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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 January 31, 2021. We experienced strong sales activity in the quarter across our core, cloud and analytics offerings, highlighted by a new Tier 1 customer in Europe," said Mike Rosenbaum, chief executive officer, Guidewire Software. "We also closed six cloud deals, five for InsuranceSuite and one for InsuranceNow, along with five standalone wins for our data and analytics solutions." Second Quarter Fiscal Year 2021 Financial Highlights Revenue Profitability Liquidity Business Outlook Guidewire is issuing the following outlook for the third quarter of fiscal year 2021 based on current expectations: Guidewire is issuing the following updated outlook for fiscal year 2021 based on current expectations: Conference Call Information What: Guidewire Software Second Quarter Fiscal Year 2021 Financial Results Conference Call When: Thursday, March 4, 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 13716551, Domestic (412) 317-6671, Passcode 13716551, International Webcast: http://ir.guidewire.com/ (live and replay) The webcast will be archived on Guidewires 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 Guidewires financial condition and results of operations. The Companys management uses these non-GAAP measures and other metrics to compare the Companys 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 Companys 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 Companys 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 Companys 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 Guidewires 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, future business momentum, customer interest in driving efficiencies, and future product development and releases 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 Guidewires control. Guidewires 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 Guidewires 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 Guidewires 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 Guidewires 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) January 31, 2021 July 31, 2020 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 331,387 $ 366,969 Short-term investments 814,845 766,527 Accounts receivable, net 92,581 114,242 Unbilled accounts receivable, net 81,591 49,491 Prepaid expenses and other current assets 48,560 45,989 Total current assets 1,368,964 1,343,218 Long-term investments 228,795 300,771 Unbilled accounts receivable, net 34,695 34,737 Property and equipment, net 73,130 65,235 Operating lease assets 103,706 103,797 Intangible assets, net 27,061 39,708 Goodwill 340,877 340,877 Deferred tax assets, net 122,659 101,565 Other assets 35,844 34,944 TOTAL ASSETS $ 2,335,731 $ 2,364,852 LIABILITIES AND STOCKHOLDERS EQUITY CURRENT LIABILITIES: Accounts payable $ 23,593 $ 22,634 Accrued employee compensation 64,249 58,547 Deferred revenue, net 97,510 118,311 Other current liabilities 25,371 25,706 Total current liabilities 210,723 225,198 Lease liabilities 121,770 119,408 Convertible senior notes, net 336,922 330,208 Deferred revenue, net 11,075 14,685 Other liabilities 10,578 18,585 Total liabilities 691,068 708,084 STOCKHOLDERS EQUITY: Common stock 8 8 Additional paid-in capital 1,559,473 1,499,050 Accumulated other comprehensive income (loss) (5,023) (5,246) Retained earnings 90,205 162,956 Total stockholders equity 1,644,663 1,656,768 TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 2,335,731 $ 2,364,852 GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands except share and per share data) Three Months Ended January 31, Six Months Ended January 31, 2021 2020 2021 2020 Revenue: Subscription and support $ 59,563 $ 49,550 $ 117,529 $ 98,581 License 77,912 76,520 143,195 130,883 Services 42,587 47,388 89,140 101,004 Total revenue 180,062 173,458 349,864 330,468 Cost of revenue(1): Subscription and support 40,158 28,212 77,164 53,145 License 2,834 2,904 5,771 5,461 Services 48,910 52,480 99,934 105,846 Total cost of revenue 91,902 83,596 182,869 164,452 Gross profit: Subscription and support 19,405 21,338 40,365 45,436 License 75,078 73,616 137,424 125,422 Services (6,323 ) (5,092 ) (10,794 ) (4,842 ) Total gross profit 88,160 89,862 166,995 166,016 Operating expenses(1): Research and development 53,194 49,954 105,809 96,450 Sales and marketing 39,216 37,339 75,860 70,355 General and administrative 22,820 20,599 44,000 41,838 Total operating expenses 115,230 107,892 225,669 208,643 Income (loss) from operations (27,070 ) (18,030 ) (58,674 ) (42,627 ) Interest income 2,015 6,958 4,804 14,594 Interest expense (4,651 ) (4,462 ) (9,271 ) (8,891 ) Other income (expense), net 6,805 (182 ) 9,373 (433 ) Income (loss) before provision for (benefit from) income taxes (22,901 ) (15,716 ) (53,768 ) (37,357 ) Provision for (benefit from) income taxes (14,249 ) 4,228 (24,926 ) (2,422 ) Net income (loss) $ (8,652 ) $ (19,944 ) $ (28,842 ) $ (34,935 ) Net income (loss) per share: Basic $ (0.10 ) $ (0.24 ) $ (0.34 ) $ (0.42 ) Diluted $ (0.10 ) $ (0.24 ) $ (0.34 ) $ (0.42 ) Shares used in computing net income (loss) per share: Basic 83,830,624 82,725,641 83,737,889 82,543,267 Diluted 83,830,624 82,725,641 83,737,889 82,543,267 (1)Amounts include stock-based compensation expense as follows: Three Months Ended January 31, Six Months Ended January 31, 2021 2020 2021 2020 (unaudited, in thousands) Stock-based compensation expense: Cost of subscription and support revenue $ 2,954 $ 1,886 $ 5,556 $ 3,519 Cost of license revenue 145 188 396 368 Cost of services revenue 5,578 5,469 11,121 10,801 Research and development 7,604 6,668 14,851 12,849 Sales and marketing 6,806 5,996 12,783 11,153 General and administrative 6,809 6,529 13,273 12,604 Total stock-based compensation expense $ 29,896 $ 26,736 $ 57,980 $ 51,294 GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands) Three Months Ended January 31, Six Months Ended January 31, 2021 2020 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (8,652 ) $ (19,944 ) $ (28,842 ) $ (34,935 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 10,434 10,758 20,971 21,644 Amortization of debt discount and issuance costs 3,380 3,198 6,715 6,354 Stock-based compensation 29,896 26,736 57,980 51,294 Changes to allowance for credit losses and revenue reserves 161 521 118 878 Deferred income tax (8,467 ) 3,014 (20,294 ) (4,361 ) Amortization of premium (accretion of discount) on available-for-sale securities, net 1,738 (652 ) 3,128 (2,012 ) Other non-cash items affecting net income (loss) 810 572 800 572 Changes in operating assets and liabilities: Accounts receivable (13,556 ) (22,308 ) 22,368 36,259 Unbilled accounts receivable (6,844 ) 6,085 (32,058 ) (17,018 ) Prepaid expenses and other assets 1,601 (2,081 ) 1,914 (3,527 ) Operating lease assets 4,672 2,153 91 4,493 Accounts payable (2,114 ) (1,023 ) (4,312 ) (4,032 ) Accrued employee compensation 17,357 10,986 3,844 (28,794 ) Deferred revenue (765 ) 1,126 (24,411 ) (23,583 ) Lease liabilities (4,103 ) (44 ) 2,669 241 Other liabilities (12,219 ) 377 (13,059 ) (2,137 ) Net cash provided by (used in) operating activities 13,329 19,474 (2,378 ) 1,336 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of available-for-sale securities (177,196 ) (194,641 ) (523,601 ) (601,403 ) Sales of available-for-sale securities 27,650 10,888 85,553 67,942 Maturities of available-for-sale securities 214,607 205,624 456,198 508,807 Purchases of property and equipment (3,610 ) (1,629 ) (5,517 ) (11,254 ) Capitalized software development costs (2,303 ) (864 ) (4,884 ) (2,210 ) Acquisition of strategic investments (2,000 ) Net cash provided by (used in) investing activities 59,148 19,378 5,749 (38,118 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock upon exercise of stock options 104 871 1,820 1,239 Repurchase and retirement of common stock (37,679 ) (42,679 ) Net cash provided by (used in) financing activities (37,575 ) 871 (40,859 ) 1,239 Effect of foreign exchange rate changes on cash and cash equivalents 2,649 (349 ) 1,906 (95 ) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 37,551 39,374 (35,582 ) (35,638 ) CASH AND CASH EQUIVALENTSBeginning of period 293,836 179,089 366,969 254,101 CASH AND CASH EQUIVALENTSEnd of period $ 331,387 $ 218,463 $ 331,387 $ 218,463 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 January 31, Six Months Ended January 31, 2021 2020 2021 2020 Gross profit reconciliation: GAAP gross profit $ 88,160 $ 89,862 $ 166,995 $ 166,016 Non-GAAP adjustments: Stock-based compensation 8,677 7,543 17,073 14,688 Amortization of intangibles 4,526 4,945 9,052 9,890 COVID-19 Canada Emergency Wage Subsidy benefit (1) (968 ) (968 ) Non-GAAP gross profit $ 100,395 $ 102,350 $ 192,152 $ 190,594 Income (loss) from operations reconciliation: GAAP income (loss) from operations $ (27,070 ) $ (18,030 ) $ (58,674 ) $ (42,627 ) Non-GAAP adjustments: Stock-based compensation 29,896 26,736 57,980 51,294 Amortization of intangibles 6,323 6,742 12,646 13,909 COVID-19 Canada Emergency Wage Subsidy benefit (1) (1,686 ) (1,686 ) Non-GAAP income (loss) from operations $ 7,463 $ 15,448 $ 10,266 $ 22,576 Net income (loss) reconciliation: GAAP net income (loss) $ (8,652 ) $ (19,944 ) $ (28,842 ) $ (34,935 ) Non-GAAP adjustments: Stock-based compensation 29,896 26,736 57,980 51,294 Amortization of intangibles 6,323 6,742 12,646 13,909 Amortization of debt discount and issuance costs 3,379 3,198 6,714 6,354 COVID-19 Canada Emergency Wage Subsidy benefit (1) (1,686 ) (1,686 ) Tax impact of non-GAAP adjustments (2) (20,232 ) 826 (23,375 ) (8,086 ) Non-GAAP net income (loss) $ 9,028 $ 17,558 $ 23,437 $ 28,536 Tax provision (benefit) reconciliation: GAAP tax provision (benefit) $ (14,249 ) $ 4,228 $ (24,926 ) $ (2,422 ) Non-GAAP adjustments: Stock-based compensation 8,138 4,329 (14,153 ) 8,529 Amortization of intangibles 1,721 1,092 (3,298 ) 2,319 Amortization of debt discount and issuance costs 920 518 (1,727 ) 1,058 COVID-19 Canada Emergency Wage Subsidy benefit (1) (459 ) (459 ) Tax impact of non-GAAP adjustments (2) 9,912 (6,765 ) 43,012 (3,820 ) Non-GAAP tax provision (benefit) $ 5,983 $ 3,402 $ (1,551 ) $ 5,664 (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. 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 January 31, Six Months Ended January 31, 2021 2020 2021 2020 Net income (loss) per share reconciliation: GAAP net income (loss) per share diluted $ (0.10 ) $ (0.24 ) $ (0.34 ) $ (0.42 ) Non-GAAP adjustments: Stock-based compensation 0.36 0.32 0.70 0.62 Amortization of intangibles 0.08 0.08 0.16 0.17 Amortization of debt discount and issuance costs 0.04 0.04 0.08 0.08 COVID-19 Canada Emergency Wage Subsidy benefit (1) (0.02 ) (0.02 ) Tax impact of non-GAAP adjustments (1) (0.24 ) 0.01 (0.28 ) (0.10 ) Non-GAAP dilutive shares excluded from GAAP net income (loss) per share calculation (2) (0.01 ) (0.02 ) (0.01 ) Non-GAAP net income (loss) per share diluted $ 0.11 $ 0.21 $ 0.28 $ 0.34 Shares used in computing Non-GAAP income (loss) per share amounts: GAAP weighted average shares diluted 83,830,624 82,725,641 83,737,889 82,543,267 Non-GAAP dilutive shares excluded from GAAP income (loss) per share calculation (2) 1,007,573 842,001 859,492 854,608 Pro forma weighted average shares diluted 84,838,197 83,567,642 84,597,381 83,397,875 (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 impact on the tax benefit (provision) resulting from all non-GAAP adjustments. (3) 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. Six Months Ended January 31, 2021 2020 Free cash flow: Net cash provided by (used in) operating activities $ (2,378 ) $ 1,336 Purchases of property and equipment (5,517 ) (11,254 ) Capitalized software development costs (4,884 ) (2,210 ) Free cash flow $ (12,779 ) $ (12,128 ) 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) Third Quarter Fiscal Year 2021 Fiscal Year 2021 Income (loss) from operations outlook reconciliation: GAAP income (loss) from operations (62.0 ) - (58.0 ) (138.0 ) - (130.0 ) Non-GAAP adjustments: Stock-based compensation 30.8 - 30.8 123.0 - 123.0 Amortization of intangibles 3.9 - 3.9 20.0 - 20.0 COVID-19 Canada Emergency Wage Subsidy benefit (1.5 ) - (1.5 ) (3.2 ) - (3.2 ) Non-GAAP income (loss) from operations (28.8 ) - (24.8 ) 1.8 - 9.8

Answer: Guidewire Software Announces Second Quarter Fiscal Year 2021 Financial Results