Guidewire Software Announces Third Quarter Fiscal Year 2019 Financial Results

Guidewire Software, Inc. (NYSE: GWRE), provider of the industry platform
Property and Casualty (“P&C”) insurers rely upon, today announced its
financial results for the fiscal quarter ended April 30, 2019.

“Total revenue and profitability were above our guidance ranges in the
third quarter,” said Marcus Ryu, chief executive officer, Guidewire
Software. “During the quarter we added two additional InsuranceSuite
Cloud customers amidst robust demand for Guidewire Cloud overall, as new
and existing customers increasingly seek Guidewire as a trusted partner
to shoulder a broader role in their digital transformations. We also
continue to ramp our product, operational, and delivery capacity to
serve this wave of change for the $2 trillion global P&C industry.”

As of the first quarter of fiscal year 2019, Guidewire began reporting
results under Accounting Standards Codification Topic 606, Revenue
Recognition (“ASC 606”), using the modified retrospective method.
Financial results for reporting periods prior to fiscal year 2019 are
presented as previously disclosed in conformity with then existing
guidance and as revised to reflect the restatement more fully described
in Guidewire’s Form 10-K/A for the year ended July 31, 2018, filed on
June 3, 2019.

Third Quarter Fiscal Year 2019 Financial Highlights

Revenue

• Total revenue for the third quarter of fiscal year 2019 was $162.9
  million, an increase of 15% from the same quarter in fiscal year 2018.
  License and subscription revenue was $76.2 million, an increase of
  45%; services revenue was $65.3 million, a decrease of 8%; and
  maintenance revenue was $21.3 million, an increase of 14%.

Profitability

• GAAP loss from operations was $15.8 million for the third quarter of
  fiscal year 2019, compared with a $28.9 million loss in the comparable
  period in fiscal year 2018.
• Non-GAAP income from operations was $12.6 million for the third
  quarter of fiscal year 2019, compared with $2.6 million of non-GAAP
  income in the comparable period in fiscal year 2018.
• GAAP net loss was $8.6 million for the third quarter of fiscal year
  2019, compared with a $31.2 million loss for the comparable period in
  fiscal year 2018, which was adversely impacted by the effects of the
  provisions of the Tax and Jobs Act passed in December 2017. GAAP net
  loss per share was $0.11, based on diluted weighted average shares
  outstanding of 81.6 million, compared with a $0.40 net loss per share
  for the comparable period in fiscal year 2018, based on diluted
  weighted average shares outstanding of 78.8 million.
• Non-GAAP net income was $15.2 million for the third quarter of fiscal
  year 2019, compared with $4.2 million non-GAAP net income in the
  comparable period in fiscal year 2018. Non-GAAP net income per share
  was $0.18, based on diluted weighted average shares outstanding of
  82.6 million, compared with $0.05 net income per share in the
  comparable period in fiscal year 2018, based on diluted weighted
  average shares outstanding of 80.4 million.

Liquidity

• The Company had $1.2 billion in cash, cash equivalents, and
  investments at April 30, 2019, compared with $1.3 billion at July 31,
  2018. The Company generated $13.2 million in cash from operations
  during the nine months ended April 30, 2019.

Business Outlook

Guidewire is issuing the following outlook for the fourth fiscal quarter
and fiscal year of 2019 based on current expectations:

Conference Call Information

The webcast will be archived on Guidewire’s website (www.guidewire.com)
for a period of three months.

Non-GAAP Financial Measures

This press release contains the following non-GAAP financial measures:
Non-GAAP operating income (loss), Non-GAAP net income (loss), Non-GAAP
income tax provision (benefit), and Non-GAAP net income (loss) per
share. Non-GAAP operating income (loss) excludes stock-based
compensation and amortization of intangibles. 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. The estimated annual tax rates used in the
business outlook to compute GAAP and Non-GAAP net income exclude
discrete items such as forecasted tax benefits related to stock-based
compensation.

Guidewire believes that these non-GAAP financial measures 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. 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 delivers the industry platform that P&C insurers rely upon to
adapt and succeed in a time of accelerating change. We provide the
software, services, and partner ecosystem to enable our customers to
run, differentiate, and grow their business. We are privileged to serve
more than 350 companies in 40 countries. 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, market positioning, business momentum
and demand for Guidewire Cloud. 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, 10-K/A 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 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; our services revenue produces lower gross
margins than our license and maintenance revenue; assertions by third
parties that we violate their intellectual property rights could
substantially harm our business; we face intense competition in our
market; our products or cloud-based services may experience data
security breaches; changes in accounting guidance on revenue
recognition, such as contained in ASC 606, have and may cause us to
experience greater volatility in our quarterly and annual results; our
ability to remediate our material weakness that arose in connection with
the restatement of our financial statements for the years ended July 31,
2018 and 2017; 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.

Amounts include stock-based compensation expense as follows:

(1) Adjustments relate to amortization of acquired intangibles and
stock-based compensation recognized during the period for GAAP purposes.
(2)
Adjustments reflect the amortization of debt discount and issuance costs
related to the issuance of our Senior Convertible Notes recognized
during the period for GAAP purposes.
(3) Adjustments reflect the
tax benefit (provision) resulting from all non-GAAP adjustments.
(4)
Due to the occurrence of a net loss on a GAAP basis, potentially
dilutive securities were excluded from the calculation of GAAP earnings
per share, as they would have an anti-dilutive effect. However, as net
income was earned on a non-GAAP basis, these shares have a dilutive
effect on a non-GAAP earnings per share and are included here.

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