Guidewire Software Announces Fourth Quarter and Fiscal 2014 Financial Results

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

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.

⁽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.

⁽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:

⁽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.

(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.

(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.