license revenue	182	251
Cost of services revenue	5,637	5,543
Research and development	8,614	7,247
Sales and marketing	7,489	5,977
General and administrative	6,970	6,464
Total stock-based compensation expense	$	32,240	$	28,084

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
	Three Months Ended October 31,
	2021	2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(51,276)	$	(20,190)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	8,434	10,537
Amortization of debt discount and issuance costs	3,524	3,335
Amortization of contract costs	3,001	2,154
Stock-based compensation	32,240	28,084
Changes to allowance for credit losses and revenue reserves	35	(43)
Deferred income tax	(17,551)	(11,827)
Amortization of premium (accretion of discount) on available-for-sale securities, net	1,601	1,390
Other non-cash items affecting net income (loss)	131	(10)
Changes in operating assets and liabilities:
Accounts receivable	24,088	35,924
Unbilled accounts receivable	(6,137)	(25,214)
Prepaid expenses and other assets	(7,046)	(1,841)
Operating lease assets	2,879	(4,581)
Accounts payable	(1,333)	(2,198)
Accrued employee compensation	(62,637)	(13,513)
Deferred revenue	(30,456)	(23,646)
Lease liabilities	(3,386)	6,772
Other liabilities	(3,153)	(840)
Net cash provided by (used in) operating activities	(107,042)	(15,707)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities	(241,247)	(346,405)
Sales of available-for-sale securities	27,331	57,903
Maturities of available-for-sale securities	272,943	241,591
Purchases of property and equipment	(3,333)	(1,907)
Capitalized software development costs	(3,783)	(2,581)
Acquisition of strategic investments	-	(2,000)
Acquisitions of business, net of acquired cash	(43,830)	-
Net cash provided by (used in) investing activities	8,081	(53,399)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon exercise of stock options	17	1,716
Repurchase and retirement of common stock	(26,262)	(5,000)
Net cash provided by (used in) financing activities	(26,245)	(3,284)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash	(984)	(743)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	(126,190)	(73,133)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH-Beginning of period	384,910	366,969
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH-End of period	$	258,720	$	293,836

RECONCILIATION OF CASH, CASH EQUIVALENTS, AND RESTRICTED CASH TO CONDENSED CONSOLIDATED BALANCE SHEETS
Cash and cash equivalents	$	239,620	$	293,836
Restricted cash included in prepaid expenses and other current assets and other assets	19,100	-
Total cash, cash equivalents, and restricted cash	$	258,720	$	293,836

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,
2021	2020
Gross profit reconciliation:
GAAP gross profit	$	62,755	$	78,835
Non-GAAP adjustments:
Stock-based compensation	9,167	8,396
Amortization of intangibles	1,944	4,526
Non-GAAP gross profit	$	73,866	$	91,757
Income (loss) from operations reconciliation:
GAAP income (loss) from operations	$	(65,377)	$	(31,604)
Non-GAAP adjustments:
Stock-based compensation	32,240	28,084
Amortization of intangibles	3,754	6,323
Acquisition consideration holdback(1)	673	-
Non-GAAP income (loss) from operations	$	(28,710)	$	2,803
Net income (loss) reconciliation:
GAAP net income (loss)	$	(51,276)	$	(20,190)
Non-GAAP adjustments:
Stock-based compensation	32,240	28,084
Amortization of intangibles	3,754	6,323
Amortization of debt discount and issuance costs	3,524	3,335
Acquisition consideration holdback(1)	673	-
Tax impact of non-GAAP adjustments (2)	(6,966)	(3,143)
Non-GAAP net income (loss)	$	(18,051)	$	14,409
Tax provision (benefit) reconciliation:
GAAP tax provision (benefit)	$	(17,038)	$	(10,677)
Non-GAAP adjustments:
Stock-based compensation	11,548	(22,291)
Amortization of intangibles	1,345	(5,019)
Amortization of debt discount and issuance costs	1,262	(2,647)
Acquisition consideration holdback(1)	241	-
Tax impact of non-GAAP adjustments (2)	(7,430)	33,100
Non-GAAP tax provision (benefit)	$	(10,072)	$	(7,534)

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Financial Measures
(unaudited, in thousands except per share amounts)
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,
2021	2020
Net income (loss) per share reconciliation:
GAAP net income (loss) per share - diluted	$	(0.62)	$	(0.24)
Non-GAAP adjustments:
Stock-based compensation	0.39	0.34
Amortization of intangibles	0.05	0.08
Amortization of debt discount and issuance costs	0.04	0.04
Acquisition consideration holdback(1)	0.01	-
Tax impact of non-GAAP adjustments (2)	(0.08)	(0.04)
Non-GAAP dilutive shares excluded from GAAP net income (loss) per share calculation (3)	-	(0.01)
Non-GAAP net income (loss) per share - diluted	$	(0.21)	$	0.17
Shares used in computing Non-GAAP income (loss) per share amounts:
GAAP weighted average shares - diluted	83,225,743	83,613,287
Non-GAAP dilutive shares excluded from GAAP income (loss) per share calculation (3)	-	586,287
Pro forma weighted average shares - diluted	83,225,743	84,199,574

(1) Effective the first quarter of fiscal year 2022, the acquisition consideration holdback is excluded from non-GAAP measures. Prior to the first quarter of fiscal year 2022, there was no acquisition consideration holdback in any periods presented.

(2) Adjustments reflect the impact on the tax benefit (provision) 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 net income (loss) per share, as they would have an anti-dilutive effect. However, these shares have a dilutive effect on non-GAAP net income (loss) per share and, therefore, are included in the non-GAAP net income (loss) per share calculation.

Three Months Ended October 31,
2021	2020
Free cash flow:
Net cash provided by (used in) operating activities	$	(107,042)	$	(15,707)
Purchases of property and equipment	(3,333)	(1,907)
Capitalized software development costs	(3,783)	(2,581)
Free cash flow	$	(114,158)	$	(20,195)

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Outlook
The following tables reconcile 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 2022	Fiscal Year 2022
Income (loss) from operations outlook reconciliation:
GAAP income (loss) from operations	$(52)	-	$(49)	$(205)	-	$(195)
Non-GAAP adjustments:
Stock-based compensation	33	-	33	130	-	130
Amortization of intangibles	4	-	4	14	-	14
Acquisition consideration holdback	1	-	1	3	-	3
Non-GAAP income (loss) from operations	$(15)	-	$(11)	$(58)	-	$(48)