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Guidewire Announces Second Quarter Fiscal Year 2024 Financial Results

"We are pleased with the continued cloud momentum, enabling us to beat and raise our ARR outlook and deliver 65% non-GAAP subscription and support gross margins in the quarter," said Jeff Cooper, chief financial officer, Guidewire. "Our fiscal year 2024 revenue outlook change is due to lower expected services revenue, as we are seeing success with our SI partners leading more cloud engagements at a pace that is faster than we originally expected. We are maintaining our profitability outlook as strong subscription and support gross margin and operating expense discipline offset the impact of lower services revenue."

Second Quarter Fiscal Year 2024 Financial Highlights

Revenue

• Total revenue for the second quarter of fiscal year 2024 was $240.9 million, an increase of 4% from the same quarter in fiscal year 2023. Subscription and support revenue was $131.6 million, an increase of 24%; services revenue was $38.2 million, a decrease of 29%; and license revenue was $71.1 million, a decrease of 3%, each as compared to the same quarter in fiscal year 2023.
• As of January 31, 2024, annual recurring revenue, or ARR, was $800 million, compared to $763 million as of July 31, 2023. ARR results for interim quarterly periods in fiscal year 2024 are based on actual currency rates at the end of fiscal year 2023, held constant throughout the year.

Profitability

• GAAP loss from operations was $12.4 million for the second quarter of fiscal year 2024, compared with GAAP loss from operations of $23.2 million for the same quarter in fiscal year 2023.
• Non-GAAP income from operations was $25.7 million for the second quarter of fiscal year 2024, compared with non-GAAP income from operations of $15.1 million for the same quarter in fiscal year 2023.
• GAAP net income was $9.7 million for the second quarter of fiscal year 2024, compared with GAAP net loss of $9.2 million for the same quarter in fiscal year 2023. GAAP net income per share was $0.12, based on diluted weighted average shares outstanding of 83.3 million, compared to a GAAP net loss per share of $0.11 for the same quarter in fiscal year 2023, based on diluted weighted average shares outstanding of 82.1 million.
• Non-GAAP net income was $39.1 million for the second quarter of fiscal year 2024, compared with non-GAAP net loss of $17.4 million for the same quarter in fiscal year 2023. Non-GAAP net income per share was $0.46, based on diluted weighted average shares outstanding of 86.8 million, compared to a non-GAAP net loss per share of $0.21 for the same quarter in fiscal year 2023, based on diluted weighted average shares outstanding of 82.1 million.

Liquidity and Capital Resources

• Guidewire had $932.7 million in cash, cash equivalents, and investments at January 31, 2024, compared to $927.5 million at July 31, 2023. Guidewire used $2.8 million in cash from operations during the six months ended January 31, 2024.

Business Outlook

Guidewire is issuing the following outlook for the third quarter of fiscal year 2024 based on current expectations:

• ARR between $815 million and $820 million
• Total revenue between $228 million and $234 million
• Operating loss between $(34) million and $(28) million
• Non-GAAP operating income between $4 million and $10 million

Guidewire is updating the outlook for fiscal year 2024 based on current expectations as follows:

• ARR between $852 million and $862 million
• Total revenue between $957 million and $967 million
• Operating loss between $(71) million and $(61) million
• Non-GAAP operating income between $82 million and $92 million
• Operating cash flow between $120 million and $140 million

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 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 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 acquisition consideration holdback. Non-GAAP net income (loss) and non-GAAP tax provision (benefit) also exclude the amortization of debt issuance costs from our convertible senior notes, gain on sale of strategic investment, and the related tax effects of the non-GAAP adjustments. Additionally, Non-GAAP net income (loss) per share excludes the interest expense on convertible debt. 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 and stock-based compensation.

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 contractual terms and invoicing activities for the current reporting period, which may not be the same as the timing and amount of revenue recognized. ARR reflects all fee changes due to contract renewals, non-renewals, expansion, cancellations, attrition, or renegotiations at a higher or lower fee arrangement that are effective as of the ARR reporting date. All components of the licensing and other arrangements that are not expected to recur (primarily perpetual licenses and professional services) are excluded from our ARR calculations. 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 revenue 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. During the six months ended January 31, 2024, the recurring license and support or subscription contract value recognized as services revenue was $5.2 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. Guidewire'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. Guidewire 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 Guidewire's financial measures with other software companies, many of which present similar non-GAAP financial measures and other metrics to investors.

Guidewire's management 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 Guidewire'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 Guidewire's business.

About Guidewire

Guidewire is the platform P&C insurers trust to engage, innovate, and grow efficiently. We combine digital, core, analytics, and machine learning to deliver our platform as a cloud service. More than 540 insurers in 40 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 more than 1,600 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 X (formerly known as Twitter) @Guidewire_PandC and LinkedIn.

NOTE: For information about Guidewire's trademarks, visit 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 targets, our future business momentum relating to our product leadership and cloud deals, and our associated business plan, 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 Guidewire 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 customer agreements and related revenue recognition may cause significant fluctuations in our results of operations, ARR, 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 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 and security; the timing, success, and number of professional services engagements and the billing rates and utilization of our professional services employees and contractors; recent global events (including, without limitation, the ongoing wars between Israel and Hamas and between Russia and Ukraine, escalating tensions in the South China Sea, high inflation, global pandemics, bank failures and associated financial instability and crises, and supply chain issues) and their impact on our employees and our business and the businesses of our customers, system integrator ("SI") partners, and vendors; data security breaches of our cloud-based services or products or unauthorized access to our or our customers' data; our competitive environment and changes thereto; issues in the development and use of artificial intelligence and machine learning combined with an uncertain regulatory environment; 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; the impact of new regulations and laws (including, without limitation, security, privacy, artificial intelligence and machine learning, tax regulations and laws, and accounting standards); 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; 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 in countries such as Argentina; and other risks and uncertainties. Past performance is not 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. Guidewire 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.

The following table summarizes our free cash flow for the periods indicated below:

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