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Guidewire Announces Fourth Quarter and Fiscal Year 2022 Financial Results

·17 min read

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

"We closed fiscal year 2022 exceeding our outlook for ARR, revenue, and profitability driven by strong cloud adoption," said Mike Rosenbaum, Chief Executive Officer, Guidewire. "We won sixteen cloud deals in the fourth quarter across new and existing customers. As we look forward to fiscal year 2023, we are positioned to build on our record of consistent product innovation and to transition the P&C insurance industry to cloud-based core systems."

Fourth Quarter Fiscal Year 2022 Financial Highlights

Revenue

  • Total revenue for the fourth quarter of fiscal year 2022 was $244.6 million, an increase of 7% from the same quarter in fiscal year 2021. Subscription and support revenue was $93.6 million, an increase of 34%; services revenue was $56.2 million, an increase of 13%; and license revenue was $94.8 million, a decrease of 14%.

Profitability

  • GAAP loss from operations was $32.2 million for the fourth quarter of fiscal year 2022, compared with $0.1 million for the same quarter in fiscal year 2021.

  • Non-GAAP income from operations was $5.3 million for the fourth quarter of fiscal year 2022, compared with $32.0 million for the same quarter in fiscal year 2021.

  • GAAP net loss was $31.0 million for the fourth quarter of fiscal year 2022, compared with $1.0 million for the same quarter in fiscal year 2021. GAAP net loss per share was $0.37, based on diluted weighted average shares outstanding of 84.0 million, compared with $0.01 for the same quarter in fiscal year 2021, based on diluted weighted average shares outstanding of 83.2 million.

  • Non-GAAP net income was $2.2 million for the fourth quarter of fiscal year 2022, compared with $31.1 million for the same quarter in fiscal year 2021. Non-GAAP net income per share was $0.03, based on diluted weighted average shares outstanding of 84.1 million, compared with Non-GAAP net income per share of $0.37 for the same quarter in fiscal year 2021, based on diluted weighted average shares outstanding of 83.7 million.

Liquidity

  • The Company generated $83.6 million in cash from operations and had positive free cash flow of $79.0 million during the fourth quarter of fiscal year 2022.

Fiscal Year 2022 Financial Highlights

Revenue

  • Total revenue for fiscal year 2022 was $812.6 million, an increase of 9% from fiscal year 2021. Subscription and support revenue was $343.7 million, an increase of 36%; services revenue was $210.3 million, an increase of 12%; and license revenue was $258.6 million, a decrease of 15%.

  • As of July 31, 2022, annual recurring revenue, or ARR, was $664 million, or $683 million based on currency exchange rates as of July 31, 2021, compared to $582 million as of July 31, 2021. We measure ARR on a constant currency basis during the fiscal year and revalue ARR at year end to current currency rates. ARR grew in fiscal year 2022 by 14%, or 17% on a constant currency basis.

Profitability

  • GAAP loss from operations was $199.4 million for fiscal year 2022, compared with $105.6 million for fiscal year 2021.

  • Non-GAAP loss from operations was $45.3 million for fiscal year 2022, compared with Non-GAAP income from operations of $26.0 million for fiscal year 2021.

  • GAAP net loss was $180.4 million for fiscal year 2022, compared with $66.5 million for fiscal year 2021. GAAP net loss per share was $2.16, based on diluted weighted average shares outstanding of 83.6 million, compared with $0.79 for fiscal year 2021, based on diluted weighted average shares outstanding of 83.6 million.

  • Non-GAAP net loss was $42.5 million for fiscal year 2022, compared with non-GAAP net income of $41.3 million for fiscal year 2021. Non-GAAP net loss per share was $0.51 for fiscal year 2022, based on diluted weighted average shares outstanding of 83.6 million, compared with non-GAAP net income per share of $0.49 for fiscal year 2021, based on diluted weighted average shares outstanding of 84.4 million.

Liquidity and Capital Resources

  • The Company had $1.2 billion in cash, cash equivalents, and investments at July 31, 2022, compared to $1.3 billion at July 31, 2021.

  • The Company used $37.9 million in cash from operations during fiscal year 2022 and $43.8 million for the acquisition of HazardHub during the first quarter of fiscal year 2022.

Business Outlook

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

  • ARR between $667 million and $670 million

  • Total revenue between $190 million and $195 million

  • Operating income (loss) between $(82) million and $(77) million

  • Non-GAAP operating income (loss) between $(45) million and $(40) million

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

  • ARR between $745 million and $760 million

  • Total revenue between $885 million and $895 million

  • Operating income (loss) between $(177) million and $(167) million

  • Non-GAAP operating income (loss) between $(30) million and $(20) million

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

Conference Call Information

What:

Guidewire Fourth Quarter and Fiscal Year 2022 Financial Results Conference Call

When:

Tuesday, September 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 13732349, Domestic

Replay

(412) 317-6671, Passcode 13732349, 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, the COVID-19 Canada Emergency Wage Subsidy benefit, 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, 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. In fiscal year 2022, the recurring license and support or subscription contract value recognized as services revenue was $28.9 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; the impact of the COVID-19 pandemic, inflation, and other global events, such as the conflict between Russia and Ukraine, 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 and ARR; our reliance on sales to and renewals from a relatively small number of large customers for a substantial portion of our revenue and ARR; 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; 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 and the amount of direct written premiums; 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 and hiring sufficient 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)

July 31,
2022

July 31,
2021

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

606,303

$

384,910

Short-term investments

369,865

734,517

Accounts receivable, net

143,797

104,068

Unbilled accounts receivable, net

71,515

79,061

Prepaid expenses and other current assets

61,223

52,729

Total current assets

1,252,703

1,355,285

Long-term investments

187,507

227,164

Unbilled accounts receivable, net

13,914

24,361

Property and equipment, net

80,740

80,061

Operating lease assets

90,287

97,447

Intangible assets, net

21,361

19,743

Goodwill

372,192

340,877

Deferred tax assets, net

191,461

138,428

Other assets

56,732

38,479

TOTAL ASSETS

$

2,266,897

$

2,321,845

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

$

40,440

$

27,830

Accrued employee compensation

90,962

102,137

Deferred revenue, net

170,776

138,699

Other current liabilities

35,340

31,648

Total current liabilities

337,518

300,314

Lease liabilities

105,123

115,374

Convertible senior notes, net

358,216

343,825

Deferred revenue, net

7,500

7,237

Other liabilities

6,883

10,201

Total liabilities

815,240

776,951

STOCKHOLDERS’ EQUITY:

Common stock

8

8

Additional paid-in capital

1,755,476

1,617,204

Accumulated other comprehensive income (loss)

(19,845

)

(6,218

)

Retained earnings (accumulated deficit)

(283,982

)

(66,100

)

Total stockholders’ equity

1,451,657

1,544,894

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

2,266,897

$

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 July 31,

Twelve Months Ended July 31,

2022

2021

2022

2021

Revenue:

Subscription and support

$

93,570

$

69,993

$

343,708

$

252,358

License

94,786

109,660

258,631

303,792

Services

56,243

49,782

210,275

187,117

Total revenue

244,599

229,435

812,614

743,267

Cost of revenue(1):

Subscription and support

57,621

46,535

213,275

164,983

License

2,210

2,807

8,754

10,569

Services

68,912

50,778

238,365

199,502

Total cost of revenue

128,743

100,120

460,394

375,054

Gross profit:

Subscription and support

35,949

23,458

130,433

87,375

License

92,576

106,853

249,877

293,223

Services

(12,669

)

(996

)

(28,090

)

(12,385

)

Total gross profit

115,856

129,315

352,220

368,213

Operating expenses(1):

Research and development

65,287

59,530

249,665

219,494

Sales and marketing

51,671

43,805

194,611

160,544

General and administrative

31,107

26,064

107,391

93,759

Total operating expenses

148,065

129,399

551,667

473,797

Income (loss) from operations

(32,209

)

(84

)

(199,447

)

(105,584

)

Interest income

3,904

1,032

6,277

7,395

Interest expense

(4,934

)

(4,742

)

(19,446

)

(18,711

)

Other income (expense), net

(3,305

)

(2,013

)

(17,099

)

12,619

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

(36,544

)

(5,807

)

(229,715

)

(104,281

)

Provision for (benefit from) income taxes

(5,514

)

(4,775

)

(49,284

)

(37,774

)

Net income (loss)

$

(31,030

)

$

(1,032

)

$

(180,431

)

$

(66,507

)

Net income (loss) per share:

Basic and diluted

$

(0.37

)

$

(0.01

)

$

(2.16

)

$

(0.79

)

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

Basic and diluted

83,953,164

83,234,153

83,569,517

83,577,375

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

Three Months Ended July 31,

Twelve Months Ended July 31,

2022

2021

2022

2021

(unaudited, in thousands)

Stock-based compensation expense:

Cost of subscription and support revenue

$

3,442

$

2,895

$

14,614

$

11,231

Cost of license revenue

151

191

692

770

Cost of services revenue

5,354

5,293

22,951

21,809

Research and development

8,794

7,743

36,134

29,524

Sales and marketing

7,117

6,450

32,960

25,820

General and administrative

9,120

6,234

29,660

25,855

Total stock-based compensation expense

$

33,978

$

28,806

$

137,011

$

115,009

GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

Three Months Ended July 31,

Twelve Months Ended July 31,

2022

2021

2022

2021

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

$

(31,030

)

$

(1,032

)

$

(180,431

)

$

(66,507

)

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

Depreciation and amortization

7,795

7,927

33,540

36,955

Amortization of debt discount and issuance costs

3,672

3,474

14,391

13,617

Amortization of contract costs

4,736

2,944

14,456

11,442

Stock-based compensation

33,978

28,806

137,011

115,009

Changes to allowance for credit losses and revenue reserves

(110

)

216

2,597

226

Deferred income tax

(6,658

)

(5,495

)

(54,115

)

(35,789

)

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

883

1,645

5,498

6,567

Changes in fair value of strategic investments

(1,545

)

(1,545

)

Other non-cash items affecting net income (loss)

(158

)

118

63

863

Changes in operating assets and liabilities:

Accounts receivable

(58,075

)

(32,555

)

(42,545

)

10,820

Unbilled accounts receivable

36,556

28,693

18,106

(19,194

)

Prepaid expenses and other assets

(9,726

)

(12,177

)

(23,390

)

(16,764

)

Operating lease assets

(849

)

3,366

7,160

6,350

Accounts payable

9,293

3,745

13,580

3,627

Accrued employee compensation

23,313

25,075

(8,942

)

41,526

Deferred revenue

62,782

51,021

31,564

12,940

Lease liabilities

254

(3,374

)

(9,637

)

(3,346

)

Other liabilities

8,481

5,957

4,699

(6,755

)

Net cash provided by (used in) operating activities

83,592

108,354

...