Guidewire Software, Inc. (GWRE) SEC Filing 10-Q Quarterly report for the period ending Wednesday, October 31, 2018
Total revenue for the first quarter of fiscal year 2019 was $179.7 million, an increase of 66% from the same quarter in fiscal year 2018. License and subscription revenue was $94.3 million, an increase of 213%; services revenue was $64.4 million, an increase of 9%; and maintenance revenue was $21.0 million, an increase of 11%. First quarter year-over-year growth comparisons were positively impacted by the adoption of ASC 606.
GAAP income from operations was $1.1 million for the first quarter of fiscal year 2019, compared with a $32.7 million loss in the comparable period in fiscal year 2018.
Non-GAAP income from operations was $31.7 million for the first quarter of fiscal year 2019, compared with an $8.3 million loss in the comparable period in fiscal year 2018.
GAAP net income was $5.5 million for the first quarter of fiscal year 2019, compared with an $8.9 million loss for the comparable period in fiscal year 2018. GAAP net income per share was $0.07, based on diluted weighted average shares outstanding of 82.2 million, compared with a $0.12 net loss per share for the comparable period in fiscal year 2018, based on diluted weighted average shares outstanding of 75.2 million.
Non-GAAP net income was $29.9 million for the first quarter of fiscal year 2019, compared with a $4.8 million net loss in the comparable period in fiscal year 2018. Non-GAAP net income per share was $0.36, based on diluted weighted average shares outstanding of 82.2 million, compared with a $0.06 net loss per share in the comparable period in fiscal year 2018, based on diluted weighted average shares outstanding of 75.2 million.
The Company had $1.2 billion in cash, cash equivalents, and investments at October 31, 2018, compared with $1.3 billion at July 31, 2018. The Company used $27.2 million cash from operations in the first quarter of fiscal year 2019, reflecting normal seasonal patterns.
The following information was filed by Guidewire Software, Inc. on Tuesday, December 4, 2018 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.
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- 18466300_46Revenue - ProductWe face a number of risks in the execution of our strategy including risks related to expanding to new markets, managing lengthy sales cycles, competing effectively in the global market, relying on sales to a relatively small number of large customers, developing new or acquiring existing products successfully, migrating a portion of our business to a more ratable revenue recognition model as we bring to market more cloud-based solutions, and increasing the overall adoption of our products.
- 18466300_261Financial - ExpenseThe increase in our interest expense is due to the non-cash interest expense of $3.0 million related to the amortization of debt discount and issuance costs, and stated interest of $1.2 million associated with the Convertible Senior Notes issued in March 2018.
- 18466300_222Financial - ExpenseThe resulting $6.6 million increase was primarily attributable to $4.4 million increase in personnel expenses and cloud infrastructure costs incurred in order to support the growth of our subscription and cloud offerings, an increase of $1.2 million related to the amortization of intangible assets, and a $0.5 million increase in royalties.
- 18466300_140Revenue - ProductIn substantially all of our professional service contracts, services are separately identifiable performance obligations for which related revenue and costs are recognized according to when each respective service obligation is delivered.
- 18466300_104Other - OtherIdentification of the performance obligation in the contract Performance obligations promised in a contract are identified based on the services or products that will be transferred to the customer that are both: capable of being distinct, whereby the customer can benefit from the service or product either on its own or together with other resources that are readily available from third parties or from our own services or products, and distinct in the context of the contract, whereby the transfer of the services or products is separately identifiable from other promises in the contract.
- 18466300_289Revenue - ProductNet cash used in investing activities increased by $42.3 million for the three months ended October 31, 2018 as compared to cash provided by investing activities during the three months ended October 31, 2017 primarily due to $41.3 million in net cash outflows resulting from sales and purchases of marketable securities, and a $1.0 million increase in capital expenditures.
- 18466300_231Revenue - ProductWe intend to continue to invest in our cloud operations as our subscription revenue increases, which will impact license and subscription margins.
- 18466300_283Revenue - ProductIn particular, we typically use more cash during the first fiscal quarter ended October 31, as we generally pay cash bonuses to our employees for the prior fiscal year during that period and pay seasonally higher sales commissions from increased customer orders booked in our fourth fiscal quarter.
- 18466300_245Revenue - ProductThe $8.7 million increase in sales and marketing expenses during the three months ended October 31, 2018, compared to the same period a year ago, was primarily attributable to an increase in personnel expenses of $4.3 million due to higher headcount to sell our products, an increase of $1.9 million in marketing and advertising expenses resulting from the timing of expenses for our annual Connections User Conference, which occurred in the first quarter of our current fiscal year compared to the second quarter in our prior fiscal year, and increased amortization expense of $1.5 million due to the Cyence acquisition, partially offset by the change in accounting for commission costs under ASC 606.
- 18466300_287Financial - Cash FlowThe following summary of cash flows for the periods indicated has been derived from our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q: Net cash used in operating activities decreased by $4.0 million for the three months ended October 31, 2018, compared to the three months ended October 31, 2017.
- 18466300_21Revenue - ProductWe must earn credibility with each successful implementation as we expand our sales operations, market products that have been acquired or newly introduced, and expand the ways we deliver our software.
- 18466300_183Revenue - ProductEffective with our adoption of ASC 606 on August 1, 2018, license revenue under term licenses is recognized upon delivery for the entire initial term rather than annually upon the earlier of receipt or when the payment is due.
- 18466300_22Revenue - ProductThe success of our sales efforts relies on continued improvements and enhancements to our current products, the introduction of new products, and the continued development of relevant local content and the automated tools that we believe are optimal for updating that content.
- 18466300_230Financial - EarningsThe increase in our gross margin is primarily attributable to the increased revenue recognized under the new revenue guidance as a result of adopting ASC 606, which was partially offset by decreased services gross margin as a result of increased personnel costs and third-party subcontractor costs to increase capacity for future implementations and incremental costs associated with a fixed-fee contract due to our continued investment in ongoing cloud implementations.
- 18466300_151Financial - ExpenseCosts to fulfill a contract, or fulfillment costs, mainly consist of royalties payable to third-party software providers that support both of our software offerings and support services.
- 18466300_202Revenue - GeographyThe increase is primarily driven by an increase in professional services relating to projects for new and existing customers, partially offset by the change in presentation of hosting revenue.
- 18466300_152Financial - ExpenseFulfillment costs are only capitalized if they relate directly to a contract with a customer, the costs generate or enhance resources that will be used to satisfy performance obligations in the future, and the costs are expected to be recoverable.
- 18466300_290Other - OtherNet cash provided by financing activities increased by $0.3 million for the three months ended October 31, 2018, as compared to the three months ended October 31, 2017 due to the exercise of employee stock options.
- 18466300_270Legal - OtherOn December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Act") was enacted into law which substantially changed U.S. tax law, including a reduction in the U.S. corporate income tax rate to 21% effective January 1, 2018 and several provisions that may impact us in current and future periods.
- 18466300_228Financial - EarningsOur gross margin increased to 54% during the three months ended October 31, 2018, compared to 42% for the corresponding prior year period.
- 18466300_44Revenue - ProductWe encourage our partners to co-market, pursue joint sales initiatives, and drive broader adoption of our technology, helping us grow our business more efficiently.
- 18466300_190Revenue - ProductAnother customer consolidated its contracts in the first quarter of fiscal year 2019 that resulted in $9.1 million of revenue being recognized during the three months ended October 31, 2018 that would have been recognized in later quarters in fiscal year 2019.
- 18466300_150MA - OtherThe amortization of customer acquisition costs are classified as sales and marketing expense in the condensed consolidated statement of operations.
- 18466300_88Other - OtherCertain accounting policies, methods and estimates are particularly sensitive because of their significance to the condensed consolidated financial statements and because of the possibility that future events affecting them may differ markedly from management?s current judgments.
- 18466300_262Financial - IncomeOther Income (Expense), Net Other income (expense), net consists primarily of foreign exchange gains and losses resulting from fluctuations in foreign exchange rates on receivables and payables denominated in currencies other than the U.S. dollar.
- 18466300_237Financial - ExpenseResearch and Development Our research and development expenses primarily consist of costs incurred for compensation and benefit expenses for our technical staff, including stock-based awards and professional services costs.
- 18466300_243Revenue - ProductSales and Marketing Our sales and marketing expenses primarily consist of costs incurred for compensation and benefit expenses for our sales and marketing employees, including stock-based awards and commissions.
- 18466300_15Revenue - ProductWe maintain and continue to grow our sales and marketing efforts globally, and maintain regional sales centers in the Americas, Europe and Asia.
- 18466300_198Revenue - ProductThe increase in our maintenance revenue reflects our growing term license customer base.
- 18466300_211Revenue - ProductWe also expect modestly higher levels of variability in our service revenue.
- 18466300_258Financial - IncomeThe increase in our interest income is associated with the increase in our investment portfolio primarily as a result of proceeds of approximately $220.9 million related to the common stock offering and $387.2 million related to the convertible note offering in March 2018 and, to a lesser extent, higher yields on invested funds.
- 18466300_285Revenue - ProductOur future capital requirements will depend on many factors, including our rate of revenue growth, the expansion of our sales and marketing activities, the timing and extent of our spending to support our research and development efforts, and expansion into other markets.
- 18466300_73Financial - ExpenseNet of issuance costs, we received proceeds of approximately $220.9 million related to the common stock offering and $387.2 million related to the convertible note offering.
- 18466300_133Revenue - ProductSubscription arrangements Revenue from subscription arrangements is recognized ratably over the subscription period using a time-based measure of progress as customers receive the benefits from their subscriptions over the contractually agreed-upon term.
- 18466300_274Financial - IncomeThese provisions of the Tax Act became effective for us beginning on August 1, 2018 and had no impact on our income tax benefit for the three months ended October 31, 2018.
- 18466300_67Financial - EarningsBecause we pay our services professionals the same amount throughout the year, our gross margins on our services revenue is usually lower in these quarters.
- 18466300_31Revenue - ProductRevenue derived from these subscriptions are recognized ratably over the contractual term beginning after the subscription is effectively provisioned, which is the date our software service is made available to customers.
- 18466300_90Revenue - ProductWhile we continue to evaluate our significant accounting policies to determine which ones involve the most judgment and complexity, aside from revenue recognition, as described herein, there have been no changes to our business combinations or other significant accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended July 31, 2018 that have had a material impact on our condensed consolidated financial statements and related notes.
- 18466300_105Other - OtherTo the extent a contract includes multiple promised services or products, we apply judgment to determine whether promised services or products are capable of being distinct and distinct in the context of the contract.
- 18466300_201Revenue - ProductServices Revenue Services revenue increased $5.3 million during the three months ended October 31, 2018, compared to the same period a year ago.
- 18466300_136Revenue - ProductMaintenance activities Revenue from maintenance activities associated with on-premise licenses is a stand-ready obligation, and is recognized over the contractually agreed-upon term using a time-based measure of progress as customers receive benefits from the availability of support technicians over the support period.
- 18466300_59Revenue - ProductFor example, in the first quarter of fiscal year 2019, we experienced license revenue growth due to the remediation of contracts in anticipation of the transition to ASC 606 and a 10-year term license deal under which revenue was recognized upfront under ASC 606, which will mask our usual positive seasonal impact in our second quarter of fiscal year 2019.
- 18466300_160Revenue - ProductAdditionally, a growing portion of our revenue is derived from subscriptions of our cloud-delivered software.
- 18466300_185Revenue - ProductDue to the ratable recognition of subscription revenue, growth in subscription revenue will lag behind the growth of subscription sales and will impact the comparative growth of our reported revenue.
- 18466300_242Financial - ExpenseResearch and development expenses may also increase if we pursue additional acquisitions.
- 18466300_36Revenue - ProductContinued investment in product innovation is critical as we seek to assist our customers obtain their IT goals, maintain our competitive advantage, grow our revenue, expand internationally, and meet evolving customer demands.
- 18466300_214Financial - ExpenseOur cost of license and subscription revenue primarily consists of personnel costs for our production services employees, cloud infrastructure costs, amortization of our acquired intangible assets, and royalty fees paid to third parties.
- 18466300_161Other - OtherWe adopted ASC 606 effective August 1, 2018 using the modified retrospective method.
- 18466300_200Revenue - ProductAs a result, we expect an increase in the mix of subscription orders in the future will reduce the growth in maintenance revenue.
- 18466300_54Revenue - ProductWe have historically experienced seasonal variations in our license and subscription revenue as a result of increased customer orders in our second and fourth fiscal quarters.
- 18466300_193MA - OtherThe increase is primarily attributable to $4.7 million in subscription billings from acquired products and services related to the Cyence acquisition, $4.4 million in additional subscription orders from new and existing customers, and $3.0 million of hosting revenue related to our subscription offerings that is included as subscription revenue under ASC 606 that was previously included as services revenue under ASC 605.
- 18466300_167Revenue - ProductTerm license revenue is generally fully recognized upon delivery of the software, which accelerates the timing of revenue recognition compared to previous accounting guidance.
- 18466300_32Revenue - ProductWe anticipate that sales of subscriptions will increase as a percentage of annual new sales as we sell more cloud-based services.
- 18466300_238Financial - ExpenseThe $9.8 million increase in research and development expenses during the three months ended October 31, 2018, as compared to the same period in the prior year, was due to increases in our headcount, primarily as a result of our Cyence acquisition that closed on November 1, 2017.
- 18466300_56Revenue - ProductWe also see significantly increased orders in our fourth fiscal quarter, which is the quarter ending July 31, due to efforts by our sales team to achieve annual incentives.
- 18466300_10Other - OtherOur data and analytics applications enable insurers to manage data more effectively, gain insights into their business, and underwrite new and evolving risks.
- 18466300_60Revenue - ProductOn an annual basis, our maintenance revenue which is recognized ratably, may also be impacted in the event that seasonal patterns change significantly.
- 18466300_169Revenue - ProductPerpetual license revenue is generally recognized upon delivery.
- 18466300_62Revenue - ProductThe seasonal nature of our sales and the concentration of such sales in our fiscal fourth quarter increases this impact.
- 18466300_280Revenue - GeographyWhile we have no current plans to repatriate these funds to the United States, we may repatriate foreign earnings in the future to the extent that the repatriation is not restricted by local laws or there are no substantial incremental costs associated with such repatriation.
- 18466300_241Financial - ExpenseWe expect our research and development expenses to continue to increase in absolute dollars as we continue to hire in research and development, and continue to dedicate internal resources to develop, improve and expand the functionality of our solutions.
- 18466300_28Revenue - ProductTerm and perpetual license revenue is typically recognized when software is made available to the customer, provided that all revenue recognition criteria have been met.
- 18466300_282Financial - Cash FlowWe expect that we will continue to generate positive cash flows from operations on an annual basis, although this may fluctuate significantly on a quarterly basis.
- 18466300_89Revenue - ProductWhile there are a number of accounting policies, methods, and estimates affecting our condensed consolidated financial statements, which are described in Note 1 "The Company and Summary of Significant Accounting Policies and Estimates" to our condensed consolidated financial statements, areas that are particularly significant include: Revenue recognition policies; and Business combinations.
- 18466300_226Financial - ExpenseThe resulting $12.5 million increase is due to a $7.6 million increase in personnel expenses and a $5.6 million increase for billable third-party consultants and sub-contractors to implement InsuranceNow and InsuranceSuite Cloud.
- 18466300_87Other - OtherThose judgments are normally based on knowledge and experience with regard to past and current events and assumptions about future events.
- 18466300_78Financial - Cash FlowAdditionally, operating cash flows take into account the impact of changes in deferred revenue, which reflects the receipt of cash payment for products before they are recognized as revenue, and unbilled accounts receivable, which reflects revenue that has been recognized that has yet to be invoiced to our customers.
- 18466300_192Revenue - ProductSubscription revenue increased by $12.1 million during the three months ended October 31, 2018 compared to the same period a year ago.
- 18466300_197Revenue - ProductMaintenance Revenue Maintenance revenue increased by $2.1 million during the three months ended October 31, 2018 compared to the same period a year ago.
- 18466300_33Revenue - ProductAs a result of the ratable recognition of revenue associated with subscriptions, a significant shift from term licenses to subscriptions will adversely affect our reported revenue growth.
- 18466300_34Revenue - ProductAs this relatively new sales model matures, we may decide to change certain terms to remain competitive or otherwise meet market demands.
- 18466300_187Revenue - ProductRevenue from existing contract renewals increased $20.7 million due to the timing of renewals and the recognition of the term license portion of renewals at the renewal date as opposed to over time under previous revenue recognition guidance.
- 18466300_278Financial - DebtSubstantially all of our investments are comprised of corporate debt securities, U.S. government and agency debt securities, commercial paper and non-U.S. government securities, which include state, municipal and foreign government securities.
- 18466300_184Revenue - ProductWhile term licenses remain our predominant licensing model, we anticipate subscriptions will continue to grow as a percentage of annual sales in future periods.
- 18466300_240MA - OtherThe increase in headcount reflects our continued investment in our products, and includes 108 employees gained through the Cyence acquisition.
- 18466300_16Revenue - ProductStrong customer relationships are a key driver of our success given the long-term nature of our engagements and the importance of customer references for new sales.
- 18466300_269Financial - IncomeThe effective tax rate of (152)% for the three months ended October 31, 2018, differs from the statutory U.S. federal income tax rate of 21% mainly due to permanent differences for stock-based compensation, including excess tax benefits, research and development credits, the tax rate differences between the United States and foreign countries, foreign withholding taxes, and certain non-deductible expenses including executive compensation.
- 18466300_180Revenue - ProductA substantial majority of our services engagements generate revenue on a time and materials basis and revenue is recognized upon providing our services.
- 18466300_252Financial - ExpenseThe $0.3 million decrease during the three months ended October 31, 2018, compared to the same period a year ago, was primarily attributable to a decrease in professional services of $4.0 million, partially offset by an increase in personnel expenses of $3.6 million due to higher headcount to support our growth.
- 18466300_219Financial - ExpenseWe allocate overhead such as information technology support, information security, facilities, and other administrative costs to all functional departments based on headcount.
- 18466300_235Financial - ExpenseWe allocate overhead such as information technology support, information security, facilities, and other administrative costs to all functional departments based on headcount.
- 18466300_125Other - OtherSome of our performance obligations, such as maintenance, implementation services, and training services, have observable inputs that are used to determine the SSP of those distinct performance obligations.
- 18466300_271Financial - IncomeThe Tax Act includes a provision to tax global intangible low-taxed income ("GILTI") of foreign subsidiaries, a special deduction for foreign-derived intangible income, and a base erosion anti-abuse tax measure that taxes certain payments between a U.S. corporation and its foreign subsidiaries.
- 18466300_218Financial - ExpenseIn each case, personnel costs include salaries, bonuses, benefits, and stock-based compensation.
- 18466300_63Revenue - ProductOur services revenue is also subject to seasonal fluctuations, though to a lesser degree than our license revenue.
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- Form Type: Quarterly
- Number of times amended: 0
- Accession Number: 0001528396-18-000048
- Submitted to the SEC: Thursday, December 6, 2018 6:54:54 AM EST
- Accepted by the SEC: Thursday, December 6, 2018
- Period ending: October 2018
- Industry: Prepackaged Software
Positive and negative sentiment analysis is available in these filings:
Guidewire Software, Inc.
Intrinsic Value, Financial Stability and Ratios