SAN MATEO, Calif.–(BUSINESS WIRE)–Guidewire Software, Inc. (NYSE: GWRE), the platform Property and Casualty (“P&C”) insurers trust to engage, innovate, and grow efficiently, today announced its financial results for the fiscal quarter ended April 30, 2021.

“Third quarter ARR, total revenue, and profitability came in above expectations and we delivered eight cloud wins,” said Mike Rosenbaum, chief executive officer, Guidewire Software. “I am particularly excited about our momentum on the Guidewire Cloud Platform with the recent Cortina release, which further empowers our cloud customers to engage, innovate, and grow efficiently.”

Third Quarter Fiscal Year 2021 Financial Highlights

Revenue

Total revenue for the third quarter of fiscal year 2021 was $164.0 million, a decrease of 2% from the same quarter in fiscal year 2020. Subscription and support revenue was $64.8 million, an increase of 28%; license revenue was $50.9 million, a decrease of 19%; and services revenue was $48.2 million, a decrease of 11%. Annual recurring revenue, or ARR, was $538 million as of April 30, 2021, compared to $514 million as of July 31, 2020. ARR results for interim quarterly periods in fiscal year 2021 are based on currency exchange rates at the end of fiscal year 2020, held constant throughout the year. Profitability

GAAP loss from operations was $46.8 million for the third quarter of fiscal year 2021, compared with $25.6 million for the comparable period in fiscal year 2020. Non-GAAP loss from operations was $16.3 million for the third quarter of fiscal year 2021, compared with income of $5.8 million for the comparable period in fiscal year 2020. GAAP net loss was $36.6 million for the third quarter of fiscal year 2021, compared with $31.0 million for the comparable period in fiscal year 2020. GAAP net loss per share was $0.44, based on diluted weighted average shares outstanding of 83.6 million, compared with $0.37 for the comparable period in fiscal year 2020, based on diluted weighted average shares outstanding of 83.0 million. Non-GAAP net loss was $13.2 million for the third quarter of fiscal year 2021, compared with net income of $7.7 million for the comparable period in fiscal year 2020. Non-GAAP net loss per share was $0.16, based on diluted weighted average shares outstanding of 83.6 million, compared with net income per share of $0.09 for the comparable period in fiscal year 2020, based on diluted weighted average shares outstanding of 83.5 million. Liquidity

The Company had $1.3 billion in cash, cash equivalents, and investments at April 30, 2021. The Company generated $3.2 million in cash from operations and had negative free cash flow of $16.8 million during the nine months ended April 30, 2021. During the third quarter of fiscal year 2021, the Company used $79.9 million to repurchase 0.8 million shares of its common stock. The Company has used $123.8 million to repurchase 1.1 million shares of its common stock since July 31, 2020. Business Outlook

Guidewire is issuing the following outlook for the fourth quarter of fiscal year 2021 based on current expectations:

ARR between $562 million and $569 million Total revenue between $218 million and $224 million Operating income (loss) between $(11) million and $(5) million Non-GAAP operating income (loss) between $20 million and $26 million Guidewire is issuing the following updated outlook for fiscal year 2021 based on current expectations:

ARR between $562 million and $569 million Total revenue between $732 million and $738 million Operating income (loss) between $(117) million and $(111) million Non-GAAP operating income (loss) between $14 million and $20 million Operating cash flow between $60 million and $70 million Conference Call Information

What:

Guidewire Software Third Quarter Fiscal Year 2021 Financial Results Conference Call

When:

Wednesday, June 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 13719856, Domestic

(412) 317-6671, Passcode 13719856, 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 COVID-19 Canada Emergency Wage Subsidy benefits. 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, 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 depreciation, amortization, stock-based compensation, and changes in fair value of strategic investments.

Annual recurring revenue (“ARR”) is used to identify the annualized recurring value of 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 services) are excluded.

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 400 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 related to Guidewire Cloud Platform. 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.

  GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands)

April 30,

2021

July 31,

2020

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

284,448

$

366,969

Short-term investments

803,885

766,527

Accounts receivable, net

71,785

114,242

Unbilled accounts receivable, net

98,800

49,491

Prepaid expenses and other current assets

49,028

45,989

Total current assets

1,307,946

1,343,218

Long-term investments

200,493

300,771

Unbilled accounts receivable, net

33,315

34,737

Property and equipment, net

76,681

65,235

Operating lease assets

100,813

103,797

Intangible assets, net

23,141

39,708

Goodwill

340,877

340,877

Deferred tax assets, net

132,901

101,565

Other assets

33,814

34,944

TOTAL ASSETS

$

2,249,981

$

2,364,852

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

$

25,162

$

22,634

Accrued employee compensation

77,184

58,547

Deferred revenue, net

85,796

118,311

Other current liabilities

26,155

25,706

Total current liabilities

214,297

225,198

Lease liabilities

118,870

119,408

Convertible senior notes, net

340,351

330,208

Deferred revenue, net

9,119

14,685

Other liabilities

10,860

18,585

Total liabilities

693,497

708,084

STOCKHOLDERS’ EQUITY:

Common stock

8

8

Additional paid-in capital

1,588,143

1,499,050

Accumulated other comprehensive income (loss)

(5,341

)

(5,246

)

Retained earnings (accumulated deficit)

(26,326

)

162,956

Total stockholders’ equity

1,556,484

1,656,768

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

2,249,981

$

2,364,852

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

Three Months Ended April 30,

Nine Months Ended April 30,

2021

2020

2021

2020

Revenue:

Subscription and support

$

64,836

$

50,772

$

182,365

$

149,353

License

50,937

63,104

194,132

193,987

Services

48,195

54,289

137,335

155,293

Total revenue

163,968

168,165

513,832

498,633

Cost of revenue(1):

Subscription and support

41,284

30,522

118,448

83,667

License

1,991

2,566

7,762

8,027

Services

48,790

52,664

148,724

158,510

Total cost of revenue

92,065

85,752

274,934

250,204

Gross profit:

Subscription and support

23,552

20,250

63,917

65,686

License

48,946

60,538

186,370

185,960

Services

(595

)

1,625

(11,389

)

(3,217

)

Total gross profit

71,903

82,413

238,898

248,429

Operating expenses(1):

Research and development

54,155

51,893

159,964

148,343

Sales and marketing

40,879

35,235

116,739

105,590

General and administrative

23,695

20,885

67,695

62,723

Total operating expenses

118,729

108,013

344,398

316,656

Income (loss) from operations

(46,826

)

(25,600

)

(105,500

)

(68,227

)

Interest income

1,559

6,072

6,363

20,666

Interest expense

(4,698

)

(4,505

)

(13,969

)

(13,396

)

Other income (expense), net

5,259

(12,356

)

14,632

(12,789

)

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

(44,706

)

(36,389

)

(98,474

)

(73,746

)

Provision for (benefit from) income taxes

(8,073

)

(5,351

)

(32,999

)

(7,773

)

Net income (loss)

$

(36,633

)

$

(31,038

)

$

(65,475

)

$

(65,973

)

Net income (loss) per share:

Basic

$

(0.44

)

$

(0.37

)

$

(0.78

)

$

(0.80

)

Diluted

$

(0.44

)

$

(0.37

)

$

(0.78

)

$

(0.80

)

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

Basic

83,600,327

83,024,291

83,693,045

82,701,267

Diluted

83,600,327

83,024,291

83,693,045

82,701,267

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

  Three Months Ended April 30,

Nine Months Ended April 30,

2021

2020

2021

2020

(unaudited, in thousands)

Stock-based compensation expense:

Cost of subscription and support revenue

$

2,780

$

1,986

$

8,336

$

5,505

Cost of license revenue

183

177

579

545

Cost of services revenue

5,395

4,862

16,516

15,663

Research and development

6,930

6,500

21,781

19,349

Sales and marketing

6,587

4,990

19,370

16,143

General and administrative

6,348

6,266

19,621

18,870

Total stock-based compensation expense

$

28,223

$

24,781

$

86,203

$

76,075

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

Three Months Ended April 30,

Nine Months Ended April 30,

2021

2020

2021

2020

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

$

(36,633

)

$

(31,038

)

$

(65,475

)

$

(65,973

)

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

Depreciation and amortization

8,057

10,611

29,028

32,255

Amortization of debt discount and issuance costs

3,428

3,244

10,143

9,598

Amortization of contract costs

3,143

2,195

8,498

5,610

Stock-based compensation

28,223

24,781

86,203

76,075

Changes to allowance for credit losses and revenue reserves

(108

)

(688

)

10

190

Deferred income tax

(10,000

)

(6,685

)

(30,294

)

(11,046

)

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

1,794

(354

)

4,922

(2,366

)

Changes in fair value of strategic investments

10,672

10,672

Other non-cash items affecting net income (loss)

(55

)

129

745

701

Changes in operating assets and liabilities:

Accounts receivable

21,007

21,921

43,375

58,180

Unbilled accounts receivable

(15,829

)

(27,722

)

(47,887

)

(44,740

)

Prepaid expenses and other assets

(1,146

)

(3,205

)

(4,587

)

(10,147

)

Operating lease assets

2,893

2,618

2,984

7,111

Accounts payable

4,194

(1,648

)

(118

)

(5,680

)

Accrued employee compensation

12,607

3,508

16,451

(25,286

)

Deferred revenue

(13,670

)

(2,152

)

(38,081

)

(25,735

)

Lease liabilities

(2,641

)

(2,875

)

28

(2,634

)

Other liabilities

347

1,259

(12,712

)

(878

)

Net cash provided by (used in) operating activities

5,611

4,571

3,233

5,907

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of available-for-sale securities

(234,621

)

(247,909

)

(758,222

)

(849,312

)

Sales of available-for-sale securities

41,778

25,476

127,331

93,418

Maturities of available-for-sale securities

229,361

302,734

685,559

811,541

Purchases of property and equipment

(6,895

)

(7,712

)

(12,412

)

(18,966

)

Capitalized software development costs

(2,735

)

(1,063

)

(7,619

)

(3,273

)

Acquisition of strategic investments

(2,000

)

Net cash provided by (used in) investing activities

26,888

71,526

32,637

33,408

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock upon exercise of stock options

102

1,838

1,922

3,077

Repurchase and retirement of common stock

(79,898

)

(122,577

)

Net cash provided by (used in) financing activities

(79,796

)

1,838

(120,655

)

3,077

Effect of foreign exchange rate changes on cash and cash equivalents

358

(2,583

)

2,264

(2,678

)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

(46,939

)

75,352

(82,521

)

39,714

CASH AND CASH EQUIVALENTS—Beginning of period

331,387

218,463

366,969

254,101

CASH AND CASH EQUIVALENTS—End of period

$

284,448

$

293,815

$

284,448

$

293,815

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 April 30,

Nine Months Ended April 30,

2021

2020

2021

2020

Gross profit reconciliation:

GAAP gross profit

$

71,903

$

82,413

$

238,898

$

248,429

Non-GAAP adjustments:

Stock-based compensation

8,358

7,025

25,431

21,713

Amortization of intangibles

2,303

4,805

11,355

14,695

COVID-19 Canada Emergency Wage Subsidy benefit (1)

(951

)

(1,919

)

Non-GAAP gross profit

$

81,613

$

94,243

$

273,765

$

284,837

Income (loss) from operations reconciliation:

GAAP income (loss) from operations

$

(46,826

)

$

(25,600

)

$

(105,500

)

$

(68,227

)

Non-GAAP adjustments:

Stock-based compensation

28,223

24,781

86,203

76,075

Amortization of intangibles

3,921

6,602

16,567

20,511

COVID-19 Canada Emergency Wage Subsidy benefit (1)

(1,623

)

(3,309

)

Non-GAAP income (loss) from operations

$

(16,305

)

$

5,783

$

(6,039

)

$

28,359

Net income (loss) reconciliation:

GAAP net income (loss)

$

(36,633

)

$

(31,038

)

$

(65,475

)

$

(65,973

)

Non-GAAP adjustments:

Stock-based compensation

28,223

24,781

86,203

76,075

Amortization of intangibles

3,921

6,602

16,567

20,511

Amortization of debt discount and issuance costs

3,429

3,244

10,143

9,598

Changes in fair value of strategic investment (3)

10,672

10,672

COVID-19 Canada Emergency Wage Subsidy benefit (1)

(1,623

)

(3,309

)

Tax impact of non-GAAP adjustments (2)

(10,532

)

(6,559

)

(33,907

)

(14,645

)

Non-GAAP net income (loss)

$

(13,215

)

$

7,702

$

10,222

$

36,238

Tax provision (benefit) reconciliation:

GAAP tax provision (benefit)

$

(8,073

)

$

(5,351

)

$

(32,999

)

$

(7,773

)

Non-GAAP adjustments:

Stock-based compensation

(5,566

)

3,295

(19,719

)

11,824

Amortization of intangibles

(773

)

878

(4,071

)

3,197

Amortization of debt discount and issuance costs

(676

)

431

(2,403

)

1,489

Changes in fair value of strategic investment (3)

1,418

1,418

COVID-19 Canada Emergency Wage Subsidy benefit (1)

320

(139

)

Tax impact of non-GAAP adjustments (2)

17,227

537

60,239

(3,283

)

Non-GAAP tax provision (benefit)

$

2,459

$

1,208

$

908

$

6,872

(1) Effective the second fiscal quarter of 2021, the COVID-19 Canada Emergency Wage Subsidy benefit was included as a non-GAAP adjustment.

(2) Adjustments reflect the tax benefit (provision) resulting from all non-GAAP adjustments.

(3) Effective the third fiscal quarter of 2020, changes in fair value of strategic investments are excluded from non-GAAP measures. Prior to the third fiscal quarter of 2020, there were no changes in fair value of strategic investments in any periods presented.

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 April 30,

Nine Months Ended April 30,

2021

2020

2021

2020

Net income (loss) per share reconciliation:

GAAP net income (loss) per share — diluted

$

(0.44

)

$

(0.37

)

$

(0.78

)

$

(0.80

)

Non-GAAP adjustments:

Stock-based compensation

0.34

0.30

1.04

0.92

Amortization of intangibles

0.05

0.08

0.21

0.25

Amortization of debt discount and issuance costs

0.04

0.04

0.12

0.12

Changes in fair value of strategic investment (4)

0.13

0.13

COVID-19 Canada Emergency Wage Subsidy benefit (3)

(0.02

)

(0.04

)

Tax impact of non-GAAP adjustments (1)

(0.13

)

(0.08

)

(0.41

)

(0.18

)

Non-GAAP dilutive shares excluded from GAAP net income (loss) per share calculation (2)

(0.01

)

(0.02

)

(0.02

)

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

$

(0.16

)

$

0.09

$

0.12

$

0.42

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

GAAP weighted average shares — diluted

83,600,327

83,024,291

83,693,045

82,701,267

Non-GAAP dilutive shares excluded from GAAP income (loss) per share calculation (2)

486,398

807,361

798,189

Pro forma weighted average shares — diluted

83,600,327

83,510,689

84,500,406

83,499,456

(1) Adjustments reflect the impact on the tax benefit (provision) resulting from all non-GAAP adjustments.

(2) 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.

(3) Effective the second fiscal quarter of 2021, the COVID-19 Canada Emergency Wage Subsidy benefit was included as a non-GAAP adjustment.

(4) Effective the third fiscal quarter of 2020, changes in fair value of strategic investments are excluded from non-GAAP measures. Prior to the third fiscal quarter of 2020, there were no changes in fair value of strategic investments in any periods presented.

  Nine Months Ended April 30,

2021

2020

Free cash flow:

Net cash provided by (used in) operating activities

$

3,233

$

5,907

Purchases of property and equipment

(12,412

)

(18,966

)

Capitalized software development costs

(7,619

)

(3,273

)

Free cash flow

$

(16,798

)

$

(16,332

)

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)

Fourth Quarter Fiscal Year 2021

Fiscal Year 2021

Income (loss) from operations outlook reconciliation:

GAAP income (loss) from operations

$(11)

$(5)

$(117)

$(111)

Non-GAAP adjustments:

Stock-based compensation

28

28

114

114

Amortization of intangibles

3

3

20

20

COVID-19 Canada Emergency Wage Subsidy benefit

(3)

(3)

Non-GAAP income (loss) from operations

$20

$26

$14

$20

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