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Automatic Data ProcessingTable of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549________________________________________ FORM 10-K ________________________________________(Mark one)x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended July 31, 2014OR¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to .Commission file number: 001-35394________________________________________ Guidewire Software, Inc.(Exact name of registrant as specified in its charter)________________________________________ Delaware 36-4468504(State or other jurisdiction ofIncorporation or organization) (I.R.S. EmployerIdentification No.)1001 E. Hillsdale Blvd., Suite 800 Foster City, California, 94404(Address of principal executive offices, including zip code)(650) 357-9100(Registrant’s telephone number, including area code)________________________________________ Securities registered pursuant to Section 12(b) of the Act:(Title of class) (Name of exchange on which registered)Common Stock, $0.0001 par value New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act:None________________________________________ Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit andpost such files). Yes x No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§232.405 of this chapter) is not contained herein, and will not be contained, tothe best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or in any amendment to this Form 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filerx Accelerated filer¨Non-accelerated filer¨ (Do not check if a smaller reporting company) Smaller reporting company¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No xThe aggregate market value of common stock held by non-affiliates of the registrant, computed by reference to the closing price at which the common stock was sold onJanuary 31, 2014, the last business day of the registrant’s most recently completed second fiscal quarter, as reported on the New York Stock Exchange, was approximately $2.3 billion.Shares of common stock held by each executive officer, director and holder of 5% or more of the outstanding common stock have been excluded in that such persons may be deemedto be affiliates. This determination of affiliate status does not reflect a determination that such persons are affiliates of the registrant for any other purpose.On August 31, 2014, the registrant had 69,118,468 shares of common stock outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s definitive Proxy Statement relating to its 2014 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report onForm 10-K where indicated. Such Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this reportrelates. Table of ContentsGuidewire Software, Inc.Table of Contents Part IItem 1.Business1Item 1A.Risk Factors8Item 1B.Unresolved Staff Comments23Item 2.Properties23Item 3.Legal Proceedings24Item 4.Mine Safety Disclosures24 Part IIItem 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities25Item 6.Selected Financial Data26Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations29Item 7A.Quantitative and Qualitative Disclosures About Market Risk48Item 8.Financial Statements and Supplementary Data50Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosures79Item 9A.Controls and Procedures79Item 9B.Other Information80 Part IIIItem 10.Directors, Executive Officers and Corporate Governance80Item 11.Executive Compensation80Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters81Item 13.Certain Relationships and Related Transactions, and Director Independence81Item 14.Principal Accounting Fees and Services81 Part IVItem 15.Exhibits, Financial Statement Schedules82 i Table of ContentsFORWARD-LOOKING STATEMENTSThe Business section, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and other parts of this Annual Reporton Form 10-K and certain information incorporated herein by reference contain forward-looking statements within the meaning of the Securities Act of1933 and the Securities Exchange Act of 1934, which are subject to risks and uncertainties. The forward-looking statements include statements concerning,among other things, our business strategy (including anticipated trends and developments in, and management plans for, our business and the markets inwhich we operate), financial results, operating results, revenues, gross margins, operating expenses, products, projected costs and capital expenditures,research and development programs, sales and marketing initiatives and competition. In some cases, you can identify these statements by forward-lookingwords, such as “will,” “may,” “might,” “should,” “could,” “estimate,” “expect,” “suggest,” “believe,” “anticipate,” “intend,” “plan” and “continue,” thenegative or plural of these words and other comparable terminology. Actual events or results may differ materially from those expressed or implied by thesestatements due to various factors, including but not limited to the matters discussed below, in the section titled “Item 1A. Risk Factors,” and elsewhere inthis Annual Report on Form 10-K. Examples of forward-looking statements include statements regarding:•growth prospects of the Property & Casualty (“P&C”) insurance industry and our company;•trends in our future sales, including seasonality;•opportunities for growth by technology leadership;•competitive advantages of our platform of software application solutions;•our market strategy in relation to our competitors;•competitive attributes of our software application solutions;•opportunities to further expand our position outside of the United States;•our research and development investment and efforts;•our gross margins and factors that affect gross margins;•our provision for tax liabilities and other critical accounting estimates;•our exposure to market risks, and;•our ability to satisfy future liquidity requirements.Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. The forward-looking statements containedin this Annual Report on Form 10-K are based on information available to us as of the filing date of this Annual Report on Form 10-K and our currentexpectations about future events, which are inherently subject to change and involve risks and uncertainties. You should not place undue reliance on theseforward-looking statements.We do not undertake any obligation to update any forward-looking statements in this report or in any of our other communications, except asrequired by law. All such forward-looking statements should be read as of the time the statements were made and with the recognition that these forward-looking statements may not be complete or accurate at a later date. _________________________________________________________Unless the context requires otherwise, we are referring to Guidewire Software, Inc. when we use the terms “Guidewire,” the “Company,” “we,” “our” or“us.”ii Table of ContentsItem 1.BusinessOverviewGuidewire Software, Inc. is a provider of software products for Property & Casualty (“P&C”) insurers. Our software serves as a platform fortransformation for P&C insurance carriers, enabling them to replace their legacy systems and transform their business. Guidewire InsuranceSuite™ providesthe flexible, core systems essential for the mission-critical operations of P&C carriers: underwriting, policy administration, billing and claims management.Our software provides the flexibility insurers need to deliver insurance the way they want to by rapidly delivering better products and service to theirpolicyholders and agents, while improving underwriting discipline and lowering operational costs.We have developed an integrated suite of highly configurable applications that support our customers’ most fundamental business processes. Oursoftware product architecture enables extensive configurability of business rules, workflows and user interfaces without modifications to the underlying codebase. This approach allows our customers to easily make changes in response to specific, evolving business needs. More recently, we have created, and areinvesting in, adjacent products to our core products, which provide added value to our customers.Our solutions are delivered through a web-based interface and can be deployed either on-premise or in cloud environments. Our customers typicallychoose to deploy our products on-premise due to security requirements and numerous integration points with other systems. To support the global operationsof our customers, our software has been localized for use in a variety of international regulatory, language and currency environments.Our Guidewire InsuranceSuite enables mission-critical P&C insurance operations and is comprised of:•Guidewire PolicyCenter—A flexible underwriting and policy administration application that serves as a comprehensive system-of-record forpolicies and supports the entire policy administration lifecycle;•Guidewire ClaimCenter—An end-to-end claims management application for claim intake, assessment, settlement and processing of relatedfinancial transactions; and•Guidewire BillingCenter—A comprehensive billing and receivables application that enables flexible billing, payment and commission options.Our more recent product initiatives include:•InsuranceSuite Add-on Modules—Additional modules which add additional flexibility and functionality to our core products.•Data Management and Business Intelligence—Products to assist insurers to better map and convert data into new core systems and to create acentral data hub that can keep downstream processes intact and deliver an enterprise-wide view and insights to fine-tune the business.•Guidewire Live —A cloud-based network connecting peer insurers, core system data and external data. Customers access Guidewire Livethrough applications which enable more informed, context-driven decisions and actions.•Mobile and Portals - Products that create real-time, self-service portals for people outside the corporate intranet.Strong customer relationships are a key component of our business, which supports the long-term nature of our contracts and importance of customerreferences for new sales. Our customers range from some of the largest global insurance carriers or their subsidiaries such as Tokio Marine & Nichido FireInsurance Co., Ltd. and Zurich Financial Services Group Ltd., to national carriers such as Nationwide Mutual Insurance Company, to regional carriers such asAAA affiliates. As of July 31, 2014, we had 183 customers.We began our principal business operations in 2001 and sold the initial versions of ClaimCenter in 2003, PolicyCenter in 2004 and BillingCenter in2006. We conducted our initial public offering of our common stock on January 25, 2012 and follow-on public offerings of our common stock on April 19,2012 and October 22, 2013. We primarily generate software license revenues through annual license fees that recur during the multi-year term of a customer’scontract. The average initial length of our contracts is approximately five years, and these contracts are renewable on an annual or multi-year basis. Wetypically invoice our customers annually in advance or, in certain cases, quarterly for both recurring term license and maintenance fees, and we invoice ourperpetual license customers either in full at contract signing or on an installment basis and we invoice related maintenance fees annually, in advance. Weprimarily derive our services revenues from implementation and training services performed for our customers. A significant majority of services are billed ona time and materials basis and recognized as revenues upon delivery of the services.1 Table of ContentsBackgroundThe P&C insurance industry is large, fragmented, highly regulated and complex. The P&C insurance industry is highly competitive and carrierscompete primarily on the following factors: product differentiation, pricing options, customer service, marketing and advertising, affiliate programs andchannel strategies. The key functional areas in P&C insurance are underwriting and policy administration, claims management and billing. Underwriting andpolicy administration are the cornerstone functions of all P&C insurance carriers’ operations.These processes involve collecting information from potential policyholders, determining appropriate coverages and terms, pricing the policy, issuingthe policy and updating and maintaining the policy over its lifetime. Claims management includes loss report intake, investigation and evaluation ofincidents, claims negotiation, payment processing and litigation management. Billing includes account creation, policyholder invoicing, paymentcollection, commission calculation and disbursement.Effective policy management requires IT systems that integrate with other internal systems and have the ability to control workflow, enable extensiveconfigurability and provide visibility to every user. The varying regulatory requirements of each region requires customization of data and business rules,rendering the design of comprehensive IT solutions on a regional, national and global basis a major challenge for IT providers serving this industry.Additionally, stringent archiving and audit requirements, along with frequent changes in regulatory policy, have imposed a significant burden on IT systemsand staff, which struggle to adequately support such requirements in IT environments dominated by legacy core systems. P&C insurance carriers spendconsiderable amounts of time and capital on software to maintain and attempt to improve legacy systems, manage workflows in highly distributedenvironments and respond to changing and interrelated customer and employee needs.ProductsWe provide an integrated suite of software applications built on a unified platform that address the core processes for P&C insurance carriers:underwriting and policy administration, claims management and billing. Additionally, we provide adjacent products, which integrate with our core softwareapplications and address ancillary customer needs. Our customers buy our software applications separately or in combination as a suite.Guidewire InsuranceSuiteGuidewire InsuranceSuite includes each of our individual applications: PolicyCenter, ClaimCenter and BillingCenter. We have built our suite ofapplications on a unified technology platform, providing enhanced workflow and functionality between applications.Guidewire PolicyCenterGuidewire PolicyCenter is our flexible underwriting and policy administration application that serves as a comprehensive system-of-record supportingthe entire policy lifecycle, including product definition, underwriting, quoting, binding, issuances, endorsements, audits, cancellations and renewals.Guidewire ClaimCenterGuidewire ClaimCenter is our claims management application for claim intake, assessment, settlement and processing of claim-related financialtransactions. ClaimCenter enables claims lifecycle management improvements including dynamic, intuitive loss report intake, advanced adjudicationprocesses and integrated operational reporting. ClaimCenter provides P&C insurance carriers with modern productivity tools built within a sophisticatedbusiness rules-based claims application.Guidewire BillingCenterGuidewire BillingCenter is our billing and receivables management application. It automates the billing lifecycle, enables the design of a wide varietyof billing and payment plans, manages agent commissions and integrates with external payment systems.InsuranceSuite Add-on ModulesWe also offer the following add-on modules for InsuranceSuite:Guidewire Rating Management. Guidewire Rating Management enables P&C insurance carriers to manage the pricing of their insurance products.Guidewire Reinsurance Management. Guidewire Reinsurance Management enables P&C insurance carriers to use rules-based logic to execute theirreinsurance strategy through their underwriting and claims processes.2 Table of ContentsGuidewire Client Data Management. Guidewire Client Data Management helps P&C insurance carriers capitalize on customer information morecoherently, overcoming traditional siloed practices that impair efficiency and customer service.Guidewire Standards-Based Templates. Guidewire Standards-Based Templates help facilitate both initial implementation and ongoing maintenance ofISO-based insurance products.Data Management and Business Intelligence (“BI”)Guidewire DataHub. Guidewire DataHub is an operational data store that unifies, standardizes and stores data from the patchwork of an insurer’ssystems as well as external sources, which also enables carriers to accelerate legacy system replacement.Guidewire InfoCenter. Guidewire InfoCenter is a business intelligence warehouse for P&C insurers which provides information in easy-to-use formatsfor business intelligence, analysis and enhanced decision making. With InfoCenter, customers gain operational insight as well as fine-tune their business bybuilding views and understanding across the enterprise.Guidewire LiveGuidewire Live is a cloud-based network connecting peer insurers, core system data and external data through applications. Customers accessGuidewire Live through applications which enable more informed, context-driven decisions and actions.Guidewire Mobile & PortalsOur Mobile & Portals products provide the ability to create real-time, self-service portals for people outside the corporate intranet of our customers.These portals extend business rules and product models already defined in their Guidewire core systems improving speed to market and lowering the cost ofportal maintenance.TechnologyWe developed our suite of applications on our unified technology platform, which combines standards-based elements and proprietary components.We based our platform on the most common software industry standard, Java EE, and SaaS-based platform to provide flexibility and deployability into P&Cinsurance carrier enterprise environments worldwide. P&C insurance carrier IT departments can manage and administer our applications through theirdevelopment, test and production environments by leveraging the broad set of supporting infrastructure and proprietary tools we have built around the JavaEE framework.ServicesWe provide implementation and integration services to help our customers realize benefits from our software products. Guidewire implementationteams assist customers in building implementation plans, integrating our software with their existing systems and defining business rules and specificrequirements unique to each customer and installation. We also partner with several leading system integration consulting firms, certified on our software, toachieve scalable, cost-effective implementations for our customers.CustomersWe market and sell our products to a wide variety of global P&C insurance carriers ranging from some of the largest global insurers to national carriersto regional carriers. We believe strong customer relationships are a key driver of our success given the long-term nature of our contracts and importance ofcustomer references for new sales. We focus on developing and maintaining our customer relationships through customer service and account management.As of July 31, 2014, we had 183 customers in 21 countries using one or more of our products.Strategic RelationshipsWe have extensive relationships with system integration, consulting and industry partners. Our network of partners has expanded as the interest in andadoption of our products has grown. We encourage our partners to co-market, pursue joint sales initiatives and drive broader adoption of our technology,helping us grow our business more efficiently and enabling us to focus our engineering resources on continued innovation and further enhancement of oursolutions.3 Table of ContentsSales and MarketingConsistent with our industry focus and the mission-critical needs our products address, our sales and marketing efforts are tailored to communicateeffectively to senior executives within the P&C industry. Our sales, marketing and executive teams work together to cultivate long-term relationships withour current and prospective customers in each of the geographies in which we are active.As of July 31, 2014, we employed 219 employees in a sales and marketing capacity, including 36 direct sales representatives organized by geographicregion across the U.S., Canada, U.K., France, Germany, the Nordics, Eastern Europe, Australia, Japan and China. This team serves as both our exclusive saleschannel and our account management function. We augment our sales professionals with a presales team possessing insurance domain and technicalexpertise, who engage customers in sessions to understand their specific business needs and then represent our products through demonstrations tailored toaddress those needs.Our marketing team supports sales with competitive analysis and sales tools, while investing to strengthen our brand name and reputation. Weparticipate at industry conferences, are published frequently in the industry press and have active relationships with all of the major industry analysts. Wealso host Connections, our annual user conference where customers both participate in and deliver presentations on a wide range of Guidewire and insurancetechnology topics. We invite potential customers and partners to our user conference, as we believe customer references are a key component of driving newsales. Our strong relationships with leading system integrators enhance our direct sales through co-marketing efforts and providing additional marketvalidation of our products’ distinctiveness and quality.Research and DevelopmentOur research and development efforts reflect the extensive IT needs of P&C insurance carriers. These systems are required to perform millions ofcomplex transactions that must balance on a daily basis. This accuracy must be maintained not only during normal business operations, but also duringextraordinary events such as catastrophes, which may result in extremely high transaction volume in a short period of time. Our research and developmentefforts focus on enhancing our products to meet the increasingly complex requirements of P&C insurance carriers and broadening our suite of applicationswith new product initiatives to form an end-to-end software platform for P&C insurance carriers.As of July 31, 2014, our research and development department had 328 employees. We incurred $76.2 million, $63.0 million and $49.1 million inresearch and development expenses for fiscal years 2014, 2013 and 2012, respectively.CompetitionThe market to provide core system software to the P&C insurance industry is highly competitive and fragmented. This market is subject to changingtechnology, shifting customer needs and introductions of new products and services. Our competitors vary in size and in the breadth and scope of theproducts and services offered. Our current principal competitors include:Internally developed software Many large insurance companies have sufficient IT resources to maintain and augment their ownproprietary internal systems, or consider developing new custom systems;IT services firms Firms such as Accenture, CSC, MajescoMastek and Tata Consultancy Services Limited offer software andsystems or develop custom, proprietary solutions for the P&C insurance industry;P&C insurance software vendors Vendors such as Accenture, Majesco Mastek, FINEOS, Innovation Group, ISCS, OneShield, Inc.,StoneRiver, Inc., Sapiens International Corporation, Exigen, and TIA Technology A/S provide softwaresolutions that are specifically designed to meet the needs of P&C insurance carriers; andHorizontal software vendors Vendors such as Pegasystems Inc. and SAP AG offer software that can be customized to address the needs ofP&C insurance carriers.The principal competitive factors in our industry include total cost of ownership, product functionality, flexibility and performance, customerreferences and in-depth knowledge of the P&C insurance industry. We believe that we compete favorably with our competitors on the basis of each of thesefactors. However, many of our current or potential competitors have greater financial and other resources, greater name recognition and longer operatinghistories than we do.4 Table of ContentsIntellectual PropertyOur success and ability to compete depend in part upon our ability to protect our proprietary technology, to establish and adequately protect ourintellectual property rights, and to protect against third claims and litigation related to intellectual property. To accomplish these objectives, we rely on acombination of patent, trademark, copyright and trade secret laws in the United States and other jurisdictions, as well as license agreements and othercontractual protections. We own or have pending, a significant number of patents and patent applications, which generally apply to our software. Our ownedpatents have expiration dates starting in 2026. We also rely on several registered and unregistered trademarks, and applications for registrations, to protectour brand, both in the United States and internationally. Given the costs, effort, risks and downside of obtaining patent and trademark protection, includingthe requirement to ultimately disclose the invention to the public for patent protection, we may choose not to seek protection for certain innovations andmarks; however, such protection could later prove to be important to our business.The software industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patent and otherintellectual property rights. In particular, leading companies in the software industry have extensive patent portfolios. From time-to-time, third parties,including certain of these leading companies, may assert patent, copyright, trademark or other intellectual property claims against us or our customers. In thisregard, we were previously sued by Accenture, a competitor, in the U.S. District Court for the District of Delaware. Our patent litigation with Accenture hasbeen settled and concluded, and is further described in “Legal Proceedings” in Item 3 of Part I of this Annual Report on Form 10-K.EmployeesAs of July 31, 2014, we had 1,183 employees, including 219 in sales and marketing, 516 in services and support, 328 in research and development and120 in a general and administrative capacity. As of July 31, 2014, we had 788 employees in the United States and 395 employees internationally. None ofour employees is represented by a labor union with respect to his or her employment with us. We have not experienced any work stoppages and we considerour relations with our employees to be good.Information about Segment and Geographic RevenueInformation about segment and geographic revenue is set forth in Note 10 of the Notes to Consolidated Financial Statements under Item 8 of thisAnnual Report on Form 10-K.SeasonalityWe sign a significantly higher percentage of software license orders in the second and fourth quarters of each fiscal year. We generally see increasedorders in our second fiscal quarter, which is the quarter ended January 31, due to customer buying patterns. We also see increased orders in our fourth fiscalquarter due to efforts by our sales team to achieve annual incentives. As a result, a significantly higher percentage of our annual license revenues havehistorically been recognized during those quarters. Since a substantial majority of our license revenues recur annually under our multi-year contracts, weexpect to continue to experience this seasonality effect in subsequent years. Our maintenance and services revenues are not as impacted by this seasonaltrend.Executive Officers of the RegistrantOur current executive officers, and their ages and positions as of September 15, 2014, are set forth below:Name Age Position(s)Marcus S. Ryu 41 President, Chief Executive Officer, Co-Founder and DirectorKaren Blasing 58 Chief Financial OfficerPriscilla Hung 47 Chief Administrative OfficerJ. Winston King 42 General Counsel and SecretaryMichael Polelle 50 Chief Customer OfficerScott Roza 48 Senior Vice President, Worldwide SalesMarcus S. Ryu co-founded Guidewire and has served as our President and Chief Executive Officer since 2010 and as a member of our board of directorssince 2001. He served as our Vice President of Products from 2008 to 2010 and our Vice President of Strategy from 2001 to 2008. Prior to foundingGuidewire, from 2000 to 2001, Mr. Ryu was Vice President of Strategy at Ariba, Inc., a software-as-a-service provider of collaborative business commercesolutions for buying and selling5 Table of Contentsgoods and services. Mr. Ryu also worked as an Associate and Engagement Manager at McKinsey & Company from 1998 until 2000. Mr. Ryu holds an A.B.from Princeton University and a B.Phil. from New College, Oxford University.Karen Blasing has served as our Chief Financial Officer since 2009. Prior to joining Guidewire, from 2006 to 2009, Ms. Blasing was Chief FinancialOfficer at Force10 Networks, Inc., a network solutions provider acquired by Dell Inc. From 2002 to 2005, Ms. Blasing was Chief Financial Officer at NuanceCommunications, Inc., a speech and imaging software developer. Ms. Blasing holds a B.A. in Economics and a B.A. in Business Administration, Finance fromthe University of Montana and an M.B.A. from the University of Washington.Priscilla Hung has served as our Chief Administrative Officer since September 2014, and Senior Vice President of Operations & CorporateDevelopment since September 2012, Vice President of Operations since 2010, and Vice President of Corporate Development & Alliances from 2005 to 2010.Prior to joining Guidewire in 2005, from 2000 to 2005 Ms. Hung held several management positions at Ariba Inc., including the Director of Operations andDirector of Global Channels and Alliances, and prior to that held several channel, business development, and product marketing positions at SunMicrosystems, Uniface/Compuware, Pyramid/Siemens Nixdorf, and Oracle Corporation. Ms. Hung holds an M.Eng Industrial Engineering and OperationsResearch degree from Cornell University.J. Winston King has served as our General Counsel and Secretary since January 2013. Before joining Guidewire, Mr. King worked at Infogroup, Inc., amultinational data, marketing services and research firm, from 2007 to 2012, where he most recently was EVP, General Counsel and Secretary. Prior to that,Mr. King practiced with the WilmerHale law firm, in their Washington, DC office. Mr. King holds a A.B. in economics from Duke University and a J.D. fromVanderbilt University School of Law.Michael Polelle has served as our Chief Customer Officer since April 2014, responsible for Guidewire’s professional services including Consulting,Education and Support. Prior to joining Guidewire, Mr. Polelle was Senior Vice President for Americas Services for JDA, a leading supplier of enterprisesupply chain systems, where he led the organization through several transformations including the merger with Red Prairie, from May 2010 to April 2014.Prior to that, Mr. Polelle served as Vice President of North American Services for both Manugistics, a supplier of resource planning and supply chain software,from March 2000 to May 2005, and QAD, an Enterprise Resource Planning software provider, from May 2005 to May 2010. He holds B.S. in Applied Math,Engineering, and Physics from the University of Wisconsin and an M.B.A. in Operations Management from the University of Minnesota.Scott Roza has served as our Senior Vice President, Worldwide Sales since November 2013, responsible for Guidewire’s worldwide sales and pre-salesconsulting teams. Prior to joining Guidewire, Mr. Roza served as Chief Executive Officer of Skytap, Inc., a provider of Environments as a Service, fromFebruary 2008 to July 2013. Prior to Skytap, he was Vice President of Worldwide OEM and Channel Sales for Hewlett Packard/Opsware’s Business ServiceAutomation business unit from April 2007 to February 2008, as well as Vice President of Marketing and Business Development for iConclude, an automationservices company, from January 2006 to April 2007. Prior to iConclude, Mr. Roza served as Vice President, Sales and Marketing, for Advanced DigitalInformation Corporation, a public data storage company, from September 2001 to January 2006. He has also worked as a consultant for McKinsey and Co.,and served five years in the United States Navy as a Submarine Officer. Mr. Roza holds a B.S. degree in Marine Engineering from the United States NavalAcademy, an M.S. degree in Mechanical Engineering from University of Maryland, an M.S. degree in Mechanical Engineering from Massachusetts Instituteof Technology, and an M.B.A. from Massachusetts Institute of Technology’s Sloan School.WHERE YOU CAN FIND MORE INFORMATIONThe following filings are available through our investor relations website after we file them with the Securities and Exchange Commission (“SEC”):Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and our Proxy Statement for our annual meeting ofstockholders. These filings are also available for download free of charge on our investor relations website. Our website is located at www.guidewire.com, andour investor relations website is located at http://ir.guidewire.com/. We also provide a link to the section of the SEC’s website at www.sec.gov that has all ofour public filings, including periodic reports, proxy statements and other information. Further, a copy of this Annual Report on Form 10-K is located at theSEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained bycalling the SEC at 1-800-SEC-0330.We webcast our earnings calls and certain events we participate in or host with members of the investment community on our investor relations website.Additionally, we provide notifications of news or announcements regarding our financial performance, including SEC filings, investor events, press andearnings releases, and blogs as part of our investor relations website. Investors and others can receive notifications of new information posted on our investorrelations website in real time by signing up for email alerts and RSS feeds. Further corporate governance information, including our governance guidelines6 Table of Contentsand code of business conduct and ethics, is also available on our investor relations website under the heading “Corporate Governance.” The contents of ourwebsites are not intended to be incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, andany references to our websites are intended to be inactive textual references only.7 Table of ContentsItem 1A.Risk FactorsA description of the risks and uncertainties associated with our business is set forth below. You should carefully consider such risks and uncertainties,together with the other information contained in this report, and in our other public filings. If any of such risks and uncertainties actually occurs, ourbusiness, financial condition or operating results could differ materially from the plans, projections and other forward-looking statements included in thesection titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report and in our otherpublic filings. In addition, if any of the following risks and uncertainties, or if any other risks and uncertainties, actually occurs, our business, financialcondition or operating results could be harmed substantially, which could cause the market price of our stock to decline, perhaps significantly.We may experience significant quarterly and annual fluctuations in our results of operations due to a number of factors.Our quarterly and annual results of operations may fluctuate significantly due to a variety of factors, many of which are outside of our control. Thisvariability may lead to volatility in our stock price as research analysts and investors respond to quarterly fluctuations. In addition, comparing our results ofoperations on a period-to-period basis, particularly on a sequential quarterly basis, may not be meaningful. You should not rely on our past results as anindication of our future performance.Factors that may affect our results of operations include:•the timing of new orders and revenue recognition for new and prior year orders;•seasonal buying patterns of our customers;•our ability to increase sales to and renew agreements with our existing customers, particularly larger customers, at comparable prices;•our ability to renew existing contracts for multiple year terms versus annual automatic renewals;•our ability to attract new customers, particularly larger customers, in both domestic and international markets;•structure of our licensing contracts, including fluctuations in perpetual licenses from period to period;•our ability to enter into contracts on favorable terms, including terms related to price, payment timing and product delivery;•volatility in the sales of our products and timing of the execution of new and renewal agreements within such periods;•commissions expense related to large transactions;•bonus expense based on the bonus attainment rate;•the lengthy and variable nature of our product implementation cycles;•reductions in our customers’ budgets for information technology purchases and delays in their purchasing cycles;•our ability to control costs, including our operating expenses;•any significant change in our facilities-related costs;•the timing and cost of hiring personnel and of large expenses such as those for trade shows and third-party professional services;•stock-based compensation expenses and related payroll taxes, which vary along with changes to our stock price;•general domestic and international economic conditions, in the insurance industry in particular;•fluctuations in foreign currency exchange rates;•future accounting pronouncements or changes in our accounting policies; and•the impact of a recession or any other adverse global economic conditions on our business, including uncertainties that may cause a delay inentering into or a failure to enter into significant customer agreements.In addition, our revenue may fluctuate if our customers make an early payment of their annual fees.The foregoing factors are difficult to forecast, and these, as well as other factors, could materially adversely affect our quarterly and annual results ofoperations. Any failure to adjust spending quickly enough to compensate for a revenues shortfall could magnify the adverse impact of such revenues shortfallon our results of operations. Failure to achieve our quarterly forecasts or to meet or exceed the expectations of research analysts or investors will cause ourstock price to decline.8 Table of ContentsSeasonal sales patterns and other variations related to our revenue recognition may cause significant fluctuations in our results of operations and cashflows and may prevent us from achieving our quarterly or annual forecasts, which may cause our stock price to decline.We sign a significantly higher percentage of software license orders in the second and fourth quarters of each fiscal year. We generally see increasedorders in our second fiscal quarter, which is the quarter ended January 31, due to customer buying patterns. We also see increased orders in our fourth fiscalquarter due to efforts by our sales team to achieve annual incentives. As a result, a significantly higher percentage of our annual license revenues havehistorically been recognized during those quarters. Since a substantial majority of our license revenues recur annually under our multi-year contracts, weexpect to continue to experience this seasonality effect in subsequent years.Notwithstanding the fact that we generally see increased licensing orders in our second and fourth fiscal quarters, we expect to see additional quarterlyrevenue fluctuations that may, in some cases, mask the impact of these expected seasonal variations. Our quarterly growth in license revenues also may notmatch up to new orders we receive in a given quarter. This mismatch is primarily due to the following reasons:•for the initial year of a multi-year term license, we generally recognize revenues when payment is due and payment may not be due until asubsequent fiscal quarter;•we may enter into license agreements with specified terms for product upgrades or functionality, which may require us to delay revenuerecognition for the initial period; and•we may enter into license agreements with other contractual terms that may affect the timing of revenue recognition.Our revenues may fluctuate versus comparable prior periods or prior quarters within the same fiscal year based on when new orders are executed in thequarter and the payment terms of each order. Additionally, our revenues may fluctuate if our customers make an early payment of their annual fees. Ourability to renew existing contracts for multiple year terms versus annual automatic renewals may also impact revenue recognition.We generally charge annual software license fees for our multi-year term licenses and price our licenses based on the amount of direct written premiums(“DWP”) that will be managed by our solutions. However, in certain circumstances, our customers desire the ability to purchase our products on a perpetuallicense basis, resulting in an acceleration of revenue recognition. Milestone payments in a perpetual license order also cause seasonal variations. Ourperpetual license revenues are not consistent from period to period. In addition, a few of our multi-year term licenses provide the customer with the option topurchase a perpetual license at the end of the initial contract term, which we refer to as a perpetual buyout right. The mix of our contract terms for our licensesand the exercise of perpetual buyout rights at the end of the initial contract term by our customers may lead to variability in our results of operations.Increases in perpetual license sales and exercises of perpetual buyout rights by our customers may affect our ability to show consistent growth in licenserevenues in subsequent periods. Reductions in perpetual licenses in future periods could cause adverse period-to-period comparisons of our financial results.In addition, because we price our products based on the amount of DWP that will be managed by our solutions, license revenues from each customermay fluctuate up or down based upon insurance policies sold by the customer in the preceding year. If we enter into a new territory, our revenue recognitionpattern may change, depending on the contractual terms and local laws and regulations. Seasonal and other variations related to our revenue recognition maycause significant fluctuations in our results of operations and cash flows, may make it challenging for an investor to predict our performance on a quarterlybasis and may prevent us from achieving our quarterly or annual forecasts or meeting or exceeding the expectations of research analysts or investors, whichmay cause our stock price to decline.We have relied and expect to continue to rely on orders from a relatively small number of customers in the P&C insurance industry for a substantialportion of our revenues, and the loss of any of these customers would significantly harm our business, results of operations and financial condition.Our revenues are dependent on orders from customers in the P&C insurance industry, which may be adversely affected by economic, environmental andworld political conditions. A relatively small number of customers have historically accounted for a majority of our revenues. In fiscal years 2014, 2013 and2012, our ten largest customers accounted for 35%, 33% and 35% of our revenues, respectively. While we expect this reliance to decrease over time, weexpect that we will continue to depend upon a relatively small number of customers for a significant portion of our revenues for the foreseeable future. As aresult, if we fail to successfully sell our products and services to one or more anticipated customers in any particular period or fail to identify additionalpotential customers or an anticipated customer purchases fewer of our products or services, defers or cancels orders, or terminates its relationship with us, ourbusiness, results of operations and financial condition would be harmed. Some of our orders are realized at the end of the quarter or are subject to delayedpayment terms. As a result of this concentration and9 Table of Contentstiming, if we are unable to complete one or more substantial sales or achieve any required performance or acceptance criteria in any given quarter, ourquarterly results of operations may fluctuate significantly.Our services revenues produce lower gross margins than our license or maintenance revenues, and an increase in services revenues as a percentage of totalrevenues could adversely affect our overall gross margins and profitability.Our services revenues were 45%, 46% and 45% of total revenues for each of fiscal years 2014, 2013 and 2012, respectively. Our services revenuesproduce lower gross margins than our license revenues. The gross margin of our services revenues was 13%, 16% and 20% for fiscal years 2014, 2013 and2012, respectively, while the gross margin for license revenues was 97%, 99% and 99% for the respective periods. An increase in the percentage of totalrevenues represented by services revenues could reduce our overall gross margins.The volume and profitability of our services offerings depend in large part upon:•price charged to our customers;•the utilization rate of our services personnel;•the complexity of our customers’ information technology environments;•our ability to accurately forecast the time and resources required for each implementation project;•the resources directed by our customers to their implementation projects;•our ability to hire, train and retain qualified services personnel;•unexpected difficulty in projects which may require additional efforts on our part without commensurate compensation;•our ability to manage fixed fee arrangements;•the extent to which system integrators provide services directly to customers; and•our ability to adequately predict customer demand and scale our professional services staff accordingly.Any erosion in our services margins or any significant increase in services revenues as a percentage of total revenues would adversely affect our resultsof operations.Assertions by third parties of infringement or other violation by us of their intellectual property rights could result in significant costs and substantiallyharm our business and results of operations.The software industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patents andother intellectual property rights. In particular, leading companies in the software industry own large numbers of patents, copyrights, trademarks and tradesecrets, which they may use to assert claims against us. From time to time, third parties, including certain of these leading companies, may assert patent,copyright, trademark or other intellectual property claims against us, our customers and partners, and those from whom we license technology andintellectual property.Although we believe that our products and services do not infringe upon the intellectual property rights of third parties, we cannot assure that thirdparties will not assert infringement or misappropriation claims against us with respect to current or future products or services, or that any such assertions willnot require us to enter into royalty arrangements or result in costly litigation, or result in us being unable to use certain intellectual property. We cannotassure that we are not infringing or otherwise violating any third party intellectual property rights. Infringement assertions from third parties may involvepatent holding companies or other patent owners who have no relevant product revenues, and therefore our own issued and pending patents may providelittle or no deterrence to these patent owners in bringing intellectual property rights claims against us.Any intellectual property infringement or misappropriation claim or assertion against us, our customers or partners, and those from whom we licensetechnology and intellectual property could have a material adverse effect on our business, financial condition, reputation and competitive position regardlessof the validity or outcome. If we are forced to defend against any infringement or misappropriation claims, whether they are with or without merit, are settledout of court, or are determined in our favor, we may be required to expend significant time and financial resources on the defense of such claims. Furthermore,an adverse outcome of a dispute may require us to pay damages, potentially including treble damages and attorneys’ fees, if we are found to have willfullyinfringed a party’s intellectual property; cease making, licensing or using our products or services that are alleged to infringe or misappropriate theintellectual property of others; expend additional development resources to redesign our products or services; enter into potentially unfavorable royalty orlicense agreements in order to obtain the right to use necessary technologies or works; and to indemnify our partners, customers, and other third parties.Royalty or licensing agreements, if required or desirable, may be unavailable on terms acceptable to us, or at all, and may require significant royaltypayments and other expenditures. Any of these events could seriously harm our business, results of operations and financial10 Table of Contentscondition. In addition, any lawsuits regarding intellectual property rights, regardless of their success, could be expensive to resolve and divert the time andattention of our management and technical personnel.We may expand through acquisitions of or partnerships with other companies, which may divert our management’s attention and result in unexpectedoperating and technology integration difficulties, increased costs and dilution to our stockholders.Our business strategy may include additional acquisitions of complementary software, technologies or businesses or alliances with other companiesoffering the same. Acquisitions and alliances may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties inassimilating or integrating the businesses, technologies, services, products, personnel or operations of the acquired companies, if the key personnel of theacquired company choose not to work for us, or we may have difficulty retaining the existing customers or signing new customers of any acquired business.Acquisitions and alliances may also disrupt our ongoing business, divert our resources and require significant management attention that would otherwise beavailable for ongoing development of our current business. We also may be required to use a substantial amount of our cash or issue debt or equity securitiesto complete an acquisition or realize the potential of an alliance, which could deplete our cash reserves and/or dilute our existing stockholders. Following anacquisition or the establishment of an alliance offering new products, we may be required to defer the recognition of revenues that we receive from the sale ofproducts that we acquired or that result from the alliance, or from the sale of a bundle of products that includes such new products, if we have not establishedvendor-specific objective evidence (“VSOE”) for the undelivered elements in the arrangement. A delay in the recognition of revenues from sales of acquiredor alliance products, or bundles that include the same, may cause fluctuations in our quarterly financial results and may adversely affect our operatingmargins.Additionally, competition within the software industry for acquisitions of businesses, technologies and assets has been, and may in the future continueto be, intense. As such, even if we are able to identify an acquisition that we would like to consummate, the target may be acquired by another strategic buyeror financial buyer such as a private equity firm, or we may otherwise not be able to complete the acquisition on commercially reasonable terms, if at all.Moreover, the anticipated benefits of any acquisition, including our revenues or return on investment assumptions, may not be realized or we may beexposed to unknown liabilities as a result of such acquisition.We face intense competition in our market, which could negatively impact our business, results of operations and financial condition and cause ourmarket share to decline.The market for our core insurance system software is intensely competitive. Our implementation cycle is lengthy, variable and requires the investmentof significant time and expense by our customers. We compete with legacy systems, many of which have been in operation for decades. Maintaining theselegacy systems may be so time consuming and costly for our customers that they do not have adequate resources to devote to the purchase andimplementation of our products. We also compete against technology consulting firms that offer software and systems or develop custom, proprietaryproducts for the P&C insurance industry. These consulting firms generally have greater name recognition, larger sales and marketing budgets and greaterresources than we do and may have pre-existing relationships with our potential customers, including relationships with, and access to, key decision makerswithin these organizations. We also encounter competition from small independent firms that compete on the basis of price, custom developments or uniqueproduct features or functions and from vendors of software products that may be customized to address the needs of P&C insurance carriers.We expect the intensity of competition to remain high in the future as new companies enter our markets and existing competitors develop strongercapabilities. Such intense competition could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses, and failureto increase, or the loss of, market share, any of which could harm our business, results of operations and financial condition. Our competitors may be able todevote greater resources to the development, promotion and sale of their products than we can to ours, which could allow them to respond more quickly thanwe can to new technologies and changes in customer needs and achieve wider market acceptance. We may not be able to compete effectively andcompetitive pressures may prevent us from acquiring and maintaining the customer base necessary for us to increase our revenues and profitability.Our current and potential competitors may also establish cooperative relationships among themselves or with third parties that may further enhancetheir resources. Current or potential competitors may be acquired by third parties with greater available resources. As a result of such acquisitions, our currentor potential competitors might be able to adapt more quickly to new technologies and customer needs, devote greater resources to the promotion or sale oftheir products and services, initiate or withstand substantial price competition, take advantage of other opportunities more readily or develop and expandtheir product and service offerings more quickly than we do. Additionally, they may hold larger portfolios of patents and other intellectual property rights asa result of such acquisitions. If we are unable to compete effectively for a share of our market, our business, results of operations and financial condition couldbe materially and adversely affected.11 Table of ContentsCertain of our software products may be deployed through cloud-based implementations, and if such implementations are compromised by data securitybreaches or other disruptions, our reputation could be harmed, and we could lose customers or be subject to significant liabilities.Although our software products typically are deployed on our customers’ premises, some of our products are deployed in cloud-based environments wemaintain and some of our products may be deployed in our customers’ cloud-based environments, in which our products and associated services are madeavailable using an Internet-based infrastructure. In cloud deployments, our infrastructure and the infrastructure of third-party service providers used by bothourselves and our customers may be vulnerable to hacking incidents, other security breaches, computer viruses, telecommunications failures, power loss,other system failures and similar disruptions. These same vulnerabilities may exist in our customers’ internal computing environments as well.Any of these occurrences, whether intentional or accidental, could lead to interruptions, delays or cessation of operation of our servers or the servers ofthird-party service providers’ used by our customers, and to the unauthorized use or access of our software and proprietary information and sensitive orconfidential data stored or transmitted by our products. The inability of service providers used by our customers, or our own inability, to provide continuousaccess to hosted services, and to secure hosted services and associated customer information from unauthorized use, access or disclosure, could cause usreputational harm, loss of customers and could expose us to significant liability, all of which could harm our business, financial condition and results ofoperations.If our products experience data security breaches, and there is unauthorized access to our customers’ data, we may lose current or future customers andour reputation and business may be harmed.Our products are used by our customers to manage and store proprietary information and sensitive or confidential data relating to their businesses.Although we maintain security features in our products and our customers maintain their own security measures for their operating environments, our securitymeasures may not detect or prevent hacker interceptions, break-ins, security breaches, the introduction of viruses or malicious code, and other disruptionsthat may jeopardize the security of information stored in and transmitted by our products. A party that is able to circumvent our or our customers’ securitymeasures could misappropriate our or our customers’ proprietary or confidential information, cause interruption in operations, damage or misuse of computersystems, and misuse any information misappropriated.If any compromise of the security of our products were to occur, we may lose customers and our reputation, business, financial condition and results ofoperations could be harmed. In addition, if there is any perception that we cannot protect our customers’ proprietary and confidential information, we maylose the ability to retain existing customers and attract new customers and our revenues could decline.Privacy concerns could result in regulatory changes and impose additional costs and liabilities on us, limit our use of information, and adversely affect ourbusiness.Certain of our product solutions collect, process, store, and use of transaction-level data aggregated across insurers using Guidewire’s common datamodel. Personal privacy has become a significant issue in the United States, Europe, and many other countries where we operate. Many federal, state, andforeign legislatures and government agencies have imposed or are considering imposing restrictions and requirements about the collection, use, anddisclosure of personal information. Changes to laws or regulations affecting privacy could impose additional costs and liability on us and could limit our useof such information to add value for customers. If we were required to change our business activities or revise or eliminate services, or to implementburdensome compliance measures, our business and results of operations could be harmed. Privacy concerns, whether valid or not, may also inhibit marketadoption of our solutions in some situations, harming our growth. In addition, we may be subject to fines, penalties, and potential litigation if we fail tocomply with applicable privacy regulations.The costs of compliance with and other burdens imposed by privacy-related laws, regulations and standards may limit the use and adoption of ourproduct solutions and reduce overall demand, or lead to significant fines, penalties or liabilities for any noncompliance.Furthermore, concerns regarding data privacy may cause our customers’ customers to resist providing the data necessary to allow our customers to useour product solutions effectively. Even the perception that the privacy of personal information is not satisfactorily protected or does not meet regulatoryrequirements could inhibit sales of our products or services, and could limit adoption of our solutions.Weakened global economic conditions may adversely affect the P&C insurance industry, including the rate of information technology spending, whichcould cause our customers to defer or forego purchases of our products or services.12 Table of ContentsOur business depends on the overall demand for information technology from, and on the economic health of, our current and prospective customers. Inaddition, the purchase of our products is discretionary and involves a significant commitment of capital and other resources. Our customers may suffer fromreduced operating budgets, which could cause them to defer or forego purchases of our products or services. Challenging global economic conditions, or areduction in information technology spending even in improving economic conditions, could adversely impact our business, results of operations andfinancial condition in a number of ways, including longer sales cycles, lower prices for our products and services, material default rates among our customers,reduced sales of our products and services and lower or no growth.Our sales cycle is lengthy and variable, depends upon many factors outside our control, and could cause us to expend significant time and resources priorto earning associated revenues.The typical sales cycle for our products and services is lengthy and unpredictable, requires pre-purchase evaluation by a significant number ofemployees in our customers’ organizations, and often involves a significant operational decision by our customers. Our sales efforts involve educating ourcustomers about the use and benefits of our products, including the technical capabilities of our products and the potential cost savings achievable byorganizations deploying our products. Customers typically undertake a significant evaluation process, which frequently involves not only our products, butalso those of our competitors and can result in a lengthy sales cycle. Moreover, a purchase decision by a potential customer typically requires the approval ofseveral senior decision makers, including the board of directors of our customers. Our sales cycle for new customers is typically one to two years and canextend even longer in some cases. We spend substantial time, effort and money in our sales efforts without any assurance that our efforts will produce anysales. In addition, we sometimes commit to include specific functions in our base product offering at the request of a customer or group of customers and areunable to recognize license revenues until the specific functions have been added to our products. Providing this additional functionality may be timeconsuming and may involve factors that are outside of our control. The lengthy and variable sales cycle may also have a negative impact on the timing of ourrevenues, causing our revenues and results of operations to vary significantly from period to period.If we are unable to continue the successful development of our direct sales force and the expansion of our relationships with our strategic partners, sales ofour products and services will suffer and our growth could be slower than we project.We believe that our future growth will depend on the continued development of our direct sales force and their ability to obtain new customers,particularly large P&C insurance carriers, and to manage our existing customer base. Our ability to achieve significant growth in revenues in the future willdepend, in large part, on our success in recruiting, training and retaining a sufficient number of direct sales personnel. New hires require significant trainingand may, in some cases, take more than a year before becoming productive, if at all. If we are unable to hire and develop sufficient numbers of productivedirect sales personnel, sales of our products and services will suffer and our growth will be impeded.We believe our future growth also will depend on the expansion of successful relationships with system integrators. Our system integrators as channelpartners help us reach additional customers. Our growth in revenues, particularly in international markets, will be influenced by the development andmaintenance of this indirect sales channel. Although we have established relationships with some of the leading system integrators, our products and servicescompete directly against the products and services of other leading system integrators, as well as various software producers who partner with systemintegrators. We are unable to control the resources that our system integrator partners commit to implementing our products or the quality of suchimplementation. If they do not commit sufficient resources to these activities, our business and results of operations could fail to grow in line with ourprojections.Our large customers have substantial negotiating leverage, which may require that we agree to terms and conditions that result in increased cost of sales,decreased revenues and lower average selling prices and gross margins, all of which could harm our operating results.Some of our customers include the largest P&C insurance carriers with significant bargaining power in negotiations with us, and have the ability to buysimilar products from other vendors or develop such systems internally. These customers have and may continue to seek advantageous pricing and othercommercial terms and may require us to develop additional features in the products we sell to them. We have and may continue to be required to reduce theaverage selling price, or increase the average cost, of our products in response to these pressures. If we are unable to offset any reductions in our averageselling prices or increases in our average costs with increased sales volumes and reduced costs, our results of operations could be harmed.13 Table of ContentsOur limited operating history and the evolving nature of the industry in which we operate may make it difficult to evaluate our business.We were incorporated in 2001, and since that time have been developing products to meet the evolving demands of customers in the markets in whichwe operate. We sold the initial versions of ClaimCenter in 2003, PolicyCenter in 2004 and BillingCenter in 2006. This limited operating history makesfinancial forecasting and evaluation of our business difficult. Furthermore, because we depend in part on the market’s acceptance of our products, it isdifficult to evaluate trends that may affect our business. We expect to make significant investments and our expenses will increase in future periods as weimplement initiatives designed to grow our business, including, among other things, improvement of our current products, development and marketing ofnew services and products, stock-based compensation expense, international expansion, investment in our infrastructure, and increased general andadministrative functions. If our revenues do not sufficiently increase to offset these expected increases in operating expenses, we will incur significant lossesand will not be profitable. Our growth in revenues in recent periods should not be considered indicative of our future performance. Any failure to continueprofitability may harm our business, results of operations and financial condition.Because we derive substantially all of our revenues and cash flows from our ClaimCenter, PolicyCenter, BillingCenter and InsuranceSuite products andrelated services, failure of any of these products or services to satisfy customer demands or to achieve increased market acceptance would harm ourbusiness, results of operations, financial condition and growth prospects.We derive substantially all of our revenues and cash flows from our ClaimCenter, PolicyCenter, BillingCenter and InsuranceSuite products and relatedservices. We expect to continue to derive a substantial portion of our revenues from these products and related services. As such, increased market acceptanceof these products is critical to our continued growth and success. Demand for our products is affected by a number of factors beyond our control, includingthe timing of development and release of new products by us and our competitors, technological change, and growth or contraction in the worldwide marketfor technological solutions for the P&C insurance industry. If we are unable to continue to meet customer demands or to achieve more widespread marketacceptance of our products, our business, results of operations, financial condition and growth prospects will be materially and adversely affected.Our business depends on customers renewing and expanding their license and maintenance contracts for our products. A decline in our customer renewalsand expansions could harm our future results of operations.Our customers have no obligation to renew their term licenses after their license period expires, and these licenses may not be renewed on the same ormore favorable terms. Moreover, under certain circumstances, our customers have the right to cancel their license agreements before they expire. We havelimited historical data with respect to rates of customer license renewals, upgrades and expansions so we may not accurately predict future trends in customerrenewals. In addition, our term and perpetual license customers have no obligation to renew their maintenance arrangements after the expiration of the initialcontractual period. Our customers’ renewal rates may fluctuate or decline because of several factors, including their satisfaction or dissatisfaction with ourproducts and services, the prices of our products and services, the prices of products and services offered by our competitors or reductions in our customers’spending levels due to the macroeconomic environment or other factors. In addition, in some cases, our customers have a right to exercise a perpetual buyoutof their term licenses at the end of the initial contract term. If our customers do not renew their term licenses for our solutions or renew on less favorable terms,our revenues may decline or grow more slowly than expected and our profitability may be harmed.Our implementation cycle is lengthy and variable, depends upon factors outside our control, and could cause us to expend significant time and resourcesprior to earning associated revenues.The implementation and testing of our products by our customers typically lasts 6 to 24 months or longer and unexpected implementation delays anddifficulties can occur. Implementing our products typically involves integration with our customers’ systems, as well as adding their data to our platform.This can be complex, time-consuming and expensive for our customers and can result in delays in the implementation and deployment of our products.Depending upon the nature and complexity of our customers’ systems and the time and resources that our customers are willing to devote to implementationof our products, the implementation and testing of our products may take significantly longer than 24 months. The lengthy and variable implementationcycle may also have a negative impact on the timing of our revenues, causing our revenues and results of operations to vary significantly from period toperiod.Our product development cycles are lengthy, and we may incur significant expenses before we generate revenues, if any, from new products.Because our products are complex and require rigorous testing, development cycles can be lengthy, taking us multiple years to develop and introducenew products or provide updates to our existing products. Additionally, market conditions may14 Table of Contentsdictate that we change the technology platform underlying our existing products or that new products be developed on different technology platforms,potentially adding material expense and time to our development cycles. Moreover, development projects can be technically challenging and expensive.The nature of these development cycles may cause us to experience delays between the time we incur expenses associated with research and developmentand the time we generate revenues, if any, from such expenses. If we expend a significant amount of resources on research and development and our efforts donot lead to the successful introduction or improvement of products that are competitive in the marketplace, this could materially and adversely affect ourbusiness and results of operations. Additionally, anticipated customer demand for a product we are developing could decrease or not materialize after thedevelopment cycle has commenced. Such lower customer demand may cause us to fall short of our sales targets, and we may nonetheless be unable to avoidsubstantial costs associated with the product’s development. If we are unable to complete product development cycles successfully and in a timely fashionand generate revenues from such future products, the growth of our business may be harmed.Failure to meet customer expectations on the implementation of our products could result in negative publicity and reduced sales, both of which wouldsignificantly harm our business, results of operations, financial condition and growth prospects.We provide our customers with upfront estimates regarding the duration, budget and costs associated with the implementation of our products. Failingto meet these upfront estimates and the expectations of our customers for the implementation of our products could result in a loss of customers and negativepublicity regarding us and our products and services, which could adversely affect our ability to attract new customers and sell additional products andservices to existing customers. Such failure could result from our product capabilities or service engagements by us, our system integrator partners or ourcustomers’ IT employees, the latter two of which are beyond our direct control. The consequences could include, and have included: monetary credits forcurrent or future service engagements, reduced fees for additional product sales, and a customer’s refusal to pay their contractually-obligated license,maintenance or service fees. In addition, time-consuming implementations may also increase the amount of services personnel we must allocate to eachcustomer, thereby increasing our costs and adversely affecting our business, results of operations and financial condition.Failure to protect our intellectual property could substantially harm our business and results of operations.Our success depends in part on our ability to enforce and defend our intellectual property rights. We rely upon a combination of trademark, trade secret,copyright, patent and unfair competition laws, as well as license agreements and other contractual provisions, to do so.We have filed, and may in the future file, patent applications related to certain of our innovations. We do not know whether those patent applicationswill result in the issuance of a patent or whether the examination process will require us to narrow our claims. In addition, we may not receive competitiveadvantages from the rights granted under our patents and other intellectual property. Our existing patents and any patents granted to us or that we otherwiseacquire in the future, may be contested, circumvented or invalidated, and we may not be able to prevent third parties from infringing these patents. Therefore,the exact effect of the protection of these patents cannot be predicted with certainty. In addition, given the costs, effort, risks and downside of obtainingpatent protection, including the requirement to ultimately disclose the invention to the public, we may choose not to seek patent protection for certaininnovations; however, such patent protection could later prove to be important to our business.We also rely on several registered and unregistered trademarks to protect our brand. Nevertheless, competitors may adopt service names similar to ours,or purchase our trademarks and confusingly similar terms as keywords in Internet search engine advertising programs, thereby impeding our ability to buildbrand identity and possibly leading to confusion in the marketplace. In addition, there could be potential trade name or trademark infringement claimsbrought by owners of other registered trademarks or trademarks that incorporate variations of our trademarks. Any claims or customer confusion related to ourtrademarks could damage our reputation and brand and substantially harm our business and results of operations.In addition, we attempt to protect our intellectual property, technology, and confidential information by generally requiring our employees andconsultants to enter into confidentiality and assignment of inventions agreements and third parties to enter into nondisclosure agreements, all of which offeronly limited protection. These agreements may not effectively prevent unauthorized use or disclosure of our confidential information, intellectual property ortechnology and may not provide an adequate remedy in the event of unauthorized use or disclosure of our confidential information, intellectual property ortechnology. Despite our efforts to protect our confidential information, intellectual property, and technology, unauthorized third parties may gain access toour confidential proprietary information, develop and market products or services similar to ours, or use trademarks similar to ours, any of which couldmaterially harm our business and results of operations. In addition, others may independently discover our trade secrets and confidential information, and insuch cases, we could not assert any trade secret rights against such parties. Existing U.S. federal, state and international intellectual property laws offer onlylimited protection. The laws of some foreign countries do not protect our intellectual property rights to as great an extent as the laws of15 Table of Contentsthe United States, and many foreign countries do not enforce these laws as diligently as governmental agencies and private parties in the United States.Moreover, policing our intellectual property rights is difficult, costly and may not always be effective.From time to time, legal action by us may be necessary to enforce our patents and other intellectual property rights, to protect our trade secrets, todetermine the validity and scope of the intellectual property rights of others or to defend against claims of infringement or invalidity. Such litigation couldresult in substantial costs and diversion of resources and could negatively affect our business, reputation, results of operations and financial condition. If weare unable to protect our technology and to adequately maintain and protect our intellectual property rights, we may find ourselves at a competitivedisadvantage to others who need not incur the additional expense, time and effort required to create the innovative products that have enabled us to besuccessful to date.We and our customers rely on technology and intellectual property of third parties, the loss of which could limit the functionality of our products anddisrupt our business.We use technology and intellectual property licensed from unaffiliated third parties in certain of our products, and we may license additional third-party technology and intellectual property in the future. Any errors or defects in this third-party technology and intellectual property could result in errorsthat could harm our brand and business. In addition, licensed technology and intellectual property may not continue to be available on commerciallyreasonable terms, or at all. The loss of the right to license and distribute this third party technology could limit the functionality of our products and mightrequire us to redesign our products.Further, although we believe that there are currently adequate replacements for the third-party technology and intellectual property we presently useand distribute, the loss of our right to use any of this technology and intellectual property could result in delays in producing or delivering affected productsuntil equivalent technology or intellectual property is identified, licensed or otherwise procured, and integrated. Our business would be disrupted if anytechnology and intellectual property we license from others or functional equivalents of this software were either no longer available to us or no longeroffered to us on commercially reasonable terms. In either case, we would be required either to attempt to redesign our products to function with technologyand intellectual property available from other parties or to develop these components ourselves, which would result in increased costs and could result indelays in product sales and the release of new product offerings. Alternatively, we might be forced to limit the features available in affected products. Any ofthese results could harm our business and impact our results of operations.Catastrophes may adversely impact the P&C insurance industry, preventing us from expanding or maintaining our existing customer base and increasingour revenues.Our customers are P&C insurance carriers which have experienced, and will likely experience in the future, catastrophe losses that adversely impacttheir businesses. Catastrophes can be caused by various events, including, amongst others, hurricanes, tsunamis, floods, windstorms, earthquakes, hail,tornados, explosions, severe weather and fires. Global warming trends are contributing to an increase in erratic weather patterns globally and intensifying theimpact of certain types of catastrophes. Moreover, acts of terrorism or war could cause disruptions in our or our customers’ businesses or the economy as awhole. The risks associated with natural disasters and catastrophes are inherently unpredictable, and it is difficult to predict the timing of such events orestimate the amount of loss they will generate. In the event a future catastrophe adversely impacts our current or potential customers, we may be preventedfrom maintaining and expanding our customer base and from increasing our revenues because such events may cause customers to postpone purchases of newproducts and professional service engagements or discontinue projects.There may be consolidation in the P&C insurance industry, which could reduce the use of our products and services and adversely affect our revenues.Mergers or consolidations among our customers could reduce the number of our customers and potential customers. This could adversely affect ourrevenues even if these events do not reduce the aggregate number of customers or the activities of the consolidated entities. If our customers merge with or areacquired by other entities that are not our customers, or that use fewer of our products and services, they may discontinue or reduce their use of our productsand services. Any of these developments could materially and adversely affect our results of operations and cash flows.Some of our services and technologies may use “open source” software, which may restrict how we use or distribute our services or require that we releasethe source code of certain products subject to those licenses.Some of our services and technologies may incorporate software licensed under so-called “open source” licenses, including, but not limited to, theGNU General Public License and the GNU Lesser General Public License. In addition to risks16 Table of Contentsrelated to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensorsgenerally do not provide warranties or controls on origin of the software. Additionally, open source licenses typically require that source code subject to thelicense be made available to the public and that any modifications or derivative works to open source software continue to be licensed under open sourcelicenses. These open source licenses typically mandate that proprietary software, when combined in specific ways with open source software, become subjectto the open source license. If we combine our proprietary software in such ways with open source software, we could be required to release the source code ofour proprietary software.We take steps to ensure that our proprietary software is not combined with, and does not incorporate, open source software in ways that would requireour proprietary software to be subject to an open source license. However, few courts have interpreted open source licenses, and the manner in which theselicenses may be interpreted and enforced is therefore subject to some uncertainty. Additionally, we rely on multiple software programmers to design ourproprietary technologies, and although we take steps to prevent our programmers from including open source software in the technologies and software codethat they design, write and modify, we do not exercise complete control over the development efforts of our programmers and we cannot be certain that ourprogrammers have not incorporated open source software into our proprietary products and technologies or that they will not do so in the future. In the eventthat portions of our proprietary technology are determined to be subject to an open source license, we could be required to publicly release the affectedportions of our source code, re-engineer all or a portion of our technologies, or otherwise be limited in the licensing of our technologies, each of which couldreduce or eliminate the value of our services and technologies and materially and adversely affect our business, results of operations and prospects.Real or perceived errors or failures in our products, or unsatisfactory performance of our products or services could adversely affect our reputation and themarket acceptance of our products, and cause us to lose customers or subject us to liability for breach of warranty claims.Because we offer complex products, undetected errors or failures may exist or occur, especially when products are first introduced or when new versionsare released. Our products are often installed and used in large-scale computing environments with different operating systems, system management softwareand equipment and networking configurations, which may cause errors or failures in our products or may expose undetected errors, failures or bugs in ourproducts. Despite testing by us, we may not identify all errors, failures or bugs in new products or releases until after commencement of commercial sales orinstallation. In the past, we have discovered software errors, failures and bugs in some of our product offerings after their introduction.Product errors will affect the performance of our products and could delay the development or release of new products or new versions of products,adversely affect our reputation and our customers’ willingness to buy products from us, and adversely affect market acceptance or perception of our products.In addition, because our software is used to manage functions that are critical to our customers, the licensing and support of our products may involve the riskof product liability claims. We also may face liability for breaches of our product warranties, product failures or damages caused by faulty installation of ourproducts. Provisions in our contracts relating to warranty disclaimers and liability limitations may be unenforceable or otherwise ineffective.Any errors or delays in releasing new products or new versions of products or allegations of unsatisfactory performance of our products or servicescould cause us to lose revenues or market share, increase our service costs, cause us to incur substantial costs in redesigning the products, cause us to losesignificant customers, harm our reputation, subject us to liability for breach of warranty claims or damages and divert our resources from other tasks, any oneof which could materially and adversely affect our business, results of operations and financial condition.We may be obligated to disclose our proprietary source code to our customers, which may limit our ability to protect our intellectual property and couldreduce the renewals of our support and maintenance services.Our software license agreements typically contain provisions permitting the customer to become a party to, or a beneficiary of, a source code escrowagreement under which we place the proprietary source code for our products in escrow with a third party. Under these escrow agreements, the source code tothe applicable product may be released to the customer, typically for its use to maintain, modify and enhance the product, upon the occurrence of specifiedevents, such as our filing for bankruptcy, discontinuance of our maintenance services and breaching our representations, warranties or covenants of ouragreements with our customers. Additionally, in some cases, customers have the right to request access to our source code upon demand. Some of ourcustomers have obtained the source code for our products by exercising this right, and others may do so in the future.17 Table of ContentsDisclosing the content of our source code may limit the intellectual property protection we can obtain or maintain for that source code or the productscontaining that source code and may facilitate intellectual property infringement claims against us. It also could permit a customer to which a product’ssource code is disclosed to support and maintain that software product without being required to purchase our support or maintenance services. Each of thesecould harm our business, results of operations and financial condition.Incorrect or improper use of our products or our failure to properly train customers on how to implement or utilize our products could result in customerdissatisfaction and negatively affect our business, results of operations, financial condition and growth prospects.Our products are complex and are deployed in a wide variety of network environments. The proper use of our products requires training of the customer.If our products are not used correctly or as intended, inadequate performance may result. Additionally, our customers or third-party partners may incorrectlyimplement or use our products. Our products may also be intentionally misused or abused by customers or their employees or third parties who are able toaccess or use our products. Similarly, our products are sometimes installed or maintained by customers or third parties with smaller or less qualified ITdepartments, potentially resulting in sub-optimal installation and, consequently, performance that is less than the level anticipated by the customer. Becauseour customers rely on our products, services and maintenance support to manage a wide range of operations, the incorrect or improper use of our products, ourfailure to properly train customers on how to efficiently and effectively use our products, or our failure to properly provide implementation or maintenanceservices to our customers may result in negative publicity or legal claims against us. Also, as we continue to expand our customer base, any failure by us toproperly provide these services will likely result in lost opportunities for follow-on sales of our products and services.In addition, if there is substantial turnover of customer personnel responsible for implementation and use of our products, or if customer personnel arenot well trained in the use of our products, customers may defer the deployment of our products, may deploy them in a more limited manner than originallyanticipated or may not deploy them at all. Further, if there is substantial turnover of the customer personnel responsible for implementation and use of ourproducts, our ability to make additional sales may be substantially limited.Our ability to sell our products is highly dependent on the quality of our professional services and technical support services and the support of our systemintegration providers, and the failure of us or our system integration providers to offer high-quality professional services or technical support servicescould damage our reputation and adversely affect our ability to sell our products and services to new customers and renew our licenses to existingcustomers.If we or our system integration providers do not effectively assist our customers in deploying our products, succeed in helping our customers quicklyresolve post-deployment issues, and provide effective ongoing support, our ability to sell additional products and services to existing customers would beadversely affected and our reputation with potential customers could be damaged. Once our products are deployed and integrated with our customers’existing information technology investments and data, our customers may depend on our technical support services and/or the support of system integratorsor internal resources to resolve any issues relating to our products. High-quality support is critical for the continued successful marketing and sale of ourproducts. In addition, as we continue to expand our operations internationally, our support organization will face additional challenges, including thoseassociated with delivering support, training and documentation in languages other than English. Many enterprise customers require higher levels of supportthan smaller customers. If we fail to meet the requirements of our larger customers, it may be more difficult to increase our penetration with larger customers, akey group for the growth of our revenues and profitability. As we rely more on system integrators to provide deployment and on-going support, our ability toensure a high level of quality in addressing customer issues is diminished. Our failure to maintain high-quality implementation and support services, or toensure that system integrators provide the same, could have a material adverse effect on our business, results of operations, financial condition and growthprospects.If we are unable to develop, introduce and market new and enhanced versions of our products, we may be put at a competitive disadvantage.Our success depends on our continued ability to develop, introduce and market new and enhanced versions of our products to meet evolving customerrequirements. However, we cannot assure that this process can be maintained. If we fail to develop new products or enhancements to our existing products,our business could be adversely affected, especially if our competitors are able to introduce products with enhanced functionality. We plan to continue ourinvestment in product development in future periods. It is critical to our success for us to anticipate changes in technology, industry standards and customerrequirements and to successfully introduce new, enhanced and competitive products to meet our customers’ and prospective customers’ needs on a timelybasis. However, we cannot assure that revenues will be sufficient to support the future product development that is required for us to be competitive.Although we may be able to release new products in addition to enhancements to existing products, we cannot assure that our new or upgraded products willbe accepted by the market, will18 Table of Contentsnot be delayed or canceled, will not contain errors or “bugs” that could affect the performance of the products or cause damage to users’ data, or will not berendered obsolete by the introduction of new products or technological developments by others. If we fail to develop products that are competitive intechnology and price and fail to meet customer needs, our market share will decline and our business and results of operations could be harmed.We may be subject to significant liability claims if our core system software fails, and the limitation of liability provided in our license agreements may notprotect us, which may adversely impact our financial condition.The license and support of our core system software creates the risk of significant liability claims against us. Our license agreements with our customerscontain provisions designed to limit our exposure to potential liability claims. It is possible, however, that the limitation of liability provisions contained insuch license agreements may not be enforced as a result of international, federal, state and local laws or ordinances or unfavorable judicial decisions. Breachof warranty or damage liability, or injunctive relief resulting from such claims, could have a material and adverse impact on our results of operations andfinancial condition.If we are unable to retain our personnel and hire and integrate additional skilled personnel, we may be unable to achieve our goals and our business willsuffer.Our future success depends upon our ability to continue to attract, train, integrate and retain highly skilled employees, particularly our managementteam, sales and marketing personnel, professional services personnel and software engineers. Each of our executive officers and other key employees couldterminate his or her relationship with us at any time. The loss of any member of our senior management team might significantly delay or prevent theachievement of our business or development objectives and could materially harm our business. In addition, a number of our senior management personnelare substantially vested in their stock option grants or other equity compensation. While we periodically grant additional equity awards to managementpersonnel and other key employees to provide additional incentives to remain employed by us, employees may be more likely to leave us if a significantportion of their equity compensation is fully vested, especially if the shares underlying the equity awards have significantly appreciated in value. Ourinability to attract and retain qualified personnel, or delays in hiring required personnel, may seriously harm our business, results of operations and financialcondition.We face competition for qualified individuals, which are in high demand, from numerous software and other technology companies. In addition,competition for qualified personnel is particularly intense in the San Francisco Bay Area, where our headquarters are located. Often, significant amounts oftime and resources are required to train technical, sales and other personnel. Further, qualified individuals are in high demand. We may incur significant coststo attract and retain them, and we may lose new employees to our competitors or other technology companies before we realize the benefit of our investmentin recruiting and training them. We have a limited number of sales people and the loss of some of these in a short period of time could have a negative impacton our sales efforts. We may be unable to attract and retain suitably qualified individuals who are capable of meeting our growing technical, operational andmanagerial requirements, on a timely basis or at all, and we may be required to pay increased compensation in order to do so. Because of the technical natureof our products and services and the dynamic market in which we compete, any failure to attract, integrate and retain qualified direct sales, professionalservices and product development personnel, as well as our contract workers, could have a material adverse effect on our ability to generate sales orsuccessfully develop new products, customer and consulting services and enhancements of existing products. Also, to the extent we hire personnel fromcompetitors, we may be subject to allegations that they have been improperly solicited or divulged proprietary or other confidential information.Our ability to effectively use equity compensation to help attract and retain qualified personnel may be limited by our stockholders, and equitycompensation arrangements may negatively impact our results of operations.We intend to continue to issue restricted stock units and stock options as key components of our overall compensation and employee attraction andretention efforts. We may face pressure from stockholders, who must approve extraordinary increases in our equity compensation pool, to limit the use ofequity-based compensation so as to minimize its dilutive effect on stockholders. In addition, we are required under U. S. GAAP to recognize compensationexpense in our results of operations for employee share-based equity compensation under our equity grants, which may negatively impact our results ofoperations and may increase the pressure to limit equity-based compensation. These factors may make it more difficult or unlikely for us to continue grantingattractive equity-based compensation packages to our employees, which could adversely impact our ability to attract and retain key employees. If we loseany senior executive or other key employee, our business and results of operations could be materially and adversely affected.Failure to manage our rapid growth effectively could harm our business.19 Table of ContentsWe have recently experienced rapid growth, and expect to continue to experience growth, in our number of employees and in our internationaloperations that has placed, and will continue to place, a significant strain on our operational and financial resources and our personnel. To manage ouranticipated future growth effectively, we must continue to maintain and may need to enhance our information technology infrastructure, financial andaccounting systems and controls and manage expanded operations and employees in geographically distributed locations. We also must attract, train andretain a significant number of additional qualified sales and marketing personnel, professional services personnel, software engineers, technical personneland management personnel. Our failure to manage our growth effectively could have a material adverse effect on our business, results of operations andfinancial condition. Our growth could require significant capital expenditures and may divert financial resources from other projects, such as thedevelopment of new services or product enhancements. If these expectations are incorrect, and we increase the size of our professional services organizationwithout experiencing an increase in sales of our products and services, we will experience reductions in our gross and operating margins and net income. Ifwe are unable to effectively manage our growth, our expenses may increase more than expected, our revenues could decline or grow more slowly thanexpected and we may be unable to implement our business strategy. We also intend to continue to expand into additional international markets which, if nottechnologically or commercially successful, could harm our financial condition and prospects.Our international sales and operations subject us to additional risks that can adversely affect our business, results of operations and financial condition.We sell our products and services to customers located outside the United States and Canada, and we are continuing to expand our internationaloperations as part of our growth strategy. In fiscal years 2014, 2013 and 2012, 31%, 28% and 30% of our revenues, respectively, were derived from outside ofthe United States and Canada. Our current international operations and our plans to expand our international operations subject us to a variety of risks,including:•increased management, travel, infrastructure and legal compliance costs associated with having multiple international operations;•unique terms and conditions in contract negotiations imposed by customers in foreign countries;•longer payment cycles and difficulties in enforcing contracts and collecting accounts receivable;•the need to localize our products and licensing programs for international customers;•lack of familiarity with and unexpected changes in foreign regulatory requirements;•increased exposure to fluctuations in currency exchange rates;•the burdens of complying with a wide variety of foreign laws and legal standards;•compliance with the U.S. Foreign Corrupt Practices Act of 1977, as amended (“FCPA”), the U.K. Bribery Act and other anti-corruptionregulations, particularly in emerging market countries;•import and export license requirements, tariffs, taxes and other trade barriers;•increased financial accounting and reporting burdens and complexities;•weaker protection of intellectual property rights in some countries;•multiple and possibly overlapping tax regimes; and•political, social and economic instability abroad, terrorist attacks and security concerns in general.As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these andother risks associated with our international operations. Any of these risks could harm our international operations and reduce our international sales,adversely affecting our business, results of operations, financial condition and growth prospects.If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results ofoperations could fall below expectations of securities analysts and investors, resulting in a decline in our stock price.The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amountsreported in the consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe to bereasonable under the circumstances, as provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Item 7 ofPart II of this Annual Report on Form 10-K and Note 1 of Notes to Consolidated Financial Statements, the results of which form the basis for makingjudgments about the carrying values of assets, liabilities, equity, revenues and expenses that are not readily apparent from other sources. Because ourcustomer contracts are highly negotiated, they often include unique terms and conditions that require judgment with respect to revenue recognition. Ourresults of operations may be adversely affected if our assumptions change or20 Table of Contentsif actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analystsand investors, resulting in a decline in our stock price.The nature of our business requires the application of complex revenue and expense recognition rules and the current legislative and regulatoryenvironment affecting U.S. Generally Accepted Accounting Principles ("GAAP") is uncertain and significant changes in current principles could affect ourfinancial statements going forward and changes in financial accounting standards or practices may cause adverse, unexpected financial reportingfluctuations and harm our operating results.The accounting rules and regulations that we must comply with are complex. Recent actions and public comments from the Financial AccountingStandards Board (the "FASB") and the Securities and Exchange Commission have focused on the integrity of financial reporting. In addition, manycompanies' accounting policies are being subject to heightened scrutiny by regulators and the public. Further, the accounting rules and regulations arecontinually changing in ways that could materially impact our financial statements. For example, in May 2014, the FASB issued a new accounting guidanceon revenue recognition, Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), that becomes effective forus beginning August 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method.We have not yet selected a transition method and continue to evaluate the impact that this guidance will have on our financial condition and results ofoperations. Regardless of the transition method, the application of this new guidance may result in exclusion of certain future licensing revenues in thestatement of income after the adoption date, which, despite no change in associated cash flows, could have a material adverse effect on our net income.While we believe that our financial statements have been prepared in accordance with accounting principles generally accepted in the United States ofAmerica, we cannot predict the impact of future changes to accounting principles or our accounting policies on our financial statements going forward. Inaddition, were we to change our critical accounting estimates, including the timing of recognition of license revenue and other revenue sources, our results ofoperations could be significantly impacted.We incur increased costs as a result of operating as a public company, and our management is required to devote substantial time to complianceinitiatives.As a public company, we incur legal, accounting and other expenses that we did not incur as a private company. In addition, the Dodd-Frank WallStreet Reform and Consumer Protection Act, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), as well as rules subsequently implemented by theSecurities and Exchange Commission (“SEC”) and the New York Stock Exchange, impose additional requirements on public companies, including specificcorporate governance practices. We are required to comply with Section 404 of the Sarbanes-Oxley Act and we have incurred costs to implement additionalinternal controls as well as to obtain an independent auditors report on our internal control over financial reporting. Additionally, the listing requirements ofthe New York Stock Exchange require that we satisfy numerous corporate governance requirements. Our management and other personnel will continue todevote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations increase our legal, accounting and financialcompliance costs and make some activities more time-consuming and costly. These rules and regulations could also make it more difficult for us to attractand retain qualified persons to serve on our board of directors, our board committees or as executive officers.We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders.We may need additional financing to execute on our current or future business strategies, including to:•hire additional personnel;•develop new or enhance existing products and services;•enhance our operating infrastructure;•acquire businesses or technologies; or•otherwise respond to competitive pressures.If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could besignificantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders. If we incuradditional funds through debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on suchindebtedness, thus limiting funds available for our business activities. We cannot assure you that additional financing will be available on terms favorable tous, or at all. If adequate funds are not available or are not available on acceptable terms, when we desire them, our ability to fund our21 Table of Contentsoperations, take advantage of unanticipated opportunities, develop or enhance our products and services, or otherwise respond to competitive pressureswould be significantly limited. Any of these factors could harm our results of operations.If we fail to maintain effective internal control over financial reporting in the future, the accuracy and timing of our financial reporting may be adverselyaffected.Preparing our consolidated financial statements involves a number of complex manual and automated processes, which are dependent upon individualdata input or review and require significant management judgment. One or more of these elements may result in errors that may not be detected and couldresult in a material misstatement of our consolidated financial statements. The Sarbanes-Oxley Act requires, among other things, that as a publicly-tradedcompany we disclose whether our internal control over financial reporting and disclosure controls and procedures are effective.If a material misstatement occurs in the future, we may fail to meet our future reporting obligations, we may need to restate our financial results and theprice of our common stock may decline. Any failure of our internal controls could also adversely affect the results of the periodic management evaluationsand annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting thatare required under Section 404 of the Sarbanes-Oxley Act, which became applicable to us beginning with the filing of our Annual Report on Form 10-K forthe fiscal year ended July 31, 2013. Effective internal controls are necessary for us to produce reliable financial reports and are important to helping preventfinancial fraud. Furthermore, any potential transition in enterprise resource planning or other major operational system could impact the timely generation ofour financial statements. If we cannot provide reliable financial reports or prevent fraud, our business and results of operations could be harmed, investorscould lose confidence in our reported financial information, and the trading price of our stock could drop significantly.If tax laws change or we experience adverse outcomes resulting from examination of our income tax returns, it could adversely affect our results ofoperations.We are subject to federal, state and local income taxes in the United States and in foreign jurisdictions. Our future effective tax rates and the value ofour deferred tax assets could be adversely affected by changes in tax laws. In addition, we are subject to the examination of our income tax returns by theInternal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from such examinations to determine theadequacy of our provision for income taxes. Significant judgment is required in determining our worldwide provision for income taxes. Although we believewe have made appropriate provisions for taxes in the jurisdictions in which we operate, changes in the tax laws or challenges from tax authorities underexisting tax laws could adversely affect our business, financial condition and results of operations.Our business is subject to the risks of earthquakes, fire, floods and other natural catastrophic events, and to interruption by man made problems such ascomputer viruses or terrorism.Our corporate headquarters and the majority of our operations are located in the San Francisco Bay Area, a region known for seismic activity. Asignificant natural disaster, such as an earthquake, tsunami, fire or a flood, could have a material adverse impact on our business, results of operations andfinancial condition. In addition, our servers are vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with ourcomputer systems. Acts of terrorism could cause disruptions in our or our customers’ business or the economy as a whole. To the extent that such disruptionsresult in delays or cancellations of customer orders, or the deployment of our products, our business, results of operations and financial condition would beadversely affected.Our stock price may be volatile, which could result in securities class action litigation against us.The market price of our common stock could be subject to wide fluctuations in response to, among other things, the risk factors described in this report,and other factors beyond our control, such as fluctuations in the valuation of companies perceived by investors to be comparable to us.Furthermore, the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equitysecurities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. Thesebroad market and industry fluctuations, as well as general economic, political and market conditions, such as recessions, interest rate changes or internationalcurrency fluctuations, have and may continue to negatively affect the market price of our common stock.In the past, many companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation.We may become the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’sattention from other business concerns, which could seriously harm our business.22 Table of ContentsIf research analysts do not publish research about our business or if they issue unfavorable commentary or downgrade our common stock, our stock priceand trading volume could decline.The trading market for our common stock depends in part on the research and reports that research analysts publish about us and our business. If we donot maintain adequate research coverage, or if one or more analysts who covers us downgrades our stock or publishes inaccurate or unfavorable researchabout our business, the price of our common stock could decline. If one or more of the research analysts ceases coverage of our company or fails to publishreports on us regularly, demand for our common stock could decrease, which could cause our stock price and/or trading volume to decline.We currently do not intend to pay dividends on our common stock and, consequently, your only opportunity to achieve a return on your investment is if theprice of our common stock appreciates.We currently do not plan to declare dividends on shares of our common stock in the foreseeable future. Consequently, the only opportunity to achievea return on investment in our company will be if the market price of our common stock appreciates and shares are sold at a profit.Certain provisions of our certificate of incorporation and bylaws and of Delaware law could prevent a takeover that stockholders consider favorable andcould also reduce the market price of our stock.Our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that could delay or prevent a merger,acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive apremium for their shares. These provisions may also prevent or delay attempts by stockholders to replace or remove our current management or members ofour board of directors. These provisions include:•providing for a classified board of directors with staggered three-year terms, which could delay the ability of stockholders to change themembership of a majority of our board of directors;•not providing for cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;•authorizing our board of directors to issue, without stockholder approval, preferred stock rights senior to those of common stock, which couldbe used to significantly dilute the ownership of a hostile acquirer;•prohibiting stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of ourstockholders;•limiting the persons who may call special meetings of stockholders, which could delay the ability of our stockholders to force consideration of aproposal or to take action, including the removal of directors; and•requiring advance notification of stockholder nominations and proposals, which may discourage or deter a potential acquirer from conducting asolicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.The affirmative vote of the holders of at least 66 2/3% of our shares of capital stock entitled to vote is generally necessary to amend or repeal the aboveprovisions that are contained in our amended and restated certificate of incorporation. Also, absent approval of our board of directors, our amended andrestated bylaws may only be amended or repealed by the affirmative vote of the holders of at least 50% of our shares of capital stock entitled to vote.In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law. These provisions may prohibit largestockholders, in particular those owning 15% or more of our outstanding common stock, from engaging in certain business combinations without approval ofsubstantially all of our stockholders for a certain period of time.These and other provisions in our amended and restated certificate of incorporation, our amended and restated bylaws and under Delaware law coulddiscourage potential takeover attempts, reduce the price that investors might be willing to pay for shares of our common stock in the future and result in themarket price being lower than it would be without these provisions.Item 1B.Unresolved Staff CommentsNot applicable.Item 2.PropertiesOur corporate headquarters are located in Foster City, California, where we currently have a seven year lease for approximately 97,674 square feet ofspace that commenced on August 1, 2012. We also lease facilities for our distributed sales23 Table of Contentsand international operations in Exton, Pennsylvania; Dublin, Ireland; Edina, Minnesota; London, United Kingdom; Mississauga, Ontario, Canada; Munich,Germany; Paris, France; Sydney, Australia; Tokyo, Japan; Moscow, Russia; and Warsaw, Poland.We believe that our facilities are suitable to meet our current needs. We intend to expand our facilities or add new facilities as we add employees andenter new geographic markets, and we believe that suitable additional or alternative space will be available as needed to accommodate any such growth.However, we expect to incur additional expenses in connection with such new or expanded facilities, including our corporate headquarters.Item 3.Legal ProceedingsIn December 2007, we were the subject of a lawsuit by a competitor, Accenture Global Services GmbH and Accenture LLP (collectively “Accenture”). InMay 2011, we prevailed in the U.S. District Court for the District of Delaware regarding the invalidity of one of Accenture’s patents. In October 2011, theparties agreed to resolve the litigation, subject to a potential additional payment by us if Accenture was successful in appealing the validity of its patent. InSeptember 2013, the U.S. Court of Appeals for the Federal Circuit affirmed the lower court decision in our favor and, in June 2014, the U.S. Supreme Courtdenied Accenture’s final appeal, ending the litigation. We will have no additional payments relating to the settlement.In addition to the matters described above, from time-to-time, we are involved in various other legal proceedings and receive claims, arising from thenormal course of business activities. Item 4.Mine Safety DisclosuresNot applicable.24 Table of ContentsPART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecuritiesOur common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “GWRE”. The following table sets forth the high and lowsales price per share of our common stock as reported on the NYSE for the periods indicated: Fiscal Year 2014 Fiscal Year 2013 High Low High LowFirst Quarter$51.01 $42.80 $33.15 $24.00Second Quarter$50.66 $43.83 $34.54 $25.46Third Quarter$57.38 $37.42 $41.20 $30.25Fourth Quarter$41.98 $34.85 $45.73 $37.31On July 31, 2014, the last reported sale price of our common stock on the New York Stock Exchange was $40.50 per share. As of July 31, 2014, we had99 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders, and includes stockholders who arebeneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not includestockholders whose shares may be held in trust by other entities.We have never declared or paid, and do not anticipate declaring or paying, any cash dividends on our capital stock. Any future determination as to thedeclaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then existing conditions, including ourfinancial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deemrelevant.Performance GraphThis performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission for purposes ofSection 18 of the Securities Exchange Act of 1934, as amended (“the Exchange Act”) or otherwise subject to the liabilities under that Section, and shall notbe deemed to be incorporated by reference into any filing of the company under the Securities Act of 1933, as amended (the “Securities Act”) or theExchange Act.The following graph shows a comparison from January 25, 2012, (the date our common stock commenced trading on the NYSE) through July 31, 2014,of the cumulative total return for our common stock, the NASDAQ Composite Total Returns Index and the Zacks Computer Software Services Total ReturnIndex. Such returns are based on historical results and are not intended to suggest future performance. Data for the NASDAQ Composite Index and the ZacksComputer Software Services Total Return Index assume reinvestment of dividends.25 Table of Contents Unregistered Sales of Equity Securities and Use of ProceedsIssuer Purchases of Equity SecuritiesThere were no repurchases of shares of our common stock made during the three months ended July 31, 2014.Item 6.Selected Financial DataSELECTED CONSOLIDATED FINANCIAL DATAThe selected consolidated statements of income data for the years ended July 31, 2014, 2013 and 2012 and the consolidated balance sheet data as ofJuly 31, 2014 and 2013 are derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The selectedconsolidated statements of income for the years ended July 31, 2011 and 2010 and the consolidated balance sheet data as of July 31, 2012, 2011 and 2010are derived from our unaudited consolidated financial statements which are not included in this Annual Report on Form 10-K. Our historical results are notnecessarily indicative of the results that may be expected in any future annual or interim period. You should read the following selected consolidatedhistorical financial data below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and theconsolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.In July of fiscal 2014, we elected to change our accounting policy to recognize stock-based compensation expense from the accelerated attributionmethod of accounting to the straight-line method of accounting for our time-based units (or service-only awards). We believe the straight-line method ofaccounting for stock-based compensation expense for service-only awards better reflects the employees’ pattern of service. Comparative financialinformation, including stock-based compensation information and Adjusted EBITDA, for prior periods have been adjusted to apply the straight-line methodretrospectively. See Note 2 “Change in Accounting Policy - Stock-based Compensation” to the consolidated financial statements included in this AnnualReport on Form 10-K for further information.26 Table of Contents Fiscal years ended July 31, 2014 2013 2012 2011 2010 (unaudited) (unaudited) (in thousands, except share and per share data)Total revenues$350,246 $300,649 $232,061 $172,472 $144,691Total cost of revenues (1) (3)148,947 125,651 90,005 68,072 55,325Total gross profit201,299 174,998 142,056 104,400 89,366Operating expenses: (1) Research and development (3)76,178 62,991 49,056 34,418 28,220Sales and marketing (3)71,295 50,948 36,781 28,820 26,766General and administrative (3)35,404 31,320 27,285 22,554 15,829Litigation provision— — — 10,000 —Total operating expenses182,877 145,259 113,122 95,792 70,815Income (loss) from operations18,422 29,739 28,934 8,608 18,551Interest income, net1,350 498 308 156 95Other income (expenses), net174 (114) (726) 1,269 (391)Income before provision for income taxes (1)19,946 30,123 28,516 10,033 18,255Provision for (benefit from) income taxes (1)5,225 5,465 9,852 (26,175) 2,199Net income (1)$14,721 $24,658 $18,664 $36,208 $16,056Earnings per share: (1) Basic$0.22 $0.44 $0.36 $0.85 $0.33Diluted$0.21 $0.40 $0.32 $0.78 $0.31Shares used in computing earnings per share: (1) (2) Basic65,748,896 56,331,018 34,774,983 14,064,055 13,535,736Diluted69,112,733 61,569,195 41,759,338 17,288,637 16,300,661(1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” in Notes to Consolidated Financial Statements.(2) See Note 5 to our consolidated financial statements for an explanation of the calculations of our basic and diluted earnings per share attributable tocommon stockholders.(3) Includes stock-based compensation as follows: Fiscal years ended July 31, 2014 2013 2012 2011 2010 (unaudited) (unaudited) (in thousands)Cost of license and other$184 $— $— $— $—Cost of maintenance revenue797 830 288 111 40Cost of services revenue11,929 6,910 2,461 1,001 739Research and development9,008 5,843 2,385 1,018 715Sales and marketing10,744 3,672 1,496 772 781General and administrative9,876 8,250 6,293 2,041 542Total stock-based compensation expenses (1)$42,538 $25,505 $12,923 $4,943 $2,817(1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.27 Table of Contents As of July 31, 2014 2013 2012 2011 2010 (unaudited) (unaudited) (unaudited) (in thousands)Cash and cash equivalents$148,101 $79,767 $205,718 $59,625 $37,411Working capital (deficit)421,044 135,309 169,278 12,540 (5,382)Short-term and long-term investments499,680 127,972 — — —Total assets757,227 305,673 281,286 125,451 60,055Total stockholders’ equity (deficit) (1)650,686 221,832 181,000 17,061 (25,145)(1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.Adjusted EBITDAWe believe Adjusted EBITDA, a non-GAAP financial measure, is useful in evaluating our operating performance compared to that of other companiesin our industry, as this metric generally eliminates the effects of certain items that may vary for different companies for reasons unrelated to overall operatingperformance. We believe that:•Adjusted EBITDA provides investors and other users of our financial information consistency and comparability with our past financialperformance, facilitates period-to-period comparisons of operations and facilitates comparisons with other companies, many of which usesimilar non-GAAP financial measures to supplement their GAAP results; and•it is useful to exclude non-cash charges, such as depreciation and amortization, stock-based compensation and one-time charges such as ourlitigation provision from Adjusted EBITDA because the amount of such expense in any specific period may not directly correlate to theunderlying performance of our business operations and these expenses can vary significantly between periods.We use Adjusted EBITDA in conjunction with traditional GAAP measures as part of our overall assessment of our performance, including thepreparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our boardof directors concerning our financial performance.Adjusted EBITDA should not be considered as a substitute for other measures of financial performance reported in accordance with GAAP. There arelimitations to using non-GAAP financial measures, including that other companies may calculate these measures differently than we do. We compensate forthe inherent limitations associated with using Adjusted EBITDA through disclosure of these limitations, presentation of our financial statements inaccordance with GAAP and reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, net income (loss).The following provides a reconciliation of net income to Adjusted EBITDA: Fiscal years ended July 31, 2014 2013 2012 2011 2010 (unaudited, in thousands)Net income (1)$14,721 $24,658 $18,664 $36,208 $16,056Non-GAAP adjustments: Provision for (benefit from) income taxes (1)5,225 5,465 9,852 (26,175) 2,199Other (income) expense, net(174) 114 726 (1,269) 391Interest income, net(1,350) (498) (308) (156) (95)Litigation provision— — — 10,000 —Depreciation and amortization6,751 4,821 2,917 2,226 1,376Stock-based compensation (1)42,538 25,505 12,923 4,943 2,817Adjusted EBITDA (1)$67,711 $60,065 $44,774 $25,777 $22,744(1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.28 Table of ContentsItem 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes thereto included inItem 8 and the Risk Factors included in Item 1A of Part I of this Annual Report on Form 10-K. All information presented herein is based on our fiscalcalendar. Unless otherwise stated, references in this report to particular years or quarters refer to our fiscal years ended in July and the associated quartersof those fiscal years. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.OverviewWe are a leading provider of software products that help Property & Casualty (“P&C”) insurers replace their legacy core systems and transform theirbusiness. Designed to be flexible and scalable, Guidewire InsuranceSuiteTM enables insurers to deliver excellent service, increase market share and loweroperating costs. We also sell additional products in the areas of data management, mobile and portals, and hosted analytic applications which complementGuidewire InsuranceSuite and align with our mission to build software products that transform the P&C industry.We sell our products to a wide variety of global P&C insurance carriers ranging from some of the largest global insurance carriers or their subsidiaries tonational carriers to regional carriers. We continue to expand our global reach with sales and marketing growth in Europe and Asia Pacific, geographies inwhich we are building pipeline and strengthening our presence. Our customer engagement is led by our direct sales model and supported by our SystemIntegrator (“SI”) partners. Customers can buy our software applications, PolicyCenter, ClaimCenter and BillingCenter, either separately or in combination asa suite. Strong customer relationships are a key driver of our success given the long-term nature of our contracts and the importance of customer references fornew sales. We continue to focus on developing and maintaining our customer relationships through customer service and account management.We see opportunities for orders from new customers, but our sales cycles remain long as customers are deliberate and the decision making process islong. We must also earn creditability as we expand our sales operations and enter new markets which involves extensive customer due diligence andreference checks. Finally, our new products are sold as complementary or adjacent to our InsuranceSuite which naturally limits the quantity of potentialcustomers. We also see upsell opportunities with our existing customers for both InsuranceSuite and our newer products in data management, mobile andportals and hosted analytic applications. We continue to invest in sales and marketing as well as our SI partnerships and we work to align with each insurer’sstrategic goals in order to address any sales cycle risk.We primarily enter into term based licenses ranging from 3 to 7 years. These contracts are renewable on an annual or multi-year basis. We generallyprice our licenses based on the amount of direct written premiums (“DWP”) that will be managed by our solutions. We typically invoice our customersannually in advance or, in certain cases, quarterly for both recurring term license and maintenance fees. Our sales and marketing efforts are affected byseasonal variations in which our customer orders are higher in the second and fourth quarters of our fiscal year. We primarily derive our services revenuesfrom implementation, integration and training services. Guidewire implementation teams assist customers in building implementation plans, integrating oursoftware with their existing systems, and defining business rules and specific requirements unique to each customer and installation.To extend our technology leadership position in the global market, we continue to focus on product innovation through our investment in research anddevelopment. We continue to invest in Guidewire InsuranceSuite - PolicyCenter, ClaimCenter and BillingCenter. Further, we are also investing in newtechnologies and offerings, such as data management, mobile and portals and hosted analytic applications. These investments complement GuidewireInsuranceSuite and enable our customers to accelerate the pace and impact of their transformation initiatives. New technology and product development iscentral to our core strategy and our commitment to our customers. Our product innovation strategy is critical to our growth and global expansion or otherwiseresponding to competitive pressures which could limit our ability to capture the global P&C market share. Our success depends on our continued ability todevelop new or enhanced versions of our existing products to meet evolving customer requirements and enabling successful transformations.We also partner with leading SI consulting firms to achieve scalable, cost-effective implementations for our customers. Our extensive relationships withSIs and industry partners have strengthened and expanded in line with the interest in and adoption of our products. We encourage our partners to co-market,pursue joint sales initiatives and drive broader adoption of our technology, helping us grow our business more efficiently and enabling us to focus ourengineering resources on continued innovation and further enhancement of our solutions. Our track record of success with customers and theirimplementations is central to our strategy. We continue to focus and invest time and resources recruiting SI partners in new markets and ensuring that allpartners are ready to assist with implementing our new products.29 Table of ContentsWe face a number of risks in the execution of our strategy including expanding to new markets, lengthy sales cycles, intense competition in the globalmarket, reliance on sales to a relatively small number of large customers, product development, customer buying patterns, and the overall adoption of ourproducts. In response to these risks and factors as well as others we might face, we continue to invest in many areas of our business. Our investments in salesand marketing align with our goal of winning new customers in both existing markets and new markets. Further, our sales investments also enable us tomaintain a persistent, consultative relationship with our existing customers in order to sell new products and solutions. Our investments in technology andproduct development allow us to sell in more markets and address a broader spectrum of customer needs as they embark on transformation initiatives. We willalso continue to invest in our consulting services and our SI partner ecosystem with a goal of ensuring that all customers are successful in their transformationjourney.Key Business MetricsWe use certain key metrics to evaluate and manage our business, including rolling four-quarter recurring revenues from term licenses and totalmaintenance. In addition, we present select GAAP and non-GAAP financial metrics that we use internally to manage the business and that we believe areuseful for investors. These metrics include Adjusted EBITDA and operating cash flow.Four-Quarter Recurring RevenuesWe measure four-quarter recurring revenues by adding the total term license revenues and total maintenance revenues recognized in the preceding fourquarters ended in the stated period and excluding perpetual license revenues, revenues from perpetual buyout rights and services revenues. This metric allowsus to better understand the trends in our recurring revenues because it typically reduces the variations in any particular quarter caused by seasonality, theeffects of the annual invoicing of our term licenses and certain effects of contractual provisions that may accelerate or delay revenue recognition in somecases. Our four-quarter recurring revenues for each of the nine periods presented were: Four quarters ended July 31,2014 April 30,2014 January 31,2014 October 31,2013 July 31,2013 April 30,2013 January 31,2013 October 31,2012 July 31,2012 (in thousands)Term license revenues$139,902 $125,485 $115,144 $110,640 $112,863 $95,303 $92,792 $83,114 $74,869Total maintenance revenues41,888 39,836 38,510 37,830 37,561 35,548 34,207 31,802 29,538Total four-quarter recurringrevenues$181,790 $165,321 $153,654 $148,470 $150,424 $130,851 $126,999 $114,916 $104,407Adjusted EBITDAWe believe Adjusted EBITDA, a non-GAAP measure, is useful, in addition to other financial measures presented in accordance with GAAP, inevaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items thatmay vary for different companies for reasons unrelated to overall operating performance. Please refer to Item 6, Selected Financial Data, for further details onwhy we use this metric and why we believe this metric is useful to our stockholders.The following table provides a reconciliation of Net income to Adjusted EBITDA: Fiscal years ended July 31, 2014 2013 2012 (unaudited, in thousands)Net income (1)$14,721 $24,658 $18,664Non-GAAP Adjustments: Provision for income taxes (1)5,225 5,465 9,852Other (income) expense, net(174) 114 726Interest income, net(1,350) (498) (308)Depreciation and amortization6,751 4,821 2,917Stock-based compensation (1)42,538 25,505 12,923Adjusted EBITDA (1)$67,711 $60,065 $44,774(1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.30 Table of ContentsOperating Cash FlowsWe monitor our cash flows from operating activities, or operating cash flows, as a key measure of our overall business performance, which enables us toanalyze our financial performance without the effects of certain non-cash items such as depreciation and amortization and stock-based compensationexpenses. Additionally, operating cash flows takes into account the impact of changes in deferred revenues, which reflects the receipt of cash payment forproducts before they are recognized as revenues. Our operating cash flows are significantly impacted by timing of invoicing and collections of accountsreceivable, annual bonus payment, as well as payments of payroll and other taxes. They were also impacted by the payment of a litigation settlement duringthe three months ended October 31, 2011. As a result, our operating cash flows fluctuate significantly on a quarterly basis. Operating cash flows were $75.5million, $32.5 million and $17.1 million for fiscal years 2014, 2013 and 2012, respectively. For a further discussion of our operating cash flows, see“Liquidity and Capital Resources—Cash Flows from Operating Activities.”Critical Accounting Policies and EstimatesOur consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States and includeour accounts and the accounts of our wholly-owned subsidiaries. The preparation of our consolidated financial statements requires our management to makeestimates, assumptions, and judgments that affect the reported amounts of assets and liabilities and disclosures for contingent assets and liabilities as of thedate of the financial statements, and the reported amounts of revenues and expenses during the applicable periods. Management bases its estimates,assumptions and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. Differentassumptions and judgments would change the estimates used in the preparation of our consolidated financial statements which, in turn, could change theresults from those reported. The accounting policies described below are significantly affected by critical accounting estimates. Such accounting policiesrequire significant judgments, assumptions, and estimates used in the preparation of the consolidated financial statements and actual results could differmaterially from the amounts reported based on these policies. To the extent there are material differences between our estimates and the actual results, ourfuture consolidated results of operations may be affected.Revenue RecognitionWe enter into arrangements to deliver multiple products or services (multiple-elements). We apply software revenue recognition rules and allocate thetotal revenues among elements based on vendor-specific objective evidence (“VSOE”) of fair value of each element. We recognize revenue on a net basisexcluding taxes collected from customers and remitted to government authorities.Revenues are derived from three sources:(i)License fees, related to term (or time-based) licenses, perpetual software licenses, and other;(ii)Maintenance fees, related to email and phone support, bug fixes and unspecified software updates and upgrades released when, and if availableduring the maintenance term; and(iii)Services fees, related to professional services related to implementation of our software, reimbursable travel and training.Revenues are recognized when all of the following criteria are met:•Persuasive evidence of an arrangement exists. Evidence of an arrangement consists of a written contract signed by both the customer andmanagement prior to the end of the period.•Delivery or performance has occurred. Our software is delivered electronically to the customer. Delivery is considered to have occurred whenwe provide the customer access to the software along with login credentials.•Fees are fixed or determinable. Arrangements where a significant portion of the fee is due beyond 90 days from delivery are not considered tobe fixed or determinable. Revenues from such arrangements are recognized as payments become due, assuming all other revenue recognitioncriteria have been met. Fees from term licenses are generally due in annual or, in certain cases, quarterly installments over the term of theagreement beginning on the effective date of the license. Accordingly, fees from term licenses are not considered to be fixed or determinableuntil they become due.•Collectability is probable. Collectability is assessed on a customer-by-customer basis, based primarily on creditworthiness as determined bycredit checks and analysis, as well as customer payment history. Payment terms generally range from 30 to 90 days from invoice date. If it isdetermined prior to revenue recognition that collection of an arrangement fee is not probable, revenues are deferred until collection becomesprobable or cash is collected, assuming all other revenue recognition criteria are satisfied.31 Table of ContentsVSOE of fair value does not exist for our software licenses; therefore, we allocate revenues to software licenses using the residual method. Under theresidual method, the amount recognized for license fees is the difference between the total fixed and determinable fees and the VSOE of fair value for theundelivered elements under the arrangement.The VSOE of fair value for elements of an arrangement is based upon the normal pricing and discounting practices for those elements when soldseparately. VSOE of fair value for maintenance is established using the stated maintenance renewal rate in the customer’s contract. We generally enter intoterm licenses ranging from 3 to 7 years. For term licenses with duration of one year or less, no VSOE of fair value for maintenance exists. VSOE of fair valuefor services is established if a substantial majority of historical stand-alone selling prices for a service fall within a reasonably narrow price range.If the undelivered elements are all service elements and VSOE of fair value does not exist for one or more service element, the total arrangement fee isrecognized ratably over the longest service period starting at software delivery, assuming all the related services have been made available to the customer.In certain offerings sold as fixed fee arrangements, we recognize services revenues on a proportional performance basis as performance obligations arecompleted by using the ratio of labor hours to date as an input measure compared to total estimated labor hours for the consulting services.In cases where professional services are deemed to be essential to the functionality of the software, the arrangement is accounted for using contractaccounting until the essential services are complete. If reliable estimates of total project costs can be made, we apply the percentage-of-completion methodwhereby percentage toward completion is measured by using the ratio of service billings to date compared to total estimated service billings for theconsulting services. Service billings approximate labor hours as an input measure since they are generally billed monthly on a time and material basis. Thefees related to the maintenance are recognized over the period the maintenance is provided.If reliable estimates of total project costs cannot be made or VSOE for maintenance has not been established and it is reasonably assured that no loss willbe incurred under the arrangement, revenues are recognized pursuant to the zero gross margin method. Under this method, revenues recognized are limited tothe costs incurred for the implementation services. When zero gross margin method is applied for lack of reliable project estimates and subsequently projectestimates become reliable, we switch to the percentage-of-completion; resulting in a cumulative effect adjustment for deferred license revenues to the extentof progress toward completion, and the related deferred professional service margin is recognized in full as revenues. Such cumulative effect adjustment forlicense revenues was zero, $3.2 million and $0.9 million for the fiscal years ended July 31, 2014, 2013 and 2012, respectively, and for service revenues waszero, $1.7 million and $0.9 million for the fiscal years ended July 31, 2014, 2013 and 2012, respectively.Deferred RevenuesDeferred revenues represent license, maintenance and professional services amounts, which are billed to or collected from customers for which therelated revenues have not been recognized. The revenues are deferred when one or more of the revenue recognition criteria have not been met. The currentportion of deferred revenues represents the amount that is expected to be recognized as revenues within one year from the balance sheet date. We generallyinvoice fees for licenses and maintenance to our customers in annual or, in certain cases, quarterly installments payable in advance. Accordingly, the deferredrevenues balance does not represent the total contract value of annual or multi-year, non-cancellable arrangements.Stock-Based CompensationWe recognize compensation expense related to stock options and restricted stock units (“RSUs”) granted to employees based on the estimated fairvalue of the awards on the date of grant, net of estimated forfeitures. The RSUs are subject to time-based vesting, which generally occurs over a period of fouryears. If an employee terminates employment from us prior to the occurrence of the performance-based condition, the employee does not forfeit the RSUs tothe extent the time-based vesting requirements were satisfied prior to termination. The awards expire 10 years from the grant date. We estimate the grant datefair value, and the resulting stock-based compensation expense, of our stock options using the Black-Scholes option-pricing model. We recognize the fairvalue of stock-based compensation for awards which contain only service conditions on a straight-line basis over the requisite service period, which isgenerally the vesting period of the respective awards. We recognize the compensation cost for awards which contain performance conditions based upon theprobability of that performance condition being met, net of estimated forfeitures, using the graded method. Compensation cost for RSUs is generallyrecognized over the time-based vesting period.In the fourth quarter of fiscal 2014, we changed our policy for recognizing stock-based compensation expense from the accelerated attribution methodof accounting to the straight-line method of accounting for certain share-based compensation awards. Comparative financial information for prior periodshave been adjusted to apply the straight-line method32 Table of Contentsretrospectively. See Note 2 “Change in Accounting Policy - Stock-based Compensation” to the consolidated financial statements included in this AnnualReport on Form 10-K for further information.Income TaxesIncome taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating lossand tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in whichthose temporary differences are expected to be recovered or settled. Deferred tax assets related to excess tax benefits are recorded when utilized. The effect ondeferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We record a valuationallowance to reduce deferred tax assets to an amount of which realization is more likely than not.Accounting guidance related to accounting for uncertainties in income taxes provides that a tax benefit from an uncertain tax position may berecognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigationprocesses, based on the technical merits of the position. This interpretation also provides guidance on measurement, derecognition, classification, interestand penalties, accounting in interim periods, disclosure and transition.We record interest and penalties related to unrecognized tax benefits as income tax expense in our consolidated statement of income.Recent Accounting PronouncementSee Note 1 “The Company and Summary of Significant Accounting Policies and Estimates” in the Notes to the Consolidated Financial Statements inItem 8 of Part II of this Annual Report on Form 10-K, for a full description of recent accounting pronouncements, including the expected dates of adoption,which is incorporated herein by reference.Results of OperationsThe following tables set forth our results of operations for the periods presented. The data has been derived from the Consolidated Financial Statementscontained in this Annual Report on Form 10-K which, in the opinion of our management, reflect all adjustments, consisting only of normal recurringadjustments, necessary to present fairly the financial position and results of operations for the interim periods presented. The operating results for any periodshould not be considered indicative of results for any future period. 33 Table of Contents Fiscal years ended July 31, 2014 2013 2012Revenues:(in thousands)License$151,921 $123,560 $97,136Maintenance41,888 37,561 29,538Services156,437 139,528 105,387Total revenues350,246 300,649 232,061Cost of revenues: (1) License4,442 920 762Maintenance8,118 7,216 5,193Services136,387 117,515 84,050Total cost of revenues148,947 125,651 90,005Gross profit: (1) License147,479 122,640 96,374Maintenance33,770 30,345 24,345Services20,050 22,013 21,337Total gross profit201,299 174,998 142,056Operating expenses: (1) Research and development76,178 62,991 49,056Sales and marketing71,295 50,948 36,781General and administrative35,404 31,320 27,285Total operating expenses182,877 145,259 113,122Income from operations18,422 29,739 28,934Interest income, net1,350 498 308Other income (expenses), net174 (114) (726)Income before provision for income taxes (1)19,946 30,123 28,516Provision for income taxes (1)5,225 5,465 9,852Net income (1)$14,721 $24,658 $18,664 Revenues: License43% 41% 42%Maintenance12 13 13Services45 46 45Total revenues100 100 100Total cost of revenues (1)42 42 39Total gross profit (1)58 58 61Operating expenses: (1) Research and development22 21 21Sales and marketing20 17 16General and administrative10 10 12Litigation provision— — —Total operating expenses52 48 49Income from operations6 10 12Interest income, net— — —Other income (expenses), net— — —Income before provision for income taxes (1)6 10 12Provision for income taxes (1)2 2 4Net Income (1)4% 8% 8%(1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.34 Table of ContentsComparison of the Fiscal Years Ended July 31, 2014 and 2013RevenuesPlease refer to Note 1 of Notes to Consolidated Financial Statements for a description of our accounting policy related to revenue recognition. Fiscal years ended July 31, 2014 2013 Change % of total % of total Amount revenues Amount revenues ($) (%) (in thousands, except percentages)Revenues: License$151,921 43% $123,560 41% $28,361 23%Maintenance41,888 12 37,561 13 4,327 12Services156,437 45 139,528 46 16,909 12Total revenues$350,246 100% $300,649 100% $49,597 17%License RevenuesThe $28.4 million increase in license revenues during fiscal year 2014 was primarily driven by increased adoption of our InsuranceSuite software, andincreased sales and marketing efforts in North America and Europe. Fiscal years ended July 31, 2014 2013 Change % of license % of license Amount revenues Amount revenues ($) (%) (In thousands, except percentages)License revenues: Term$139,902 92% $112,863 91% $27,039 24%Perpetual12,019 8 10,697 9 1,322 12Total license revenues$151,921 100% $123,560 100% $28,361 23%The $27.0 million increase in term license revenues during the fiscal year 2014 was primarily driven by $31.3 million of revenues recognized from neworders or expanded orders from existing customers, offset by a net decrease of $4.3 million of revenues due to contractual terms that affected license revenuerecognition from customer contracts.The $1.3 million increase in perpetual license revenues during the fiscal year 2014 was primarily driven by revenues from existing customers foradditional products in the current period.Maintenance RevenuesThe $4.3 million increase in maintenance revenues during the fiscal year 2014 reflects our growing customer base.Services RevenuesThe $16.9 million increase in service revenues during the fiscal year 2014 was primarily driven by an additional $14.4 million of revenues related toimplementation of our software and $2.5 million revenues related to training and reimbursable travel costs. This increase is net of $2.3 million of servicesbillings that were deferred due to certain contractual terms during the fiscal year 2014.Deferred Revenues35 Table of Contents As of July 31, 2014 2013 Change Amount Amount ($) (%) (In thousands, except percentages)Deferred revenues: Deferred license revenues$19,295 $14,435 $4,860 34%Deferred maintenance revenues28,702 22,017 6,685 30Deferred services revenues7,335 4,744 2,591 55Total deferred revenues$55,332 $41,196 $14,136 34%The $4.9 million increase in deferred license revenues compared to prior year end was primarily driven by $3.7 million of deferred license billings fornew deals during the fiscal year 2014 and remaining revenues are deferred due to other contractual terms that affected license revenue recognition.The $6.7 million increase in deferred maintenance revenues compared to the prior year end was primarily driven by our growing customer base andreflects the seasonal nature of the billing of maintenance revenues.The $2.6 million increase in deferred services revenues compared to the prior year end was primarily driven by $2.3 million of services billings deferreddue to certain contractual terms during the fiscal year 2014.Included in our long-term deferred revenues as of July 31, 2014, is $4.4 million of deferred revenue for one customer. The contractual obligation for thiscustomer will be met in the first quarter of fiscal year 2015 and the revenue will be recognized in the first quarter of fiscal year 2015.Our deferred revenues consist only of amounts that have been invoiced, but not yet recognized as revenues. As a result, deferred revenues and change indeferred revenues are incomplete measures of the strength of our business and are not necessarily indicative of our future performance.Cost of Revenues and Gross Profit Fiscal years ended July 31, 2014 2013 Change Amount Amount ($) (%) (In thousands, except percentages)Cost of revenues: (1) License$4,442 $920 $3,522 383%Maintenance8,118 7,216 902 13Services136,387 117,515 18,872 16Total cost of revenues$148,947 $125,651 $23,296 19%Includes stock-based compensation of: (1) Cost of license revenues$184 $— $184 Cost of maintenance revenues797 830 (33) Cost of services revenues11,929 6,910 5,019 Total$12,910 $7,740 $5,170 (1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.The $23.3 million increase in cost of revenues was primarily due to a 17% increase in revenues for fiscal year 2014. The increased costs were primarilydriven by an increase of $10.4 million in personnel-related expenses as a result of an average increase of 47 additional employees hired during the fiscal year2014 primarily to provide implementation services to our customers, a $5.2 million increase in stock-based compensation expenses, a $4.4 million increasein non-billable travel related expenses, professional services, administrative expenses and royalties owed on third-party licensed technology, and $3.3million increase in billable expenses and third-party consultant costs.We expect our cost of revenues to increase in absolute dollars in future periods to provide additional implementation services to our growing customerbase. 36 Table of Contents Fiscal years ended July 31, 2014 2013 Change Amount margin % Amount margin % ($) (%) (In thousands, except percentages)Gross profit: (1) License$147,479 97% $122,640 99% $24,839 20%Maintenance33,770 81 30,345 81 3,425 11Services20,050 13 22,013 16 (1,963) (9)Total gross profit$201,299 57% $174,998 58% $26,301 15%(1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.The $26.3 million increase in gross profit during the fiscal year 2014 was primarily due to increases in license and service revenues that were partiallyoffset by increases in corresponding costs of revenues. License margins decreased to 97% for the fiscal year 2014 from 99% in the fiscal year 2013, due toamortization of acquired intangibles and royalties owed on third-party licensed technology. Service margin decreased to 13% for the fiscal year 2014 from16% in the fiscal year 2013, primarily due to an increase in personnel-related costs, as well as increases in stock-based compensation and third-partyconsultant costs. Gross margin decreased slightly to 57% for the fiscal year 2014 from 58% for the fiscal year 2013, primarily due to an increase in revenuesbeing attributed to services, which have lower margins than license and maintenance revenues, as well as a decrease in service margin.We expect our quarterly gross margin to vary in percentage terms in future periods as we experience changes in the mix between higher gross marginlicense revenues and lower gross margin service revenues.Operating Expenses Fiscal years ended July 31, 2014 2013 Change % of total % of total Amount revenues Amount revenues ($) (%) (In thousands, except percentages)Operating expenses: (1) Research and development$76,178 22% $62,991 21% $13,187 21%Sales and marketing71,295 20 50,948 17 20,347 40General and administrative35,404 10 31,320 10 4,084 13Total operating expenses$182,877 52% $145,259 48% $37,618 26%Includes stock-based compensation of: (1) Research and development$9,008 $5,843 $3,165 Sales and marketing10,744 3,672 7,072 General and administrative9,876 8,250 1,626 Total$29,628 $17,765 $11,863 (1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.The $37.6 million increase in operating expenses was primarily driven by increased personnel-related and operational expenses, including higherstock-based compensation, travel-related costs, marketing programs, professional services costs including consulting, as a result of hiring 46 additionalemployees during the fiscal year 2014 in these functional areas.We expect all of our operating expense line items to increase in absolute dollars in future periods to support our future growth strategy.Research and DevelopmentThe $13.2 million increase in research and development expenses was primarily due to an increase of $7.1 million in personnel-related expenses as aresult of an average of 32 additional employees during the fiscal year 2014, a $3.2 million increase in stock-based compensation and a $2.9 million increasein other professional services expenses and operational costs.Sales and Marketing37 Table of ContentsThe $20.3 million increase in sales and marketing expenses was primarily due to a $9.6 million increase in personnel-related expenses primarily as aresult of an average of 52 additional employees during the fiscal year 2014, a $7.1 million increase in stock-based compensation, a $1.8 million increase intravel-related costs and marketing programs, and a $1.8 million increase in operational costs.General and AdministrativeThe $4.1 million increase in general and administrative expenses was primarily due to a $4.8 million increase in personnel-related expenses primarilyas a result of an average of 19 additional employees during the fiscal year 2014, and a $1.6 million increase in stock-based compensation. These increaseswere offset by a $2.3 million decrease in operational costs.Other Income (Expense) Fiscal years ended July 31, 2014 2013 Change Amount Amount ($) (%) (In thousands, except percentages)Interest income, net$1,350 $498 $852 *Other expense, net174 (114) 288 *Total$1,524 $384 $1,140 **Not meaningfulInterest Income, NetInterest income increased by $0.9 million primarily due to higher interest income from the yield earned on the proceeds of our follow-on publicoffering and the investment of excess cash in the fiscal year 2014.Other Expense, NetOther expense increased by $0.3 million primarily due to higher currency exchange losses resulting from the U.S. dollar strengthening against theAustralian dollar, Canadian dollar, Euro, and British pound during the fiscal year 2014 compared to the fiscal year 2013.Provision for Income TaxesWe recognized an income tax provision of $5.2 million for the fiscal year 2014 compared to $5.5 million for the fiscal year 2013. Our effective incometax rate increased to 26.2% for the fiscal year 2014 compared to 18.1% for the fiscal year 2013, which was primarily due to a decrease in tax credits.Comparison of the Fiscal Years Ended July 31, 2013 and 2012RevenuesPlease refer to Note 1 of Notes to Consolidated Financial Statements for a description of our accounting policy related to revenue recognition. Fiscal years ended July 31, 2013 2012 Change % of totalrevenues % of totalrevenues Amount Amount ($) (%) (in thousands, except percentages)Revenues: License$123,560 41% $97,136 42% $26,424 27%Maintenance37,561 13 29,538 13 8,023 27Services139,528 46 105,387 45 34,141 32Total revenues$300,649 100% $232,061 100% $68,588 30%License Revenues38 Table of ContentsThe $26.4 million increase in license revenues during the fiscal year 2013 was primarily driven by continued adoption of our PolicyCenter software,increased adoption of our BillingCenter and InsuranceSuite software, and increased sales and marketing efforts in North America and Europe. Fiscal years ended July 31, 2013 2012 Change % of licenserevenues % of licenserevenues Amount Amount ($) (%) (In thousands, except percentages)License revenues: Term$112,863 91% $74,869 77% $37,994 51%Perpetual10,697 9 22,267 23 (11,570) (52)Total license revenues$123,560 100% $97,136 100% $26,424 27%The $38.0 million increase in term license revenues during the fiscal year 2013 was driven by $32.0 million of additional revenues recognized duringthe fiscal year 2013 from new orders, $5.8 million of additional revenues recognized upon attainment of the required revenue recognition criteria related toprior year orders during the fiscal year 2013, and $2.7 million of revenues recognized due to timing of invoicing and corresponding due dates. In addition,there was $0.9 million of additional revenues recognized when VSOE of fair value of maintenance was established for one customer during the fiscal year2013. These increases were partially offset by a decrease of $2.5 million of revenues recognized due to completion of project implementations in priorperiods, and a decrease of $1.1 million of revenues recognized for one customer that exercised a perpetual buyout option in the prior period.The $11.6 million decrease in perpetual license revenues during the fiscal year 2013 was primarily driven by new customers increasingly signing termlicense agreements in the current period. This decrease was net of a $3.0 million increase in revenues related to new orders, and $2.5 million of revenuesrecognized for one customer from milestone billing upon completion of a project.Maintenance RevenuesThe $8.0 million increase in maintenance revenues was primarily driven by $6.8 million of additional revenues recognized from new and existingorders, and $1.1 million of revenues recognized upon attainment of the required revenue recognition criteria related to prior year orders during the period.Services RevenuesThe $34.1 million increase in services revenues was primarily driven by an additional $29.4 million of revenues related to implementation of oursoftware. Included in this increase is $1.7 million of revenues recognized when reliable estimates were obtained from one customer during the prior period,$4.0 million of revenues recognized upon completion of implementation projects continued from prior fiscal years, and $0.7 million of revenues recognizedwhen VSOE of fair value of maintenance was established for one customer during the fiscal year 2013. In addition, an increase of $2.5 million was recognizedrelated to training and an increase of $2.2 million in revenues were recognized related to reimbursable travel expenses.Deferred Revenues As of July 31, 2013 2012 Change Amount Amount ($) (%) (In thousands, except percentages)Deferred revenues: Deferred license revenues$14,435 $25,766 $(11,331) (44)%Deferred maintenance revenues22,017 21,536 481 2Deferred services revenues4,744 8,214 (3,470) (42)Total deferred revenues$41,196 $55,516 $(14,320) (26)%The $11.3 million decrease in deferred license revenues was primarily driven by $5.8 million of revenues recognized from existing orders entered intoin prior fiscal years where we attained the required revenue recognition criteria during the fiscal year 2013, of which $3.2 million of revenues was due to theattainment of reliable estimates for one customer. In39 Table of Contentsaddition, $5.2 million of revenues were recognized during the fiscal year 2013 related to implementation projects completed in prior fiscal years and forwhich revenue is recognized over the related maintenance term due to lack of VSOE, $1.4 million of revenues recognized from prior fiscal year orders and$0.9 million of revenues recognized when VSOE of fair value of maintenance was established for one customer during the fiscal year 2013. This decrease waspartially offset by $2.0 million of deferred license billings for new deals during the fiscal year 2013, including $0.9 million deferred due to lack of attainmentof revenue recognition criteria as of July 31, 2013.The $0.5 million increase in deferred maintenance revenues during the fiscal year 2013 was primarily driven by $1.6 million of revenues deferred forbillings of new and existing orders during the fiscal year 2013, partially offset by $1.1 million of revenues recognized upon attainment of the requiredrevenue recognition criteria during fiscal year 2013.The $3.5 million decrease in deferred services revenues was primarily driven by $4.0 million of revenues recognized related to an implementationproject completed in prior fiscal years and for which revenue is recognized over the related maintenance term due to lack of VSOE. Further, $1.7 million ofrevenues were recognized upon obtainment of reliable estimates for one customer during the fiscal year 2013 and $0.7 million of revenues were recognizedwhen VSOE of fair value of maintenance was established for one customer during fiscal year 2013. This decrease was partially offset by $1.2 million ofservices revenues deferred during the fiscal year 2013 due to lack of attainment of revenue recognition and $2.0 million of services revenues deferred forcontracts where revenue is recognized based on completion of a services performance obligation during the period.Included in our deferred revenues as of July 31, 2013, is $1.8 million of deferred revenue for one customer that is subject to refund in the event ofnonperformance of certain project implementation milestones.Our deferred revenues consist only of amounts that have been invoiced, but not yet recognized as revenues. As a result, deferred revenues and change indeferred revenues are incomplete measures of the strength of our business and are not necessarily indicative of our future performance.Cost of Revenues and Gross Profit Fiscal years ended July 31, 2013 2012 Change Amount Amount ($) (%) (In thousands, except percentages)Cost of revenues: (1) License$920 $762 $158 21%Maintenance7,216 5,193 2,023 39Services117,515 84,050 33,465 40Total cost of revenues$125,651 $90,005 $35,646 40%Includes stock-based compensation of: (1) Cost of license revenues$— $— $— Cost of maintenance revenues830 288 542 Cost of services revenues6,910 2,461 4,449 Total$7,740 $2,749 $4,991 (1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.The $35.6 million increase in cost of revenues was primarily due to a 30% increase in revenues for the fiscal year 2013. The increased costs wereprimarily driven by an increase of $16.8 million in personnel-related expenses as a result of 146 additional employees hired during the fiscal year 2013primarily to provide implementation services to our customers, a $8.4 million increase in billable expenses and third-party consultant costs, a $5.6 millionincrease in non-billable travel-related expenses, professional services and administrative expenses and a $4.9 million increase in stock-based compensationexpenses.40 Table of Contents Fiscal years ended July 31, 2013 2012 Change Amount margin % Amount margin % ($) (%) (In thousands, except percentages)Gross profit: (1) License$122,640 99% $96,374 99% $26,266 27%Maintenance30,345 81 24,345 82 6,000 25Services22,013 16 21,337 20 676 3Total gross profit$174,998 58% $142,056 61% $32,942 23%(1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.Gross profit increased by $32.9 million primarily due to increased license revenues during the fiscal year 2013. Gross margin decreased to 58% for thefiscal year 2013 from 61% for the fiscal year 2012, primarily due to the increase in lower gross margin services revenues as a percentage of total revenues. Thedecrease in services margin in the current fiscal year is due to the increases in personnel-related expenses and stock-based compensation expenses discussedabove, which outpaced the increase in revenues.Operating Expenses Fiscal years ended July 31, 2013 2012 Change % of total % of total Amount revenues Amount revenues ($) (%) (In thousands, except percentages)Operating expenses: (1) Research and development$62,991 21% $49,056 21% $13,935 28%Sales and marketing50,948 17 36,781 16 14,167 39General and administrative31,320 10 27,285 12 4,035 15Total operating expenses$145,259 48% $113,122 49% $32,137 28%Includes stock-based compensation of: (1) Research and development$5,843 $2,385 $3,458 Sales and marketing3,672 1,496 2,176 General and administrative8,250 6,293 1,957 Total$17,765 $10,174 $7,591 (1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.The $32.1 million increase in operating expenses was primarily driven by increased personnel-related and operational expenses, including higherstock-based compensation, professional services costs including consulting and other professional service cost, travel-related costs, marketing programs,professional services costs including consulting, as a result of hiring 166 additional employees during the fiscal year 2013 in these functional areas.We expect all of our operating expense line items to increase in absolute dollars in future periods to support our future growth strategy.Research and DevelopmentThe $13.9 million increase in research and development expenses was primarily due to an increase of $6.8 million in personnel-related expenses as aresult of 75 additional employees during the fiscal year 2013, a $3.7 million increase in administrative and other professional services expenses and a $3.4million increase in stock-based compensation.Sales and MarketingThe $14.2 million increase in sales and marketing expenses was primarily due to a $6.6 million increase in personnel-related expenses primarily as aresult of 55 additional employees during the fiscal year 2013, a $2.7 million increase in travel-related costs, marketing programs and professional services, a$2.7 million increase in operations costs, and a $2.2 million increase in stock-based compensation.41 Table of ContentsGeneral and AdministrativeThe $4.0 million increase in general and administrative expenses was primarily due to a $4.0 million increase in personnel-related expenses primarilyas a result of 36 additional employees during the fiscal year 2013, a $2.0 million increase in stock-based compensation, and a $1.6 million increase inprofessional services. These increases were offset by a $3.6 million decrease in operational expenses.Other Income (Expense) Fiscal years ended July 31, 2013 2012 Change Amount Amount ($) (%) (In thousands, except percentages)Interest income, net$498 $308 $190 *Other expense, net(114) (726) 612 *Total$384 $(418) $802 ** Not meaningfulInterest Income, NetInterest income increased by $0.2 million primarily due to higher interest income from the yield earned on the initial public offering (“IPO”) proceedsand the investment of excess cash in the fiscal year 2013.Other Income (Expense), NetOther expense decreased by $0.6 million primarily due to lower currency exchange losses resulting from the U.S. dollar strengthening against theAustralian dollar, Canadian dollar and British pound during fiscal year 2013 compared to fiscal year 2012.Provision for Income TaxesWe recognized an income tax provision of $5.5 million for the fiscal year 2013 compared to $9.9 million for the fiscal year 2012. Our effective incometax rate decreased to 18.1% for the fiscal year 2013 increased compared to 34.5% for the fiscal year 2012, which was primarily due to the increase in taxcredits.Quarterly Results of OperationsThe following table sets forth our unaudited quarterly consolidated statements of operations data for each of the eight quarters ended July 31, 2014. Inmanagement’s opinion, the data below have been prepared on the same basis as the audited consolidated financial statements and reflect all necessaryadjustments, consisting only of normal recurring adjustments, necessary for a fair statement of this data. The results of historical periods are not necessarilyindicative of the results to be expected for a full year or any future period. The following two tables present our unaudited quarterly consolidated statementsof operations data first in dollars and then as a percentage of total revenues for the periods presented.In the fourth quarter of fiscal 2014, we changed our policy for recognizing stock-based compensation expense from the accelerated attribution methodof accounting to the straight-line method of accounting for certain stock-based compensation awards. Comparative quarterly data for prior periods have beenadjusted to apply the straight-line method retrospectively. See Note 2 “Change in Accounting Policy - Stock-based Compensation” footnote to theconsolidated financial statements included in this Annual Report on Form 10-K for further information.42 Table of Contents Fiscal quarters ended July 31, 2014 April 30, 2014 January 31,2014 October 31,2013 July 31, 2013 April 30, 2013 January 31,2013 October 31,2012 (unaudited)(in thousands, except per share amounts)Revenues: License$65,909 $31,927 $35,215 $18,870 $49,078 $22,918 $30,752 $20,812Maintenance11,919 10,440 9,890 9,639 9,871 9,110 9,210 9,370Services40,379 39,668 38,370 38,020 37,961 36,222 32,226 33,119Total revenues118,207 82,035 83,475 66,529 96,910 68,250 72,188 63,301Cost of revenues: (1) License1,154 849 1,593 846 484 139 130 167Maintenance2,301 2,133 1,902 1,782 2,096 1,980 1,670 1,470Services35,193 33,293 32,672 35,229 32,873 32,437 27,731 24,474Total cost of revenues (2)38,648 36,275 36,167 37,857 35,453 34,556 29,531 26,111Gross profit: (1) License64,755 31,078 33,622 18,024 48,594 22,779 30,622 20,645Maintenance9,618 8,307 7,988 7,857 7,775 7,130 7,540 7,900Services5,186 6,375 5,698 2,791 5,088 3,785 4,495 8,645Total gross profit79,559 45,760 47,308 28,672 61,457 33,694 42,657 37,190Operating expenses: (1) Research and development (2)21,365 19,761 17,525 17,527 18,311 16,163 14,762 13,755Sales and marketing (2)21,609 16,735 17,278 15,673 15,783 12,155 11,473 11,537General and administrative (2)10,164 9,117 8,024 8,099 8,231 7,575 7,296 8,218Total operating expenses53,138 45,613 42,827 41,299 42,325 35,893 33,531 33,510Income (loss) from operations26,421 147 4,481 (12,627) 19,132 (2,199) 9,126 3,680Interest income, net431 415 346 158 139 137 132 90Other income (expenses), net2 115 (58) 115 (31) (246) 27 136Income (loss) before provision for(benefit from) income taxes (1)26,854 677 4,769 (12,354) 19,240 (2,308) 9,285 3,906Provision for (benefit from) incometaxes (1)7,097 2,590 1,437 (5,899) 5,406 (2,596) 6,073 (3,418)Net income (loss) (1)$19,757 $(1,913) $3,332 $(6,455) $13,834 $288 $3,212 $7,324Basic net income (loss) per share (1)$0.29 $(0.03) $0.05 $(0.11) $0.24 $0.01 $0.06 $0.13Diluted net income (loss) per share (1)$0.28 $(0.03) $0.05 $(0.11) $0.22 $— $0.05 $0.12(1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.43 Table of Contents(2) Includes stock-based compensation as follows: Fiscal quarters ended July 31, 2014 April 30, 2014 January 31,2014 October 31,2013 July 31, 2013 April 30, 2013 January 31,2013 October 31,2012 (unaudited)(in thousands)Stock based compensationexpenses: (1) Cost of license revenues$43 $45 $51 $45 $— $— $— $—Cost of maintenance revenues225 211 201 160 218 216 225 171Cost of services revenues3,067 3,028 3,120 2,714 2,049 1,829 1,735 1,297Research and development2,351 2,260 2,402 1,995 2,066 1,374 1,345 1,058Marketing and sales2,604 2,291 3,790 2,059 880 913 1,047 832General and administrative2,556 2,532 2,575 2,213 1,811 1,778 1,976 2,685Total stock-based compensationexpenses$10,846 $10,367 $12,139 $9,186 $7,024 $6,110 $6,328 $6,043(1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.The impact of this accounting policy change revised our previously reported information by the following (in thousands, except per share amounts): Fiscal quarters ended April 30,2014 January 31,2014 October 31,2013 July 31, 2013 April 30, 2013 January 31, 2013 October 31, 2012 (unaudited)(in thousands, except share amounts)Cost of license revenue$4 $(53) $(57) $— $— $— $—Cost of maintenance revenue(105) (149) (121) (87) (99) (117) (94)Cost of services revenue(966) (2,352) (1,885) (1,266) (1,337) (1,740) (1,352)Research and development(873) (1,535) (1,223) (532) (691) (1,123) (1,009)Sales and marketing(1,233) (1,491) (1,461) (838) 240 (916) (839)General and administrative(372) (1,189) (766) (221) (276) (149) (448)Income before provision for income taxes3,470 6,733 5,424 2,940 2,185 4,049 3,737Provision for (benefit from) income taxes4,025 2,509 1,264 1,211 (773) 6,338 (3,140)Net income (loss)(555) 4,224 4,160 1,729 2,958 (2,289) 6,877Basic net income (loss) per share$(0.01) $0.06 $0.07 $0.03 $0.06 $(0.04) $0.12Diluted net income (loss) per share$(0.01) $0.06 $0.07 $0.03 $0.05 $(0.04) $0.1144 Table of Contents Fiscal quarters ended July 31, 2014 April 30, 2014 January 31,2014 October 31,2013 July 31, 2013 April 30, 2013 January 31,2013 October 31,2012 (unaudited) (percentage of total revenues)Revenues: License56% 39 % 42% 28 % 51% 34% 42% 33%Maintenance10 13 12 15 10 13 13 15Services34 48 46 57 39 53 45 52Total revenues100 100 100 100 100 100 100 100Total cost of revenues (1)33 44 43 57 37 51 41 41Total gross profit (1) (2)67 56 57 43 63 49 59 59Operating expenses: (1) Research and development18 24 21 26 19 24 20 22Sales and marketing18 21 21 24 16 18 16 18General and administrative9 11 9 12 8 11 10 13Total operating expenses45 56 51 62 43 53 46 53Income (loss) from operations22 — 6 (19) 20 (4) 13 6Interest income, net— 1 — — — — — —Other income (expenses), net— — — — — — — —Income (loss) before provision for(benefit from) income taxes (1)22 1 6 (19) 20 (4) 13 6Provision for (benefit from)income taxes (1)6 3 2 (9) 6 (4) 8 (5)Net income (loss) (1)16% (2)% 4% (10)% 14% —% 5% 11%(1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.(2) The table below shows gross profit as a percentage of each component of revenues, referred to as gross margin: Fiscal quarters ended July 31, 2014 April 30, 2014 January 31,2014 October 31,2013 July 31, 2013 April 30, 2013 January 31,2013 October 31,2012 (unaudited)(gross margin by component of revenues)Gross margin (1) License98% 97% 95% 96% 99% 99% 100% 99%Maintenance81 80 81 82 79 78 82 84Services13 16 15 7 13 10 14 26Total gross margin67% 56% 57% 43% 63% 49% 59% 59%(1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.Quarterly TrendsIn general, our year-over-year quarterly revenues have increased as a result of an increase in the number of customers licensed to use our products aswell as purchases of additional licenses by our existing customers. We have historically experienced seasonal variations in our revenues as a result ofincreased customer orders in our second and fourth fiscal quarters and subsequent annual fees and as a result of attainment of revenue recognition criteriarelated to orders from prior periods. We generally see increased orders in our second fiscal quarter, which is the quarter ended January 31, due to customerbuying patterns. We also see increased orders in our fourth fiscal quarter due to efforts by our sales team to achieve annual incentives. Notwithstanding thefact that we generally see increased orders in our second and fourth fiscal quarters, we expect to see additional quarterly revenue fluctuations that may, insome cases, mask these expected seasonal variations. Our quarterly growth in revenues may not match up to new orders we receive in a given quarter. Thismismatch is primarily due to the following reasons:45 Table of Contents•for the initial year of a multi-year term license, we generally recognize revenues when payment is due and payment may not be due until asubsequent fiscal quarter;•we may enter into license agreements with specified terms for product upgrades or functionality, which may require us to delay revenuerecognition for the initial period; and•we may enter into license agreements with other contractual terms that may affect the timing of revenue recognition.Our revenue seasonality may fluctuate versus comparable prior periods or prior quarters within the same fiscal year based on when new orders areexecuted in the quarter and the payment terms of each order. Additionally, our revenue may fluctuate if our customers make an early payment of their annualfees. Our ability to renew existing contracts for multiple year terms versus annual automatic renewals may impact revenue recognition.We generally charge annual software license fees for our multi-year term licenses and price our licenses based on the amount of direct written premiums(“DWP”) that will be managed by our solutions. However, in rare circumstances, our customers desire the ability to purchase our products on a perpetuallicense basis, resulting in an acceleration of revenue recognition. Milestone payments in a perpetual license order also cause seasonal variations. Ourperpetual license revenues are not consistent from period to period. In addition, a few of our multi-year term licenses provide the customer with the option topurchase a perpetual license at the end of the initial contract term, which we refer to as a perpetual buyout right. The mix of our contract terms for our licensesand the exercise of perpetual buyout rights at the end of the initial contract term by our customers may lead to variability in our results of operations.Increases in perpetual license sales and exercises of perpetual buyout rights by our customers may affect our ability to show consistent growth in licenserevenues in subsequent periods. Reductions in perpetual licenses in future periods could cause adverse period-to-period comparisons of our financial results.In addition, because we price our products based on the amount of DWP that will be managed by our solutions, license revenues from each customermay fluctuate up or down based upon insurance policies sold by the customer in the preceding year. If we enter into a new territory, our revenue recognitionpattern may change, depending on the contractual terms and local laws and regulations.Our services revenues are also subject to seasonal fluctuations, though to a lesser degree than our license revenues. Our services revenues are impactedby the number of professional days in a given fiscal quarter. The quarter ended January 31 usually has fewer professional days due to the impact of theThanksgiving, Christmas and New Year’s holidays. Because we pay our services professionals the same amounts throughout the year, our gross margins onour services revenues are lower in the quarter ended January 31.Our gross profit in absolute dollars varied from quarter to quarter in the quarters presented. Our cost to maintain our infrastructure is generally fixedwithin a given quarter. Therefore, when applied against our generally fixed costs, higher revenues in a quarter result in higher overall gross profits.In most of the quarters presented, our operating expenses increased as a result of an increase in the number of total employees. From July 31, 2012 toJuly 31, 2014, we added 343 additional employees in order to drive our sales efforts and increase our technical support, services, research and developmentand administrative personnel to support our growth.Research and development expenses in absolute dollars increased sequentially in every quarter presented. Increases were primarily a result ofincreasing headcount to maintain and improve the functionality of our software products. Research and development expenses varied as a percentage ofrevenues throughout the periods presented primarily due to the timing of revenues recognized but generally increased year-over-year as we continued toinvest in our software development. We expect to increase research and development expenses in absolute dollars and as a percentage of revenues on anannual basis as we expect to increase our investment in our software development in our ongoing efforts to ensure we maintain our technology leadershipposition.Sales and marketing expenses in absolute dollars varied from quarter-to-quarter in the quarters presented. Increases were primarily a result of increasingheadcount in our direct sales teams, as well as increased marketing programs and events and timing of the programs. Sales and marketing expenses as apercentage of revenues varied from quarter-to-quarter primarily due to the timing of revenues recognized, marketing programs and commissions earned andexpensed, but increased year-over-year as sales and marketing expenses grew along with our revenues.General and administrative expenses in absolute dollars varied from quarter-to-quarter in the quarters presented. Increases were primarily a result ofincreasing headcount to support the growth of our business. General and administrative46 Table of Contentsexpenses varied as a percentage of revenues due to the timing of revenues recognized and the timing of professional service fees.In the first quarter of fiscal 2014, and first and third quarters of fiscal 2013, we recorded an income tax benefit primarily resulting from the reinstatementof federal research and development credits, the benefit from incentive stock option (ISO) tax deductions, and permanent differences related to stock-basedcompensation.Our quarterly results of operations may fluctuate significantly due to a variety of factors, many of which are outside of our control, making our results ofoperations variable and difficult to predict. Such factors include those discussed above and those set forth in “Risk Factors—We may experience quarterlyand annual fluctuations in our results of operations due to a number of factors” and “Seasonal and other variations related to our revenue recognition maycause significant fluctuations in our results of operations and cash flows” in item 1A of Part I of this Annual Report on Form 10-K. One or more of thesefactors may cause our results of operations to vary widely. As such, we believe that our quarterly results of operations may vary significantly in the future andthat sequential quarterly comparisons of our results of operations may not be meaningful and should not be relied upon as an indication of futureperformance.Liquidity and Capital ResourcesCash flows provided by operating activities were $75.5 million, $32.5 million and $17.1 million during the years ended July 31, 2014, 2013 and 2012,respectively. The year ended July 31, 2012 included the payment by us of a $10.0 million litigation settlement payment. We had capital expenditures of $5.0million, $9.2 million and $5.6 million for the years ended July 31, 2014, 2013 and 2012, respectively. Our capital expenditures consisted of purchases ofproperty and equipment, primarily consisting of computer hardware, software and leasehold improvements. As of July 31, 2014, 2013 and 2012, we had$148.1 million, $79.8 million and $205.7 million of cash and cash equivalents, respectively, and working capital of $421.0 million, $135.3 million and$169.3 million, respectively.We experienced positive cash flows from operations during fiscal years 2014, 2013 and 2012. Our cash flows from operations are significantlyimpacted by timing of invoicing and collections of accounts receivable, annual bonus payment, as well as payments of payroll and other taxes. We expectthat we will continue to generate positive cash flows from operations on an annual basis, although this may fluctuate significantly on a quarterly basis. Inparticular, 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 fiscalyear during that period and pay seasonally higher sales commissions from increased orders in our fourth fiscal quarter. As such, we believe that our existingcash and cash equivalents and sources of liquidity will be sufficient to fund our operations for at least the next 12 months. Our future capital requirementswill depend on many factors, including our rate of revenues growth, the expansion of our sales and marketing activities and the timing and extent of ourspending to support our research and development efforts and expansion into other markets. We may also seek to invest in, or acquire complementarybusinesses, applications or technologies.Cash FlowsThe following summary of cash flows for the periods indicated has been derived from our consolidated financial statements included elsewhere in thisAnnual Report on Form 10-K: Fiscal years ended July 31, 2014 2013 2012 (in thousands)Net cash provided by operating activities$75,491 $32,547 $17,094Net cash used in investing activities(380,420) (148,913) (3,296)Net cash provided by (used in) financing activities372,564 (8,621) 133,007Cash Flows from Operating ActivitiesNet cash provided by operating activities increased in fiscal year 2014 from fiscal year 2013 primarily due to larger adjustments for non-cash itemsconsisting of $17.0 million from stock-based compensation expenses, other non-cash items of $3.0 million, and $1.9 million from depreciation andamortization. These increases were partially offset by a decrease in net income of $9.9 million and adjustments for non-cash items of $4.5 million from excesstax benefits related to the exercise of stock options and $2.4 million from deferred taxes. Changes in assets and liabilities provided additional cash of $37.8million due to increases in deferred revenues of $28.2 million, accounts payable, accruals and other liabilities of $9.1 million, and an increase in assets of$0.5 million in the fiscal year 2014 compared to fiscal year 2013.47 Table of ContentsNet cash provided by operating activities increased in fiscal year 2013 from fiscal year 2012 primarily due to a $6.0 million increase in net income, a$12.6 million increase in stock-based compensation expenses, $1.9 million from depreciation and amortization, and other non-cash items of $0.5 million.These increases were partially offset by increases in deferred tax assets of $7.5 million in fiscal year 2013, whereas deferred tax assets were being utilized infiscal year 2012. Additionally, excess tax benefits increased by $2.1 million in fiscal year 2013 compared to fiscal year 2012. Changes in assets andliabilities provided additional cash of $4.0 million due to increases in deferred revenues of $3.7 million, and an increase of $0.6 million in accountsreceivable and prepaid expenses, offset by a decrease of $0.3 million in accounts payable, accruals and other liabilities.Cash Flows from Investing ActivitiesOur investing activities consist primarily of purchase and sales of short-term and long-term investments, capital expenditures to purchase property andequipment, and changes in our restricted cash. In the future, we expect we will continue to invest in capital expenditures to support our expandingoperations.Cash used in investing activities increased by $231.5 million in fiscal year 2014 from fiscal year 2013 primarily due to the investment of excess cashinto available-for-sale securities from our stock issuance in October 2013, through net purchases of available-for-sale securities of $246.8 million. Theincrease was offset by the absence of a business acquisition in fiscal 2014 of $14.6 and decrease in capital expenditures of $4.2 million. The prior yearincluded the release of restricted cash related to secured lines of credit for $3.5 million.Net cash used in investing activities increased in fiscal year 2013 from fiscal year 2012 primarily due to the investment of excess cash after our IPO. Netpurchases of available-for-sale securities were $128.5 million. Additionally, fiscal year 2013 included the acquisition of Millbrook, Inc. for $14.7 million andan increase in capital expenditures driven by the final payments related to our headquarters move which were accrued as of July 31, 2012.Cash Flows from Financing ActivitiesOur financing activities consist primarily of cash receipts from the exercise of stock options, payments of taxes withheld from vesting of RSUs andexcess tax benefits realized on the exercise or release of each of these items. In fiscal year 2014 and 2012, we received net inflows of cash from financingactivities related to public offerings.Net cash provided by financing activities increased by $381.2 million in fiscal year 2014 from fiscal year 2013 due to our follow-on offering ofcommon stock for $389.5 million in net proceeds, after deducting underwriters’ discounts and commissions and $4.5 million increase in excess tax benefitfrom exercise of stock options and vesting of RSUs. These proceeds were offset by a $12.5 million increase in taxes remitted related to the vesting of RSUsheld by employees. Additionally, proceeds from stock options exercises decreased by $0.3 million as we have granted more RSUs than stock options inrecent years to employees.Net cash from financing activities decreased from cash provided by financing activities to net cash used in financing activities. This was primarily dueto the receipt of $143.4 million of proceeds from our IPO and follow-on public offering in fiscal year 2012, which was partially offset by $3.5 million of costspaid in connection with these offerings. In addition, fiscal year 2013 payments of taxes related to RSUs vesting increased by $7.9 million. These decreases ofcash were partially offset by $4.1 million of increased proceeds from option exercises, and $2.1 million of excess tax benefits recognized related to our stock-based compensation transactions.Anticipated Cash FlowsWe believe our existing cash, cash equivalents and investment balances, together with anticipated cash flows from operations, should be sufficient tomeet our working capital and operating resource requirements for at least the next twelve months. After the next twelve months, we may find it necessary toobtain additional funds. In the event additional funds are required, we may not be able to obtain additional financing on favorable terms or at all. Contractual ObligationsThe following summarizes our contractual obligations as of July 31, 2014:48 Table of Contents Payments due by period Less than1 year 1 to 3years 3 to 5years More than5 years Total (in thousands)Operating lease obligations (1)$5,786 $11,545 $10,765 $— $28,096Royalty obligations (2)398 577 110 — 1,085Purchase commitments (3)6,141 1,865 — — 8,006Total$12,325 $13,987 $10,875 $— $37,187(1)Operating lease agreements primarily represent our obligations to make payments under our non-cancellable lease agreements for our corporate headquarters and officesthrough 2019.(2)Royalty obligations primarily represent our obligations under our non-cancellable agreements related to certain revenue-generating agreements.(3)Purchase commitments consist of agreements to purchase services, entered into in the ordinary course of business. These represent non-cancellable commitments for which apenalty would be imposed if the agreement was canceled for any reason other than an event of default as described by the agreement.As of July 31, 2014, we had unrecognized tax benefits of $8.0 million associated with our U.S. federal and California research and development taxcredits. We are unable to estimate when any cash settlement with a taxing authority might occur.Off-Balance Sheet ArrangementsThrough July 31, 2014, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to asstructured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or othercontractually narrow or limited purposes.Item 7A. Quantitative and Qualitative Disclosures about Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position dueto adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates and foreign currencyexchange rates. We do not hold or issue financial instruments for trading purposes.Interest Rate SensitivityOur exposure to market risk for changes in interest rates relates primarily to our cash, cash equivalents, and investments as of July 31, 2014, and 2013.Our cash, cash equivalents, and investments as of July 31, 2014, and 2013 were $647.8 million and $207.7 million, respectively, and consisted primarily ofcash, corporate bonds, U. S. agency debt securities, commercial paper, money market funds, and municipal debt securities. Our primary exposure to marketrisk is interest income sensitivity, which is affected by changes in the general level of the interest rates in the United States. However, because of the short-term nature of our interest-bearing securities, a ten percent change in market interest rates would not be expected to have a material impact on ourconsolidated financial condition or results of operations.Foreign Currency Exchange RiskOur results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in theCanadian dollar, Australian dollar, Euro, British pound and Japanese yen. The volatility of exchange rates depends on many factors that we cannot forecastwith reliable accuracy. We believe our operating activities act as a natural hedge for a substantial portion of our foreign currency exposure because wetypically collect revenues and incur costs in the currency in the location in which we provide our application. Although we have experienced and willcontinue to experience fluctuations in our net income (loss) as a result of transaction gains (losses) related to transactions denominated in currencies otherthan the U.S. dollar, we believe that a 10% change in foreign exchange rates would not have a material impact on our results of operations. As ourinternational operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in currency rates.49 Table of ContentsItem 8.Financial Statements and Supplemental DataGUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIESINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm51Consolidated Balance Sheets52Consolidated Statements of Income53Consolidated Statements of Comprehensive Income54Consolidated Statements of Stockholders’ Equity55Consolidated Statements of Cash Flows56Notes to Consolidated Financial Statements57The supplementary financial information required by this Item 8 is included in Item 7 under the caption “Quarterly Results of Operations.”50 Table of ContentsReport of Independent Registered Public Accounting FirmThe Board of Directors and StockholdersGuidewire Software, Inc.:We have audited the accompanying consolidated balance sheets of Guidewire Software, Inc. and subsidiaries (the Company) as of July 31, 2014 and 2013,and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year periodended July 31, 2014. We also have audited the Company’s internal control over financial reporting as of July 31, 2014, based on criteria established inInternal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). TheCompany’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and forits assessment of the effectiveness of internal control over financial reporting, included in Item 9A. Our responsibility is to express an opinion on theseconsolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effectiveinternal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on atest basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtainingan understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design andoperating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessaryin the circumstances. We believe that our audits provide a reasonable basis for our opinions.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Guidewire Software,Inc. and subsidiaries as of July 31, 2014 and 2013, and the results of their operations and their cash flows for each of the years in the three-year period endedJuly 31, 2014, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects,effective internal control over financial reporting as of July 31, 2014, based on criteria established in Internal Control — Integrated Framework (1992)issued by COSO.As discussed in Note 2 to the consolidated financial statements, in the year ended July 31, 2014, the Company has elected to change its method ofaccounting for recognizing stock-based compensation expense./s/ KPMG LLPSanta Clara, CaliforniaSeptember 17, 201451 Table of ContentsGUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(in thousands, except for share data) July 31, 2014 July 31, 2013ASSETS CURRENT ASSETS: Cash and cash equivalents$148,101 $79,767Short-term investments296,231 76,932Accounts receivable49,839 40,885Deferred tax assets, current11,431 2,897Prepaid expenses and other current assets10,828 9,612Total current assets516,430 210,093Long-term investments203,449 51,040Property and equipment, net12,607 12,914Intangible assets, net5,439 6,879Deferred tax assets, noncurrent (1)8,681 14,494Goodwill9,205 9,048Other assets1,416 1,205TOTAL ASSETS$757,227 $305,673LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable$7,030 $6,517Accrued employee compensation34,912 26,302Deferred revenues, current48,937 37,351Other current liabilities4,507 4,614Total current liabilities95,386 74,784Deferred revenues, noncurrent6,395 3,845Other liabilities4,760 5,212Total liabilities106,541 83,841Commitments and contingencies (Note 6) STOCKHOLDERS’ EQUITY: Common stock, par value $0.0001 per share—500,000,000 shares authorized as of July 31, 2014 and 2013,respectively; 69,082,261 and 57,909,277 shares issued and outstanding as of July 31, 2014 and 2013,respectively7 6Additional paid-in capital (1)629,076 215,151Accumulated other comprehensive loss(1,367) (1,574)Retained earnings (1)22,970 8,249Total stockholders’ equity650,686 221,832TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$757,227 $305,673(1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.See accompanying Notes to Consolidated Financial Statements.52 Table of ContentsGUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(in thousands, except share and per share amounts) Fiscal years ended July 31, 2014 2013 2012Revenues: License$151,921 $123,560 $97,136Maintenance41,888 37,561 29,538Services156,437 139,528 105,387Total revenues350,246 300,649 232,061Cost of revenues: (1) License4,442 920 762Maintenance8,118 7,216 5,193Services136,387 117,515 84,050Total cost of revenues148,947 125,651 90,005Gross profit: (1) License147,479 122,640 96,374Maintenance33,770 30,345 24,345Services20,050 22,013 21,337Total gross profit201,299 174,998 142,056Operating expenses: (1) Research and development76,178 62,991 49,056Sales and marketing71,295 50,948 36,781General and administrative35,404 31,320 27,285Total operating expenses182,877 145,259 113,122Income from operations18,422 29,739 28,934Interest income, net1,350 498 308Other income (expenses), net174 (114) (726)Income before provision for income taxes (1)19,946 30,123 28,516Provision for income taxes (1)5,225 5,465 9,852Net income (1)$14,721 $24,658 $18,664Earnings per share: (1) Basic$0.22 $0.44 $0.36Diluted$0.21 $0.40 $0.32Shares used in computing earnings per share: (1) Basic65,748,896 56,331,018 34,774,983Diluted69,112,733 61,569,195 41,759,338(1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.See accompanying Notes to Consolidated Financial Statements.53 Table of ContentsGUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in thousands) Fiscal years ended July 31, 2014 2013 2012Net income (1)$14,721 $24,658 $18,664Other comprehensive income (loss): Foreign currency translation adjustments288 (1,102) (287)Unrealized (loss) gain on available-for-sale securities, net of tax expense(benefit) of $(7), $0 and $0(42) 24 —Reclassification adjustment for gains included in net income(39) — —Other comprehensive income (loss)207 (1,078) (287)Comprehensive income$14,928 $23,580 $18,377(1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.See accompanying Notes to Consolidated Financial Statements.54 Table of ContentsGUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(in thousands, except share amounts) Convertiblepreferred stock Common stock Additionalpaid-incapital Accumulatedothercomprehensiveincome (loss) RetainedEarnings(Accumulateddeficit) Totalstockholders’equity Shares Amount Shares Amount Balance as of July 31, 2011 (1)25,357,721 $36,500 14,422,557 $1 $15,842 $(209) $(35,073) $17,061Proceeds from issuance of common stock in connection withpublic offerings, net of underwriting discounts and commission— — 10,927,500 1 143,385 — — 143,386Costs incurred in connection with public offerings— — — — (3,502) — — (3,502)Conversion of preferred stock to common stock(25,357,721) (36,500) 25,357,721 3 36,497 — — —Issuance of common stock upon exercise of stock options— — 2,211,967 — 5,067 — — 5,067Issuance of common stock upon RSU release, net of shareswithheld for taxes— — 1,018,228 — (12,798) — — (12,798)Repurchase of unvested common stock— — (3,005) — — — — —Conversion of warrants to common stock— — 21,640 — — — — —Stock-based compensation— — — — 12,923 — — 12,923Tax benefit from the exercise of stock options and vesting ofRSUs— — — — 486 — — 486Net income— — — — — — 18,664 18,664Foreign currency translation adjustment— — — — — (287) — (287)Balance as of July 31, 2012— — 53,956,608 5 197,900 (496) (16,409) 181,000Issuance of common stock upon exercise of stock options— — 2,904,248 1 9,123 — — 9,124Issuance of common stock upon RSU release, net of shareswithheld for taxes— — 1,048,421 — (19,963) — — (19,963)Stock-based compensation— — — — 25,505 — — 25,505Tax benefit from the exercise of stock options and vesting ofRSUs— — — — 2,586 — — 2,586Net income— — — — — — 24,658 24,658Foreign currency translation adjustment— — — — — (1,102) — (1,102)Unrealized gains on available-for-sale securities— — — — — 24 — 24Balance as of July 31, 2013— — 57,909,277 6 215,151 (1,574) 8,249 221,832Proceeds from issuance of common stock in connection withpublic offering, net of underwriting discounts and commission— — 8,306,291 1 389,948 — — 389,949Costs incurred in connection with public offering— — — — (408) — — (408)Issuance of common stock upon exercise of stock options— — 1,579,469 — 8,755 — — 8,755Issuance of common stock upon RSU release, net of shareswithheld for taxes— — 1,287,224 — (32,799) — — (32,799)Stock-based compensation— — — — 42,538 — — 42,538Tax benefit from the exercise of stock options and vesting ofRSUs— — — — 5,891 — — 5,891Net income— — — — — — 14,721 14,721Foreign currency translation adjustment— — — — — 288 — 288Unrealized gains on available-for-sale securities, net of tax— — — — — (42) — (42)Reclassification adjustment for gains included in net income— — — — — (39) — (39)Balance as of July 31, 2014— $— 69,082,261 $7 $629,076 $(1,367) $22,970 $650,686(1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.See accompanying Notes to Consolidated Financial Statements.55 Table of ContentsGUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Fiscal years ended July 31, 2014 2013 2012CASH FLOWS FROM OPERATING ACTIVITIES: Net income (1)$14,721 $24,658 $18,664Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization6,751 4,821 2,917Stock-based compensation (1)42,538 25,505 12,923Excess tax benefit from exercise of stock options and vesting of RSUs(7,067) (2,586) (486)Deferred taxes (1)(2,718) (265) 7,235Other noncash items affecting net income3,589 554 —Changes in operating assets and liabilities: Accounts receivable(9,276) (8,478) (9,325)Prepaid expenses and other assets(1,372) (2,690) (2,442)Accounts payable393 355 1,059Accrued employee compensation8,463 147 8,244Other liabilities5,288 4,574 (3,907)Deferred revenues14,181 (14,048) (17,788)Net cash provided by operating activities75,491 32,547 17,094CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of available-for-sale securities(687,419) (212,035) —Sales and maturities of available-for-sale securities312,149 83,567 —Acquisition, net of cash acquired(157) (14,749) —Purchase of property and equipment(4,993) (9,228) (5,619)Decrease in restricted cash— 3,532 2,323Net cash used in investing activities(380,420) (148,913) (3,296)CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock upon exercise of stock options8,755 9,123 5,067Taxes remitted on RSU awards vested(32,799) (20,330) (12,430)Proceeds from issuance of common stock in connection with stock offerings, net of underwriting discountsand commission389,949 — 143,386Costs paid in connection with stock offerings(408) — (3,502)Excess tax benefit from exercise of stock options and vesting of RSUs7,067 2,586 486Net cash provided by (used in) financing activities372,564 (8,621) 133,007Effect of foreign exchange rate changes on cash and cash equivalents699 (964) (712)NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS68,334 (125,951) 146,093CASH AND CASH EQUIVALENTS—BEGINNING OF YEAR79,767 205,718 59,625CASH AND CASH EQUIVALENTS—END OF YEAR$148,101 $79,767 $205,718SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest$4 $— $7Cash paid for income taxes$2,141 $2,266 $2,058SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES: Conversion of convertible preferred stock and warrants into common stock upon initial publicoffering$— $— $36,506Accruals for purchase of property and equipment$768 $693 $4,387(1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.See accompanying Notes to Consolidated Financial Statements.56 Table of ContentsGUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. The Company and Summary of Significant Accounting Policies and EstimatesBusinessGuidewire Software, Inc., a Delaware corporation, was incorporated on September 20, 2001. The Company together with its subsidiaries (the“Company”) provides Internet-based software platforms for core insurance operations, including underwriting and policy administration, claim managementand billing. The Company’s customers include insurance carriers for property and casualty and workers’ compensation insurance. The Company has wholly-owned subsidiaries in Australia, Canada, China, France, Germany, Hong Kong, Ireland, Italy, Japan, Poland and the United Kingdom.The Company offers a suite of applications to enable core property and casualty (“P&C”) insurance operations comprised of the following products:PolicyCenter, ClaimCenter and BillingCenter, as well as other newer product initiatives. The Company also provides maintenance support and providesprofessional services to the extent requested by its customers.Public OfferingsOn January 30, 2012, the Company closed its initial public offering (“IPO”) whereby 10,177,500 shares of common stock were sold to the public,including the underwriters’ full exercise of their overallotment option of 1,327,500 shares of common stock, at a price of $13.00 per share. The Companyreceived aggregate proceeds of approximately $123.0 million from the IPO, including the exercise of the underwriters’ overallotment option, net ofunderwriters’ discounts and commissions, but before deduction of offering costs of approximately $3.5 million, including $2.8 million of capitalized costs.Upon the closing of the IPO, all shares of the Company’s outstanding convertible preferred stock automatically converted into 25,357,721 shares of commonstock. Outstanding warrants to purchase 69,529 shares of convertible preferred stock at $5.03 per share were contractually adjusted to purchase 69,529 sharesof common stock at $5.03 per share. Subsequent to the Company’s IPO and during April 2012 all eligible warrants were converted for 21,640 shares of theCompany’s common stock and the remainder was canceled.On April 24, 2012, the Company closed its follow-on public offering of 9,200,000 shares of its common stock, which included 750,000 shares ofcommon stock sold by the Company and 8,450,000 shares of common stock sold by selling stockholders, including the underwriters’ full exercise of theiroverallotment option from the Company and selling stockholders. The public offering price of the shares sold in the offering was $28.25 per share. TheCompany received aggregate proceeds of approximately $20.4 million from the follow-on offering, net of underwriters’ discounts and commissionsapplicable to the sale of shares by the Company, but before deduction of offering costs of approximately $1.0 million payable by the Company, including$0.7 million of capitalized costs. The Company did not receive any proceeds from the sale of shares by the selling stockholders.On October 28, 2013, the Company closed its follow-on public offering of 8,306,291 shares of its common stock, including the underwriters’ partialexercise of their over-allotment option from the Company. The public offering price of the shares sold in the offering was $48.75 per share. The Companyreceived aggregate proceeds of approximately $389.9 million from the follow-on offering, net of underwriters’ discounts and commissions applicable to thesale of shares by the Company, but before deduction of offering costs of approximately $0.4 million payable by the Company. No shares were sold by theCompany’s shareholders in this follow-on public offering.Basis of PresentationThe consolidated financial statements include the Company and its wholly-owned subsidiaries, and reflect all adjustments (all of which are normal andrecurring in nature) that, in the opinion of management, are necessary for a fair presentation of the periods presented. All inter-company balances andtransactions have been eliminated in consolidation.Use of EstimatesThe preparation of the accompanying consolidated financial statements in conformity with U.S. GAAP requires management to make estimates andassumptions about future events that affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reportedamounts of revenues and expenses. Significant items subject to such estimates include revenue recognition, the useful lives of property and equipment,allowance for doubtful accounts, valuation allowance for deferred tax assets, stock-based compensation, annual bonus attainment, income tax uncertainties,valuation of goodwill and intangible assets, and contingencies. These estimates and assumptions are based on management’s best estimates and judgment.Management regularly evaluates its estimates and assumptions using historical experience and other factors; however, actual results could differ significantlyfrom these estimates.57 Table of ContentsForeign Currency TranslationThe functional currency of the Company’s foreign subsidiaries is their respective local currency. The Company translates all assets and liabilities offoreign subsidiaries to U.S. dollars at the current exchange rate as of the applicable consolidated balance sheet date. Revenues and expenses are translated atthe average exchange rate prevailing during the period. The effects of foreign currency translations are recorded in accumulated other comprehensive loss asa separate component of stockholders’ deficit in the accompanying consolidated statement of stockholders’ equity. Realized gains and losses from foreigncurrency transactions are recorded as other income (expense) in the consolidated statements of income.Cash, Cash Equivalents, Investments and Restricted CashCash and cash equivalents are comprised of cash and highly liquid investments with remaining maturities of 90 days or less at the date of purchase.Cash equivalents consist of commercial paper and money market funds. Restricted cash is held in certificates of deposit pursuant to lease agreements, and, inprior periods, pursuant to secured letter of credit agreements. The Company classifies investments as short-term when they have remaining contractualmaturities of less than one year from the balance sheet date, and as long-term when the investments have remaining contractual maturities of more than oneyear from the balance sheet date. The Company’s investment policy is consistent with the definition of available-for-sale securities. From time to time, theCompany may sell certain securities but the objectives are generally not to generate profits on short-term differences in price.Property and EquipmentProperty and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is calculated on a straight-line basis over theestimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the related assets.Maintenance and repairs that do not extend the life or improve an asset are expensed in the period incurred.The estimated useful lives of property and equipment are as follows:Computer hardware 3 yearsSoftware 3 yearsFurniture and fixtures 3 yearsLeasehold improvements Shorter of the lease term or estimated useful lifeProduct Development CostsCertain software development costs incurred subsequent to the establishment of technological feasibility are subject to capitalization and amortizedover the estimated lives of the related products. Technological feasibility is established upon completion of a working model. Through July 31, 2014, costsincurred subsequent to the establishment of technological feasibility have been immaterial, and therefore, all software development costs have been chargedto research and development expense in the accompanying consolidated statements of income as incurred.Impairment of Long-Lived Assets, Intangible Assets and GoodwillThe Company evaluates its long-lived assets, consisting of property and equipment and intangible assets, for indicators of possible impairment whenevents or changes in circumstances indicate that the carrying amount of certain assets may not be recoverable. Impairment exists if the carrying amounts ofsuch assets exceed the estimates of future net undiscounted cash flows expected to be generated by such assets. Should impairment exist, the impairment losswould be measured based on the excess carrying value of the assets over the estimated fair value of the assets. The Company has not written down any of itslong-lived assets as a result of impairment during any of the periods presented.The Company tests goodwill for impairment annually during the fourth quarter of each fiscal year and in the interim whenever events or changes incircumstances indicate that the carrying amount may be impaired. An entity may first assess qualitative factors to determine whether it is more likely than not(a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary toperform the two-step goodwill impairment test.In performing the qualitative assessment, the Company would consider events and circumstances, including but not limited to, macroeconomicconditions, industry and market considerations, cost factors, overall financial performance, changes in management or key personnel, changes in strategy,changes in customers, changes in the composition or carrying amount of a reporting unit’s net assets and changes in the price of our common stock. If, afterassessing the totality of events or58 Table of Contentscircumstances, the Company determines that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then the two-step goodwill impairment test is not performed.If the two-step goodwill test is performed, the Company would evaluate and test our goodwill for impairment at a reporting-unit level using expectedfuture cash flows to be generated by the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized forany excess of the carrying amount of the reporting unit’s goodwill over the calculated fair value of the goodwill.The Company acquired goodwill during the fourth quarter of fiscal 2013. The Company did not recognize any goodwill impairment losses in fiscal2014.Concentration of Credit RiskFinancial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents and accounts receivable.The Company maintains its cash and cash equivalents with high quality financial institutions. The Company is exposed to credit risk for cash held infinancial institutions in the event of a default to the extent that such amounts recorded on the balance sheet are in excess of amounts that are insured by theFederal Deposit Insurance Corporation (“FDIC”).No customer accounted for 10% or more of the Company’s revenues for the years ended July 31, 2014, 2013 and 2012. The Company had one customerthat accounted for 10% of total accounts receivable as of July 31, 2014 and 2013, respectively.Accounts Receivable and Allowance for Doubtful AccountsThe Company performs ongoing credit evaluations of its customers. Accounts receivable are recorded at invoiced amounts, net of the Company’sestimated allowances for doubtful accounts. The allowance for doubtful accounts is estimated based on an assessment of the Company’s ability to collect oncustomer accounts receivable. The Company regularly reviews the allowance by considering certain factors such as historical experience, industry data,credit quality, age of accounts receivable balances and current economic conditions that may affect a customer’s ability to pay. In cases where the Companyis aware of circumstances that may impair a specific purchaser’s ability to meet their financial obligations, the Company records a specific allowance againstamounts due from the customer and thereby reduces the net recognized receivable to the amount the Company reasonably believes will be collected. There isjudgment involved with estimating the Company’s allowance for doubtful accounts and if the financial condition of its customers were to deteriorate,resulting in their inability to make the required payments, the Company may be required to record additional allowances or charges against revenues. TheCompany writes-off accounts receivable against the allowance when it determines a balance is uncollectible and no longer actively pursues collection of thereceivable. The Company’s accounts receivable are not collateralized by any security. The Company has had no allowance for doubtful accounts or bad debtexpense in the periods presented in this Annual Report on Form 10-K.Revenue RecognitionThe Company enters into arrangements to deliver multiple products or services (multiple-elements). The Company applies software revenuerecognition rules and allocates the total revenues among elements based on vendor-specific objective evidence (“VSOE”) of fair value of each element. TheCompany recognizes revenue on a net basis excluding taxes collected from customers and remitted to government authorities.Revenues are derived from three sources:(i)License fees, related to term (or time-based) licenses, perpetual software licenses, and other;(ii)Maintenance fees, related to email and phone support, bug fixes and unspecified software updates and upgrades released when, and if availableduring the maintenance term; and(iii)Services fees, related to professional services related to implementation of our software, reimbursable travel and training.Revenues are recognized when all of the following criteria are met:•Persuasive evidence of an arrangement exists. Evidence of an arrangement consists of a written contract signed by both the customer andmanagement prior to the end of the period.•Delivery or performance has occurred. The Company’s software is delivered electronically to the customer. Delivery is considered to haveoccurred when the Company provides the customer access to the software along with login credentials.•Fees are fixed or determinable. Arrangements where a significant portion of the fee is due beyond 90 days from delivery are not considered tobe fixed or determinable. Revenues from such arrangements is recognized as59 Table of Contentspayments become due, assuming all other revenue recognition criteria have been met. Fees from term licenses are generally due in annual or, incertain cases, quarterly installments over the term of the agreement beginning on the effective date of the license. Accordingly, fees from termlicenses are not considered to be fixed or determinable until they become due.•Collectability is probable. Collectability is assessed on a customer-by-customer basis, based primarily on creditworthiness as determined bycredit checks and analysis, as well as customer payment history. Payment terms generally range from 30 to 90 days from invoice date. If it isdetermined prior to revenue recognition that collection of an arrangement fee is not probable, revenues are deferred until collection becomesprobable or cash is collected, assuming all other revenue recognition criteria are satisfied.VSOE of fair value does not exist for the Company’s software licenses; therefore, the Company allocates revenues to software licenses using theresidual method. Under the residual method, the amount recognized for license fees is the difference between the total fixed and determinable fees and theVSOE of fair value for the undelivered elements under the arrangement.The VSOE of fair value for elements of an arrangement is based upon the normal pricing and discounting practices for those elements when soldseparately. VSOE of fair value for maintenance is established using the stated maintenance renewal rate in the customer’s contract. The Company generallyenters into term licenses ranging from 3 to 7 years. For term licenses with duration of one year or less, no VSOE of fair value for maintenance exists. VSOE offair value for services is established if a substantial majority of historical stand-alone selling prices for a service fall within a reasonably narrow price range.If the undelivered elements are all service elements and VSOE of fair value does not exist for one or more service element, the total arrangement fee isrecognized ratably over the longest service period starting at software delivery, assuming all the related services have been made available to the customer.In certain offerings sold as fixed fee arrangements, the Company recognizes services revenues on a proportional performance basis as performanceobligations are completed by using the ratio of labor hours to date as an input measure compared to total estimated labor hours for the consulting services.In cases where professional services are deemed to be essential to the functionality of the software, the arrangement is accounted for using contractaccounting until the essential services are complete. If reliable estimates of total project costs can be made, the Company applies the percentage-of-completion method whereby percentage toward completion is measured by using the ratio of service billings to date compared to total estimated servicebillings for the consulting services. Service billings approximate labor hours as an input measure since they are generally billed monthly on a time andmaterial basis. The fees related to the maintenance are recognized over the period the maintenance is provided.If reliable estimates of total project costs cannot be made or VSOE for maintenance has not been established and it is reasonably assured that no losswill be incurred under the arrangement, revenues are recognized pursuant to the zero gross margin method. Under this method, revenues recognized arelimited to the costs incurred for the implementation services. When zero gross margin method is applied for lack of reliable project estimates andsubsequently project estimates become reliable, the Company switches to the percentage-of-completion; resulting in a cumulative effect adjustment fordeferred license revenues to the extent of progress toward completion, and the related deferred professional service margin is recognized in full as revenues.Such cumulative effect adjustment for license revenues was zero, $3.2 million and $0.9 million for the fiscal years ended July 31, 2014, 2013 and 2012,respectively, and for service revenues was zero, $1.7 million and $0.9 million for the fiscal years ended July 31, 2014, 2013 and 2012, respectively.Deferred RevenuesDeferred revenues represent license, maintenance and professional services amounts, which are billed to or collected from customers for which therelated revenues have not been recognized. The revenues are deferred when one or more of the revenue recognition criteria have not been met. The currentportion of deferred revenues represents the amount that is expected to be recognized as revenues within one year from the balance sheet date. The Companygenerally invoices fees for licenses and maintenance to its customers in annual or, in certain cases, quarterly installments payable in advance. Accordingly,the deferred revenues balance does not represent the total contract value of annual or multi-year, non-cancellable arrangements.Sales CommissionsSales commissions are recognized as an expense when earned by the sales representative, generally occurring at the time the customer order is signed.Substantially all of the effort by the sales force is expended through the time of closing the sale, with limited to no involvement thereafter.60 Table of ContentsWarrantiesThe Company generally provides a warranty for its software products and services to its customers for periods ranging from 3 to 12 months. TheCompany’s software products are generally warranted to be free of defects in materials and workmanship under normal use and the products are also generallywarranted to substantially perform as described in published documentation. The Company’s services are generally warranted to be performed in aprofessional manner and to materially conform to the specifications set forth in the related customer contract. In the event there is a failure of such warranties,the Company generally will correct the problem or provide a reasonable workaround or replacement product. If the Company cannot correct the problem orprovide a workaround or replacement product, then the customer’s remedy is generally limited to refund of the fees paid for the nonconforming product orservices. Warranty expense has been insignificant.Advertising CostsAdvertising costs are expensed as incurred and amounted to approximately $0.2 million, $0.1 million and $0.1 million during the years ended July 31,2014, 2013 and 2012, respectively.Stock-Based CompensationThe Company recognizes compensation expense related to stock options and restricted stock units (“RSUs”) granted to employees based on theestimated fair value of the awards on the date of grant, net of estimated forfeitures. The RSUs are subject to time-based vesting, which generally occurs over aperiod of four years. The awards expire 10 years from the grant date. The Company estimates the grant date fair value, and the resulting stock-basedcompensation expense, of the Company’s stock options using the Black-Scholes option-pricing model. The Company recognizes the fair value of stock-based compensation for awards which contain only service conditions on a straight-line basis over the requisite service period, which is generally the vestingperiod of the respective awards. The Company recognizes the compensation cost for awards which contain performance conditions based upon theprobability of that performance condition being met, net of estimated forfeitures, using the graded method. Compensation cost for RSUs is generallyrecognized over the time-based vesting period.In the fourth quarter of fiscal 2014, the Company changed its policy for recognizing stock-based compensation expense from the acceleratedattribution method of accounting to the straight-line method of accounting for certain share-based compensation awards. Comparative financial statementsfor prior periods have been adjusted to apply the straight-line method retrospectively. See Note 2 “Change in Accounting Policy - Stock-basedCompensation” for further information.Income TaxesIncome taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating lossand tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in whichthose temporary differences are expected to be recovered or settled. Deferred tax assets related to excess tax benefits are recorded when utilized. The effect ondeferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company records avaluation allowance to reduce deferred tax assets to an amount of which realization is more likely than not.Accounting guidance related to accounting for uncertainties in income taxes provides that a tax benefit from an uncertain tax position may berecognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigationprocesses, based on the technical merits of the position. This interpretation also provides guidance on measurement, derecognition, classification, interestand penalties, accounting in interim periods, disclosure and transition.The Company records interest and penalties related to unrecognized tax benefits as income tax expense in its consolidated statement of income.Recent Accounting PronouncementDisclosure of Uncertainties about an Entity’s Ability to Continue as a Going ConcernIn August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15, Presentation ofFinancial Statements-Going Concern (Subtopic 205-40). This ASU provides guidance to determine when and how to disclose going-concern uncertainties inthe financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a goingconcern within one year of the date that the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantialdoubt about61 Table of Contentsthe entity’s ability to continue as a going concern. The standard will be effective for the Company beginning July 31, 2017. The Company is evaluating theimpact of the adoption of this accounting standard update on its consolidated financial statements.Stock-Based CompensationIn June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a PerformanceTarget Could Be Achieved after the Requisite Service Period (Topic 718). This ASU provides authoritative guidance for share-based payments with aperformance condition that could be achieved after the requisite service period when an employee is eligible to retire or otherwise terminate employmentbefore the end of the period in which the performance target could be achieved and still be eligible. The standard will be effective for the Companybeginning August 1, 2016. The Company is evaluating the impact of the adoption of this accounting standard update on its consolidated financialstatements.Revenue from Contracts with CustomersIn May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which provides guidance for revenuerecognition. This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer ofnon-financial assets. This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specificguidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-TypeContracts. The standard will be effective for the Company beginning August 1, 2017. The Company is currently evaluating the impact of the adoption of thisaccounting standard update on its consolidated financial statements.Presentation of Unrecognized Tax BenefitsIn July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar TaxLoss, or a Tax Credit Carryforward Exists (Topic 740). This ASU provides authoritative guidance that requires an entity to present an unrecognized taxbenefit (“UTB”), or a portion of a UTB, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss,or a tax credit carryforward, except as follows. To the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is notavailable at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance ofa tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset forsuch purpose, the UTB should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The guidance iseffective prospectively for fiscal years and interim reporting periods within those years, beginning after December 15, 2013. The Company does not expectthis guidance to have a material impact on its consolidated financial statements.2. Change in Accounting Policy - Stock-Based CompensationIn the fourth quarter of fiscal 2014, the Company changed its policy for recognizing stock-based compensation expense from the accelerated attributionmethod of accounting to the straight-line method of accounting for its time-based units (or service-only awards). The Company believes the straight-linemethod of accounting for stock-based compensation expense for service-only awards better reflects the employees’ pattern of service. The change inaccounting method has been retrospectively applied to all prior periods presented herein. Comparative financial statements of prior years have been adjustedto apply the new method retrospectively. As a result of the accounting change, retained earnings increased by $38.5 million at July 31, 2014. The followingtables summarize the impact of the change in accounting method on line items in the previously issued consolidated balance sheet as of July 31, 2013,consolidated statements of income for the years ended July 31, 2013, and 2012, and the consolidated statements of cash flows for the years ended July 31,2013, and 2012. As of July 31, 2013CONSOLIDATED BALANCE SHEET As previously reported As adjusted Effect ofchange (in thousands)Deferred tax assets, non-current 21,091 14,494 (6,597)Additional paid-in capital 237,769 215,151 (22,618)Retained earnings (accumulated deficit) (7,788) 8,249 16,03762 Table of Contents Fiscal years ended July 31, 2013 2012CONSOLIDATED STATEMENTS OF INCOME As PreviouslyReported As Adjusted Effect ofChange As PreviouslyReported As Adjusted Effect ofChange (in thousands, except share and per share amounts)Cost of maintenance revenue $7,613 7,216 (397) $5,288 $5,193 $(95)Cost of services revenue 123,210 117,515 (5,695) 85,360 84,050 (1,310)Research and development 66,346 62,991 (3,355) 50,462 49,056 (1,406)Sales and marketing 53,301 50,948 (2,353) 38,254 36,781 (1,473)General and administrative 32,414 31,320 (1,094) 28,336 27,285 (1,051)Income before provision for income taxes 17,212 30,123 12,911 23,179 28,516 5,337Provision for income taxes 1,829 5,465 3,636 7,979 9,852 1,873Net income $15,383 $24,658 $9,275 $15,200 $18,664 $3,464Basic earnings per share $0.27 $0.44 $0.17 $0.29 $0.36 $0.07Diluted earnings per share $0.25 $0.40 $0.15 $0.25 $0.32 $0.07Shares used in computing basic earnings per share 56,331,018 56,331,018 — 34,774,983 34,774,983 —Shares used in computing diluted earnings per share 61,943,087 61,569,195 (373,892) 41,509,185 41,759,338 250,153 Fiscal years ended July 31, 2013 2012CONSOLIDATED STATEMENTS OF CASH FLOWS As PreviouslyReported As Adjusted Effect ofChange As PreviouslyReported As Adjusted Effect ofChange (in thousandsCASH FLOWS FROM OPERATING ACTIVITIES: Net income $15,383 $24,658 $9,275 $15,200 18,664 3,464Stock-based compensation 38,399 25,505 (12,894) 18,258 12,923 (5,335)Deferred taxes (3,901) (265) 3,636 5,362 7,235 1,8733. Fair Value of Financial InstrumentsAvailable-for-sale investments within cash equivalents and investments consist of the following: July 31, 2014 Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value (in thousands)U.S. agency securities$94,048 $30 $(21) $94,057Asset-backed securities1,363 — (2) 1,361Commercial paper132,442 14 (4) 132,452Corporate bonds297,731 104 (182) 297,653U.S. government bonds17,991 3 (3) 17,991Foreign government bonds2,755 — (1) 2,754Certificate of deposit6,709 — (1) 6,708Money market funds53,959 — — 53,959Municipal debt securities12,985 13 (1) 12,997 Total$619,983 $164 $(215) $619,93263 Table of Contents July 31, 2013 Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value (in thousands)U.S. agency securities$37,087 $21 $(4) $37,104Asset-backed securities4,522 — (1) 4,521Commercial paper35,777 11 (1) 35,787Corporate bonds63,281 23 (14) 63,290Foreign government bonds776 — (1) 775Money market funds33,216 — — 33,216Municipal debt securities9,105 4 (14) 9,095 Total$183,764 $59 $(35) $183,788The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses, aggregated by investmentcategory and length of time that individual securities have been in a continuous unrealized loss position: July 31, 2014 Less Than 12 Months 12 Months or Greater Total Fair Value Gross UnrealizedLosses Fair Value Gross UnrealizedLosses Fair Value Gross UnrealizedLosses (in thousands)U.S. agency securities$46,980 $(21) $— $— $46,980 $(21)Asset-backed securities1,361 (2) — — 1,361 (2)Commercial paper14,389 (4) — — 14,389 (4)Corporate bonds176,742 (182) — — 176,742 (182)U. S. government bonds9,489 (3) — — 9,489 (3)Foreign government bonds2,754 (1) — — 2,754 (1)Certificate of deposit2,699 (1) — — 2,699 (1)Municipal debt securities— — 2,200 (1) 2,200 (1) Total$254,414 $(214) $2,200 $(1) $256,614 $(215)As of July 31, 2014, the Company had 93 investments in an unrealized loss position. The unrealized losses on its available-for-sale securities wereprimarily a result of unfavorable changes in interest rates subsequent to the initial purchase of these securities. The Company does not intend to sell, norbelieve it will need to sell, these securities before recovering the associated unrealized losses. The Company does not consider any portion of the unrealizedlosses at July 31, 2014 to be an other-than-temporary impairment, nor are any unrealized losses considered to be credit losses. The Company has recorded thesecurities at fair value in its condensed consolidated balance sheets, with unrealized gains and losses reported as a component of accumulated othercomprehensive loss. The amount of realized gains and losses reclassified into earnings are based on the specific identification of the securities sold. Therealized gains and losses from sales of securities in the periods presented were immaterial.The following table summarizes the contractual maturities of the Company’s available-for-sale securities as of July 31, 2014:64 Table of Contents Expected maturities for the year ending July 31, 2015 2016 Total (in thousands)U.S. agency securities$29,062 $64,995 $94,057Asset-backed securities1,361 — 1,361Commercial paper132,452 — 132,452Corporate bonds172,648 125,005 297,653U.S. government bonds9,995 7,996 17,991Foreign government bonds— 2,754 2,754Certificate of deposit4,009 2,699 6,708Money market funds53,959 — 53,959Municipal debt securities12,997 — 12,997 Total$416,483 $203,449 $619,932Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or mostadvantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used tomeasure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The current accounting guidance for fair valuemeasurements defines a three-level valuation hierarchy for disclosures as follows:Level 1-Unadjusted quoted prices in active markets for identical assets or liabilities;Level 2-Inputs other than quoted prices included within Level I that are observable, unadjusted quoted prices in markets that are not active, or otherinputs that are observable or can be corroborated by observable market data; andLevel 3-Unobservable inputs that are supported by little or no market activity, which require the Company to develop its own assumptions.The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair valuemeasurement. The carrying value of the Company’s accounts receivable, accounts payable and accrued liabilities approximates their fair value due to theshort-term nature of these instruments and is based on Level 2 inputs.The Company bases the fair value of our Level 1 financial instruments, which are in active markets, using quoted market prices for identicalinstruments.The Company obtains the fair value of our Level 2 financial instruments, which are not in active markets, from a third-party professional pricing serviceusing quoted market prices for identical or comparable instruments, rather than direct observations of quoted prices in active markets. The Company’sprofessional pricing service gathers observable inputs for all of our fixed income securities from a variety of industry data providers (e.g. large custodialinstitutions) and other third-party sources. Once the observable inputs are gathered, all data points are considered and an average price is determined.The Company validates the quoted market prices provided by our primary pricing service by comparing their assessment of the fair values of our Level2 investment portfolio balance against the fair values of our Level 2 investment portfolio balance provided by our investment managers. Our investmentmanagers use similar techniques to our professional pricing service to derive pricing as described above.The Company did not own any Level 3 financial assets or liabilities as of July 31, 2014, or 2013.65 Table of ContentsThe following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis, by level within the fair valuehierarchy: July 31, 2014 Level 1 Level 2 Level 3 Total (in thousands)Assets Cash and cash equivalents: Commercial paper$— $66,293 $— $66,293 Money market funds53,959 — — 53,959Short-term investments: U.S. agency securities— 29,062 — 29,062 Asset-backed securities— 1,361 — 1,361 Commercial paper— 66,159 — 66,159U. S. government bonds— 9,995 — 9,995 Corporate bonds— 172,648 — 172,648Certificate of deposit— 4,009 — 4,009 Municipal debt securities— 12,997 — 12,997Long-term investments: U.S. agency securities— 64,995 — 64,995Certificate of deposit— 2,699 — 2,699 Corporate bonds— 125,005 — 125,005 U.S. government bonds— 7,996 — 7,996Foreign government bonds— 2,754 — 2,754 Total assets$53,959 $565,973 $— $619,932 July 31, 2013 Level 1 Level 2 Level 3 Total (in thousands)Assets Cash and cash equivalents: Commercial paper$— $20,597 $— $20,597 Corporate bonds— 2,003 — 2,003 Money market funds33,216 — — 33,216Short-term investments: U.S. agency securities— 9,097 — 9,097 Asset-backed securities— 2,421 — 2,421 Commercial paper— 15,190 — 15,190 Corporate bonds— 47,572 — 47,572 Foreign government bonds— 775 — 775 Municipal debt securities— 1,877 — 1,877Long-term investments: U.S. agency securities— 28,007 — 28,007 Asset-backed securities— 2,100 — 2,100 Corporate bonds— 13,715 — 13,715 Municipal debt securities— 7,218 — 7,218 Total assets$33,216 $150,572 $— $183,78866 Table of Contents4. Balance Sheet ComponentsProperty and EquipmentProperty and equipment consist of the following: July 31, 2014 July 31, 2013 (in thousands)Computer hardware$11,882 $8,820Software4,605 4,460Furniture and fixtures2,732 2,666Leasehold improvements7,069 6,536 Total property and equipment26,288 22,482Less accumulated depreciation(13,681) (9,568) Property and equipment, net$12,607 $12,914As of July 31, 2014, and 2013, no property and equipment was pledged as collateral against borrowings. Amortization of leasehold improvements isincluded in depreciation expense. Depreciation expense was $5.3 million, $4.5 million and $2.6 million during the years ended July 31, 2014, 2013 and2012, respectively.Goodwill and Intangible AssetsThe following table presents changes in the carrying amount of goodwill: Total (in thousands)Goodwill, July 31, 2013$9,048Changes in carrying value157Goodwill, July 31, 2014$9,205Refer to Note 11, Acquisition, for further details on goodwill acquired during the period.Intangible assets consist of the following: July 31, 2014 July 31, 2013 (in thousands)Acquired technology: Cost $7,200 $7,200Accumulated amortization (1,761) (321)Net $5,439 $6,879Amortization expense was $1.4 million, $0.3 million and $0.3 million during the years ended July 31, 2014, 2013 and 2012, respectively. Estimatedaggregate amortization expense for each of the next five fiscal years is as follows: Future AmortizationFiscal Year Ending July 31, (in thousands)2015 $1,4402016 1,4402017 1,4402018 1,119Total $5,439Accrued Employee CompensationAccrued employee compensation consists of the following:67 Table of Contents July 31, 2014 July 31, 2013 (in thousands) Accrued bonuses$19,213 $13,072 Accrued commission3,593 2,043 Accrued vacation8,100 7,335 Payroll accruals4,006 3,852 Total$34,912 $26,302Accumulated Other Comprehensive LossChanges in accumulated other comprehensive losses by component were as follows: Foreign Currency Items Unrealized gain (loss) onavailable-for-sale securities Total (In thousands)Balance as of July 31,2012$(496) $— $(496)Other comprehensive income (loss) before reclassificationadjustments:(1,102) 24 (1,078)Tax effect— — —Balance as of July 31, 2013(1,598) 24 (1,574)Other comprehensive income (loss) before reclassificationadjustments:288 (49) 239Amounts reclassified from accumulated other comprehensive income(loss) to earnings— (39) (39)Tax effect— 7 7Balance as of July 31, 2014$(1,310) $(57) $(1,367) 5. Net Income per ShareFor the years ended July 31, 2014, and 2013, the Company calculated basic earnings per share by dividing the net income by the weighted averagenumber of shares of common stock outstanding for the period. The diluted earnings per share is computed by giving effect to all potential dilutive commonstock equivalents outstanding for the period. For purposes of this calculation, options to purchase common stock and restricted stock units are considered tobe common stock equivalents.For the year ended July 31, 2012, the Company’s basic and diluted earnings per share are presented in conformity with the two-class method, which isrequired because the Company issued securities other than common stock that participate in dividends with the common stock (“participating securities”), tocompute the earnings per share attributable to common stockholders. The Company determined that it had participating securities in the form ofnoncumulative convertible preferred stock for the periods up to their conversion immediately prior to the closing of the Company’s IPO on January 30, 2012when all convertible preferred stock was converted to common stock.The two-class method requires that the Company calculate the earnings per share using net income attributable to the common stockholders, which willdiffer from the Company’s net income. Net income attributable to the common stockholders is generally equal to the net income less assumed periodicpreferred stock dividends with any remaining earnings, after deducting assumed dividends, to be allocated on a pro-rata basis between the outstandingcommon and preferred stock as of the end of each period. The basic earnings per share attributable to common stockholders is calculated by dividing the netincome attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. The diluted net incomeper share attributable to common stockholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period.For purposes of this calculation, convertible preferred stock, options to purchase common stock and restricted stock units are considered to be common stockequivalents.In the fourth quarter of fiscal 2014, the Company changed its policy for recognizing stock-based compensation expense from the acceleratedattribution method of accounting to the straight-line method of accounting for its time-based units (or service-only awards). This change was appliedretroactively to all historical periods and all historical basic and diluted net income per share figures have been adjusted to reflect this change. See Note 2“Change in Accounting Policy - Stock-based Compensation” for additional discussion.68 Table of ContentsThe following table sets forth the computation of the Company’s basic and diluted net income per share for the years ended July 31, 2014, 2013 and2012: Fiscal years ended July 31, 2014 2013 2012 (in thousands, except share and pershare amounts)Numerator: Net income (1)$14,721 $24,658 $18,664Non-cumulative dividends to preferred stockholders— — (1,574)Undistributed earnings allocated to preferred stockholders— — (4,444)Net income, basic14,721 24,658 12,646Adjustments to net income for dilutive options and restricted stock options— — 574Net income, diluted$14,721 $24,658 $13,220Net income per share: (1) Basic$0.22 $0.44 $0.36Diluted$0.21 $0.40 $0.32(1)See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements. Fiscal years ended July 31, 2014 2013 2012 (in thousands, except share and per shareamounts)Denominator: (1) Weighted average shares used in computing net income per share: Basic65,748,896 56,331,018 34,774,983Weighted average effect of diluted stock options1,896,766 3,392,797 5,082,507Weighted average effect of dilutive restricted stock units1,467,071 1,845,380 1,871,982Weighted average effect of dilutive stock warrants (2)— — 29,866Diluted69,112,733 61,569,195 41,759,338(1)See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.(2)Series C convertible preferred stock warrants were automatically converted to equivalent common stock warrants upon the Company’s IPO onJanuary 24, 2012 and converted or cancelled as of April 30, 2012.The following outstanding shares of common stock equivalents were excluded from the computation of diluted net income per share for the periodspresented because including them would have been antidilutive: Fiscal years ended July 31, 2014 2013 2012Stock options to purchase common stock (1)206,136 320,325 5,037Restricted stock units (1)76,840 64,397 136,905(1)See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements69 Table of Contents6. Commitments and ContingenciesThe following table presents a summary of the Company’s contractual obligations and commitments as of July 31, 2014: Lease Obligations Royalty Obligations (1) Purchase Commitments(2) TotalFiscal Year Ending July 31,(in thousands)2015$5,786 $398 $6,141 $12,32520165,835 365 1,589 7,78920175,710 212 276 6,19820185,663 110 — 5,77320195,102 — — 5,102Total$28,096 $1,085 $8,006 $37,187(1) Royalty obligations primarily represent our obligations under our non-cancellable agreements related to software used in certain revenue-generating agreements.(2) Purchase commitments consist of agreements to purchase services, entered into in the ordinary course of business. These represent non-cancellable commitments for which apenalty would be imposed if the agreement was canceled for any reason other than an event of default as described by the agreement.LeasesThe Company leases certain facilities and equipment under operating leases. The Company entered into an operating lease agreement in September2007 for its corporate headquarters in California that expired in July 2012. In connection with the lease, the Company opened a letter of credit which expiredupon the expiration of the lease in July 2012. On November 23, 2009, the Company entered into a sublease agreement for additional conference spaceexpiring in July 2012. On December 5, 2011, the Company entered into a seven-year lease for a facility to serve as its new corporate headquarters, located inFoster City, California, for approximately 97,674 square feet of space commencing August 1, 2012. In connection with the new lease, the Company openedan unsecured letter of credit with Silicon Valley Bank for $1.2 million. On August 1, 2014, the Company amended its operating lease agreement to reduce theunsecured letter of credit to $0.8 million.Lease expense for all worldwide facilities and equipment, which is being recognized on a straight-line basis over terms of the various leases, was $5.8million, $5.3 million and $4.0 million during the years ended July 31, 2014, 2013 and 2012, respectively. This expense is net of sublease income of $1.2million for the year ended July 31, 2012.Letters of CreditThe Company had two and three outstanding letters of credit required to secure contractual commitments and prepayments as of July 31, 2014 and2013, respectively. In addition to the unsecured letter of credit for the building lease, the Company had an unsecured letter of credit agreement related to acustomer arrangement for PLN 10.0 million (approximately $3.2 million as of July 31, 2014) to secure contractual commitments and prepayments. Noamounts were outstanding under our unsecured letters of credit as of July 31, 2014 or July 31, 2013.Legal ProceedingsIn December 2007, the Company was the subject of a lawsuit by a competitor, Accenture Global Services GmbH and Accenture LLP (collectively“Accenture”). In May 2011, the Company prevailed in the U.S. District Court for the District of Delaware regarding the invalidity of one of Accenture’spatents. In October 2011, the parties agreed to resolve the litigation, subject to a potential additional payment by the Company if Accenture was successful inappealing the validity of its patent. In September 2013, the U.S. Court of Appeals for the Federal Circuit affirmed the lower court decision in the Company’sfavor and, in June 2014, the U.S. Supreme Court denied Accenture’s final appeal, ending the litigation. The Company will have no additional paymentsrelating to the settlement.In addition to the matters described above, from time to time, the Company is involved in various other legal proceedings and receives claims, arisingfrom the normal course of business activities. The Company has accrued for estimated losses in the accompanying consolidated financial statements formatters with respect to which the Company believes the likelihood of an adverse outcome is probable and the amount of the loss is reasonably estimable.IndemnificationThe Company sells software licenses and services to its customers under contracts (“Software License”). Each Software License contains the terms of thecontractual arrangement with the customer and generally includes certain provisions for70 Table of Contentsdefending the customer against any claims that the Company’s software infringes upon a patent, copyright, trademark, or other proprietary right of a thirdparty. Software Licenses also indemnify the customer against losses, expenses, and liabilities from damages that may be assessed against the customer in theevent the Company’s software is found to infringe upon such third party rights.The Company has not had to reimburse any of its customers for losses related to indemnification provisions and no material claims against theCompany are outstanding as of July 31, 2014 and 2013. For several reasons, including the lack of prior indemnification claims and the lack of a monetaryliability limit for certain infringement cases under various Software Licenses, the Company cannot estimate the amount of potential future payments, if any,related to indemnification provisions.The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines andsettlement amounts incurred by any of these persons in any action or proceeding to which any of these persons is, or is threatened to be, made a party byreason of the person’s service as a director or officer, including any action by the Company, arising out of that person’s services as the Company’s director orofficer or that person’s services provided to any other company or enterprise at the Company’s request. The Company maintains director and officer insurancecoverage that may enable the Company to recover a portion of any future amounts paid.7. Stockholders’ Equity and Stock-Based CompensationStock-Based Compensation ExpenseStock-based compensation expense related to all employee and non-employee stock-based awards is as follows: Fiscal years ended July 31, 2014 2013 2012 Stock-based compensation expense: (1)(in thousands)Cost of license revenues$184 $— $—Cost of maintenance revenues797 830 288 Cost of services revenues11,929 6,910 2,461 Research and development9,008 5,843 2,385Sales and marketing10,744 3,672 1,496 General and administrative9,876 8,250 6,293 Total stock-based compensation expense42,538 25,505 12,923Tax benefit from stock-based compensation15,905 9,902 5,061Total stock-based compensation expense, net of tax effect$26,633 $15,603 $7,862(1)See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial StatementsIncluded in fiscal 2014 stock-based compensation was $1.6 million of expense for performance-based awards, which were tied to fiscal year 2014financial results. Stock-based compensation for the year ended July 31, 2013, includes $1.0 million of expense related to the modification of RSUs uponaccelerated vesting terms for the retirement of one of the Company’s executives, $0.2 million reversal of previously recognized expense for unvested awardsupon termination of one of the Company’s officers, and $1.7 million of expense for multiple performance-based awards, which were mainly tied to fiscal year2013 financial results. Amounts for the year ended July 31, 2012, include a stock compensation expense of $1.2 million related to service performed prior tothe IPO for RSUs granted to the Company’s Chief Executive Officer whereby the performance condition for these grants was satisfied upon the Company’sIPO closing, and a $0.9 million related to a change in estimated forfeiture rate upon the IPO event.As of July 31, 2014, total unrecognized compensation cost, adjusted for estimated forfeitures, was as follows:71 Table of Contents As of July 31, 2014 Unrecognized Expense Average ExpectedRecognition Period (in thousands) (in years) Restricted stock units$83,505 2.2 Stock options6,019 2.0 $89,524 RSUsRSU activity under the Company’s equity incentive plans is as follows: RSUs Outstanding Number of RSUsOutstanding Weighted Average GrantDate Fair ValueBalance as of July 31, 20134,027,601 $19.27Granted1,667,433 43.87Released(2,007,423) 18.59Canceled(303,390) 31.48Balance as of July 31, 20143,384,221 $30.70The weighted average per share grant date fair value of RSUs granted during each of the fiscal years ended July 31, 2014, 2013 and 2012was $43.87,$33.68 and $13.65, respectively. The fair value of RSUs released during the years ended July 31, 2014, 2013 and 2012 was $91.3 million, $56.2 million and$41.2 million, respectively.On March 9, 2011, the Company granted a series of three awards totaling 878,800 performance-based RSUs to its President and Chief ExecutiveOfficer. Each of these RSUs was subject to time-based vesting and performance vesting. In addition, each of the RSUs was subject to a separate performancecondition, as follows:•The RSUs covering 502,200 shares of common stock were subject to satisfaction of an IPO of the Company’s equity securities, which occurredin January 2012;•The RSUs covering 251,100 shares of common stock were subject to full and final dismissal or final adjudication of certain specified litigationto the satisfaction of the Board, which occurred in July 2011; and•The RSUs covering 125,500 shares of common stock were subject to satisfaction of a pre-established revenue target for fiscal year 2012, whichwas satisfied upon close of fiscal year 2012.Stock OptionsStock option activity under the Company’s equity incentive plans is as follows: Number of StockOptions Outstanding Weighted AverageExercise Price Weighted AverageRemaining ContractualLife Aggregate IntrinsicValue (1) (in years) (in thousands)Balance as of July 31, 20133,763,228 $6.74 5.7 $139,315Granted225,930 46.63 Exercised(1,580,344) 5.53 Canceled(8,561) 21.75 Balance as of July 31, 20142,400,253 $11.24 5.5 $71,640Vested and expected to vest as of July 31, 20142,376,443 $10.96 5.4 $71,503Exercisable as of July 31, 20142,040,125 $6.32 5.5 $70,039(1) Aggregate intrinsic value represents the difference between the exercise price of the option and the Company’s closing stock price of $40.50 and $43.76 on July 31, 2014, andJuly 31, 2013, respectively.72 Table of ContentsThe options exercisable as of July 31, 2014, include options that are exercisable prior to vesting. The total intrinsic value of options exercised wasapproximately $65.3 million, $86.0 million and $31.2 million for the years ended July 31, 2014, 2013 and 2012, respectively. The weighted average grantdate fair value of options granted was $46.63, $14.06 and $4.51 for the years ended July 31, 2014, 2013 and 2012, respectively.Additional information regarding options outstanding as of July 31, 2014 is as follows: Options Outstanding Options ExercisableExercise PriceNumber of OptionsOutstanding RemainingContractual Life(Years) Exercise Price perShare Number of OptionsExercisable Exercise Price perShare$0.16—1.0099,010 1.4 $0.68 99,010 $0.681.25—2.5671,150 2.1 2.17 71,150 2.172.74423,312 3.0 2.74 423,312 2.743.50124,860 3.7 3.50 124,860 3.503.73351,886 4.7 3.73 351,886 3.733.92338,523 5.4 3.92 338,523 3.924.50—7.50309,954 6.8 7.14 304,954 7.138.65—11.00210,337 7.1 8.78 208,878 8.7829.03—32.25221,476 8.1 31.99 67,905 31.4135.00—53.15249,745 9.1 45.53 49,647 46.07 2,400,253 5.5 $11.24 2,040,125 $6.32Valuation of AwardsDetermining Fair Value of Stock OptionsThe fair value of the common stock underlying the stock options and restricted stock units granted prior to the IPO have been determined by the Board.Because there had been no public market for the Company’s common stock, the Board had determined the fair value of the common stock at the time of thegrant by considering a number of objective and subjective factors including valuations of comparable companies, sales of redeemable convertible preferredstock to unrelated third parties, operating and financial performance, lack of liquidity of capital stock and general and industry-specific economic outlook,amongst other factors. The fair value of the underlying common stock was determined by the Board until the Company’s common stock was listed on theNew York Stock Exchange upon IPO. Awards granted subsequent to the Company’s IPO reflect the fair value of common stock as of the end of trading on thegrant date.The fair value of each grant of stock options was determined by the Company and the Board using the methods and assumptions discussed below. Eachof these inputs is subjective and generally requires significant judgment to determine.Valuation Method—The Company estimates the fair value of its stock options using the Black-Scholes option-pricing model.Expected Term—The expected term represents the period that the stock-based awards are expected to be outstanding. The Company uses the simplifiedmethod to determine the expected term for its option grants as provided by the Securities and Exchange Commission. The simplified method calculates theexpected term as the average of the time-to-vesting and the contractual life of the options. The Company uses the simplified method to determine itsexpected term because of its limited history of stock option exercise activity.Expected Volatility—The expected volatility is derived from the historical stock volatilities of several comparable publicly listed peers over a periodapproximately equal to the expected term of the options as the Company has limited trading history by which to determine the volatility of its own commonstock.Risk-Free Interest Rate— The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasurynotes with maturities approximately equal to the expected term of the options.Expected Dividend—The expected dividend is zero as the Company has never paid dividends and has no expectations to do so.73 Table of ContentsSummary of Assumptions—The fair value of the employee stock options were estimated on the grant dates using a Black-Scholes option-pricing modelwith the following weighted average assumptions: Fiscal years ended July 31, 2014 2013 2012Expected life (in years)5.0 - 6.1 5.1 - 6.1 5.3 - 6.3Risk-free interest rate1.5% - 2.0% 0.6% - 1.2% 1.2% - 1.5%Expected volatility41.3% - 46.2% 45.1% - 48.7% 44.1% - 46.4%Expected dividend yield—% —% —%Forfeiture Rate—The Company estimates its forfeiture rate based on an analysis of its actual forfeitures and will continue to evaluate the adequacy ofthe forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior, and other factors. The impact from a forfeiture rateadjustment will be recognized in full in the period of adjustment, and if the actual number of future forfeitures differs from that estimated, the Company maybe required to record adjustments to stock-based compensation expense in future periods.In the fourth quarter of fiscal 2014, the Company changed its policy for recognizing stock-based compensation expense from the accelerated attributionmethod of accounting to the straight-line method of accounting for certain share-based compensation awards. See Note 2 “Change in Accounting Policy -Stock-based Compensation” for additional discussion.Convertible Preferred StockUpon the closing of the Company’s IPO on January 30, 2012, all outstanding convertible preferred stock was converted into 25,357,721 shares ofcommon stock on a one-to-one basis. As of July 31, 2014 and 2013, the Company was authorized to issue 25,000,000 shares of convertible preferred stock,respectively, with a par value of $0.0001 per share. As of July 31, 2014 and 2013, no shares of convertible preferred stock were issued and outstanding.Common Stock Reserved for Future IssuanceAs of July 31, 2014 and 2013, the Company was authorized to issue 500,000,000 common shares with a par value of $0.0001 per share, respectively,and 69,082,261 and 57,909,277 common shares were issued and outstanding, respectively. As of July 31, 2014 and 2013, the Company had reserved sharesof common stock, on an as-if-converted basis, for future issuance as follows: July 31, 2014 July 31, 2013Exercise of stock options to purchase common stock2,400,253 3,763,228Vesting of restricted stock units3,384,221 4,027,601Issuances of shares available under stock plans11,703,962 9,194,058Total common stock reserved for issuance17,488,436 16,984,887Equity Incentive PlansIn February 2007, the Company’s board of directors (“Board”) adopted and the stockholders approved the 2006 Stock Plan (“2006 Plan”) as anamendment and restatement of the stockholder-approved 2002 Stock Option/Stock Issuance Plan, as amended, which provided for the issuance of incentiveand nonstatutory options to employees and nonemployees of the Company.In July 2009, the Board adopted and the stockholders approved the 2009 Stock Plan (“French Plan”), which provided for nonstatutory options toemployees.In June 2010, the Board adopted and the stockholders approved the 2010 Restricted Stock Unit Plan (“2010 Plan”), which provided for the issuance ofrestricted and performance stock units to employees and nonemployees.On September 14, 2011, the Board, upon the recommendation of the Compensation Committee of the Board (“Committee”), adopted the 2011 StockPlan (“2011 Plan”), which was subsequently approved by the Company’s stockholders in January 2012. The 2011 Plan provides flexibility to the Committeeto use various equity-based incentive awards as compensation tools to motivate the Company’s workforce. The Company had initially reserved 7,500,000shares of its common stock for the issuance of awards under the 2011 Plan. In addition, the number of shares remaining available for grant under the 2006Plan and 2010 Plan immediately prior to the closing of the IPO were added to the shares available under the 2011 Plan. The number of shares remainingavailable for grant under the French Plan expired upon the IPO. The 2011 Plan provides that74 Table of Contentsthe number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2013, by up to5% of the outstanding number of shares of the Company’s common stock on the immediately preceding December 31. This number is subject to adjustmentin the event of a stock split, stock dividend or other defined changes in the Company’s capitalization. With the adoption of the 2011 Plan upon thecompletion of the Company’s IPO, both option and RSU grants now reduce the 2011 Plan reserve. As of July 31, 2014, the Company had reserved11,703,962 shares of common stock for issuance under the 2011 Plan.The shares the Company issues under the 2011 Plan will be authorized but unissued shares or shares that are reacquired. The shares of common stockunderlying any awards under the 2011 Plan, 2010 Plan and 2006 Plan that are forfeited, canceled, held back upon exercise or settlement of an award to satisfythe exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without any issuance of stock or are otherwise terminated (otherthan by exercise) are added back to the shares of common stock available for issuance under the 2011 Plan. The shares of common stock underlying anyoutstanding awards under the French Plan that are forfeited, canceled or otherwise not issued will expire and not be available for future issuance.No awards may be granted under the 2011 Plan after the date that is 10 years from the effectiveness of the plan. No awards under the 2011 Plan weregranted prior to the Company’s IPO. Following the closing of the IPO, no additional awards will be made under the 2006 Plan, French Plan and 2010 Plan.8. Income TaxesThe Company’s income before provision for income taxes for the years ended July 31, 2014, 2013 and 2012 is as follows: Fiscal years ended July 31, 2014 2013 2012 (in thousands)Domestic$11,956 $25,725 $22,370International7,990 4,398 6,146Income before provision for income taxes (1)$19,946 $30,123 $28,516(1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.The provision for income taxes consists of the following: Fiscal years ended July 31, 2014 2013 2012 (in thousands)Current: U.S. federal$5,235 $1,296 $—State1,326 999 544Foreign2,509 3,479 1,522Total current9,070 5,774 2,066Deferred: U.S. federal(4,277) (258) 6,968State78 483 (69)Foreign354 (534) 887Total deferred(3,845) (309) 7,786Total provision for income taxes (1)$5,225 $5,465 $9,852(1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.75 Table of ContentsThe total income tax expense differs from the amounts computed by applying the statutory federal income tax rate of 35% during the years endedJuly 31, 2014, 2013 and 2012 as follows: Fiscal years ended July 31, 2014 2013 2012 (in thousands)Computed tax expense$6,977 $10,538 $9,972Nondeductible items and other1,164 (577) 694State taxes, net of federal benefit840 (858) (644)Foreign income taxed at different rates(207) 1,405 258Tax credits(3,612) (7,199) (1,356)Change in valuation allowance63 2,156 928Total provision for income taxes (1)$5,225 $5,465 $9,852(1) See Note 2 “Change in Accounting Policy - Stock-Based Compensation” of Notes to Consolidated Financial Statements.The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities are as follows: As of July 31, 2014 2013 (in thousands)Accruals and reserves$8,487 $3,646Stock-based compensation4,347 5,076Deferred revenues1,485 510Property and equipment298 —State taxes1 —Net operating loss carryforwards1,161 2,244Tax credits11,699 14,233Total deferred tax assets27,478 25,709Less valuation allowance4,938 4,874Net deferred tax assets22,540 20,835Less deferred tax liabilities: Property and equipment— 440Intangible assets1,701 2,268Foreign deferred revenue727 736Total net deferred tax assets$20,112 $17,391During the years ended July 31, 2014, 2013 and 2012, the Company was able to consider positive evidence in determining the realizability of itsdeferred tax assets, including projections for future growth, and determined a significant portion of the valuation allowance was not required. A valuationallowance of $4.9 million and $4.9 million remained as of July 31, 2014 and 2013, respectively, for California research and development credits that werenot more likely than not realizable.As of July 31, 2014, the Company had U. S. federal, California and other states net operating loss (“NOL”) carryforwards of $177.5 million, $83.2million, and $7.0 million, respectively. The U. S. federal and California NOL carryforwards will start to expire in 2026 and 2016, respectively.The Company had research and development tax credit (“R&D credit”) carryforwards of the following: Fiscal years ended July 31, 2014 2013 2012 (in thousands)U.S. federal$15,956 $12,973 $6,565California11,657 11,980 7,558Total R&D credit carryforwards$27,613 $24,953 $14,12376 Table of ContentsThe U.S. federal R&D credit will start to expire in 2023. California R&D tax credits have no expiration.The excess tax benefits associated with stock option exercises are recorded directly to stockholders’ equity only when realized through reduction toincome tax payable on the tax returns. As a result, the pre-tax excess tax benefits included in federal and California net operating loss carryforwards on thetax returns but not reflected in deferred tax assets for fiscal year 2014 are $176.3 million and $74.3 million, respectively.Federal and California laws impose restrictions on the utilization of net operating loss carryforwards and R&D credit carryforwards in the event of achange in ownership of the Company, which constitutes an “ownership change” as defined by Internal Revenue Code Sections 382 and 383. The Companyexperienced an ownership change in the past that does not materially impact the availability of its net operating losses and tax credits. Nevertheless, shouldthere be an ownership change in the future; the Company’s ability to utilize existing carryforwards could be substantially restricted.The Company provides U.S. income taxes on the earnings of foreign subsidiaries, unless the subsidiaries’ earnings are considered indefinitelyreinvested outside the United States. As of July 31, 2014, U.S. income taxes were not provided for on the cumulative total of $19.4 million of undistributedearnings from certain foreign subsidiaries. As of July 31, 2014, the unrecognized deferred tax liability for these earnings was approximately $2.3 million.Unrecognized Tax BenefitsThe following table summarizes the activity related to unrecognized tax benefits: Fiscal years ended July 31, 2014 2013 2012 (in thousands)Unrecognized benefit - beginning of period$6,727 $3,937 $2,419Gross increases - prior period tax positions(368) 370 478Gross increases - current period tax positions1,617 2,420 1,040Unrecognized benefit - end of period$7,976 $6,727 $3,937During the year ended July 31, 2014, the Company’s unrecognized tax benefits increased by $1.2 million, primarily associated with the Company’sfederal and California R&D credits. As of July 31, 2014, the Company had unrecognized tax benefits of $4.3 million that, if recognized, would affect theCompany’s effective tax rate.The Company or one of its subsidiaries files income taxes in the U.S. federal jurisdiction and various states and foreign jurisdictions. If the Companyutilizes net operating losses or tax credits in future years, the U.S. federal, state and local, and non-U.S. tax authorities may examine the tax returns coveringthe period in which the net operating losses and tax credits arose. As a result, the Company’s tax returns in the U.S. and California remain open toexamination from fiscal years 2002 through 2014. Substantially all material foreign income tax matters in Australia have been concluded through the yearended July 31, 2007. The Company has been audited in Canada and substantially concluded all material income tax matters through July 31, 2009.As of July 31, 2014, the Company has tax audits in progress in certain foreign jurisdictions. To the extent the final tax liabilities are different from theamounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the consolidated statements of income. While theCompany believes that the resolution of these audits will not have a material adverse impact on the Company’s results of operations, the outcome is subjectto uncertainty.9. Employee 401(k) PlanThe Company’s employee savings and retirement plan is qualified under Section 401 of the Internal Revenue Code. The plan is available to all regularemployees on the Company’s U.S. payroll and provides employees with tax-deferred salary deductions and alternative investment options. Employees maycontribute up to 60% of their eligible salary up to the statutory prescribed annual limit. Beginning January 1, 2014, the Company increased its matching foremployees’ contributions up to $4,000 per participant per calendar year.77 Table of Contents10. Segment InformationThe Company operates in one segment. The Company’s chief operating decision maker (the “CODM”), its Chief Executive Officer, manages theCompany’s operations on a consolidated basis for purposes of allocating resources. When evaluating the Company’s financial performance, the CODMreviews separate revenues information for the Company’s license, maintenance and professional services offerings, while all other financial information isreviewed on a consolidated basis. All of the Company’s principal operations and decision-making functions are located in the United States.The following table sets forth revenues by country based on the billing address of the customer: Fiscal years ended July 31, 2014 2013 2012 (in thousands)United States$203,791 $172,793 $127,484Canada39,100 42,632 35,690Other Americas8,106 6,932 3,850Total Americas250,997 222,357 167,024United Kingdom37,890 20,660 16,212Other EMEA35,149 27,543 14,672Total EMEA73,039 48,203 30,884APAC26,210 30,089 34,153Total revenues$350,246 $300,649 $232,061No country other than those listed above accounted for more than 10% of revenues during the years ended July 31, 2014, 2013 and 2012.The following table sets forth the Company’s long-lived assets, including goodwill and intangibles, net by geographic region: July 31, 2014 July 31, 2013 (in thousands)Americas$25,573 $27,280 Europe950 1,276 Asia Pacific728 285 Total$27,251 $28,84111.AcquisitionOn May 10, 2013, the Company purchased all of the outstanding equity interests of Millbrook, Inc., a privately held provider of data models andplatforms, technology accelerators and business intelligence solutions for P&C insurers. The aggregate cost of the acquisition was $14.7 million net ofacquired cash. In addition, the Company issued $3.7 million in RSUs, vesting of which is subject to time-based vesting requirements and therefore isexcluded from the purchase consideration. The related value is recognized as compensation expense over the requisite service period. The Company believesthat the acquisition of Millbrook will enhance reporting capabilities of our software. The results of Millbrook’s operations from May 10, 2013 to July 31,2013 are included in the Company’s results for the fourth quarter of fiscal year 2013 and were not material. Transaction expenses of $0.7 million wereexpensed as incurred.The aggregate cost of the acquisition, net of acquired cash, was allocated as follows:78 Table of Contents Total Purchase PriceAllocation Estimated Useful Lives (in thousands) (in years)Assets acquired, net $590 n/aDeveloped technology 7,200 5.0Deferred tax liability (2,094) n/aGoodwill 9,048 n/aTotal purchase price $14,744 Management assigned fair values to the identifiable intangible assets by applying the income approach. This fair value measurement is based onsignificant inputs that are not observable in the market and thus represents a Level 3 measurement. The valuation models were based on estimates of futureoperating projections of the acquired business and rights to sell new products containing the acquired technology as well as judgments on the discount ratesused and other variables. The Company developed forecasts based on a number of factors including pricing projections of future products, expected customerinterest, a discount rate that is representative of the weight average cost of capital, and a long-term sustainable growth rate based on market analysis. TheCompany is amortizing the acquired intangible asset on a straight-line basis over its estimated useful life.The pro-forma results of operations have not been presented because the effects of the business combination described above were not material to ourconsolidated results of operations.Item 9.Changes in and Disagreements with Accountant on Accounting and Financial DisclosureNone. Item 9A.Controls and ProceduresEvaluation of Disclosure Controls and ProceduresOur management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of ourdisclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e) under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”)), as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our principal executive officer and principalfinancial officer have concluded that as of such date, our disclosure controls and procedures were effective.Management’s Annual Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as defined in Rule13a-15(f) or 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples, and includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance withauthorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,use or disposition of our assets that could have a material effect on our financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate.Our management assessed the effectiveness of the Company’s internal control over financial reporting as of July 31, 2014, using the criteria set forth bythe Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its Internal Control-Integrated Framework (1992). Based on thisassessment and those criteria, management concluded that our internal control over financial reporting was effective as of July 31, 2014.79 Table of ContentsOur internal control over financial reporting has been audited by KPMG LLP, an independent registered public accounting firm, as stated in theirreport, which appears in Part II, Item 8 of this Form 10-K.Inherent Limitations of Internal ControlsOur management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or ourinternal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, notabsolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls canprovide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations includethe realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls canbe circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of anysystem of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design willsucceed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, orthe degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatementsdue to error or fraud may occur and not be detected.Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or arereasonably likely to materially affect, our internal control over financial reporting. Item 9B.Other InformationIn September 2014, the Compensation Committee of the Board of Directors approved a new form of employment agreement for our executive officers(the “New Form of Executive Agreement”). The terms of the New Form of Executive Agreement are substantially similar to those in the prior form ofemployment agreement for our executive officers, except that the New Form of Executive Agreement provides each executive officer with, among otherthings, 100% (rather than 12 months’) accelerated vesting of all outstanding equity awards upon a qualifying termination that occurs within two monthsbefore or within twelve months following a change in control of the company. The New Form of Executive Agreement is also an “at will” agreement and nolonger has a three-year term. This new form will replace any existing employment agreements in place with our executive officers. We have filed the form ofExecutive Agreement as Exhibit 10.6 to this Annual Report on Form 10-K.PART III Item 10.Directors, Executive Officers and Corporate GovernanceThe information required by this item concerning our executive officers is set forth under the heading “Executive Officers of the Registrant” in Part I,Item 1 of this Annual Report on Form 10-K.We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees, including our principal executiveofficer and principal financial officer. The Code of Business Conduct and Ethics is posted on our investor relations website.We will post any amendments to, or waivers from, a provision of this Code of Business Conduct and Ethics by posting such information on our website,at the address and location specified above.The other information required by this item will be contained in our definitive proxy statement to be filed with the Securities and ExchangeCommission in connection with our 2014 annual meeting of stockholders (the “Proxy Statement”), which is expected to be filed not later than 120 days afterthe end of our fiscal year ended July 31, 2014, and is incorporated in this report by reference. Item 11.Executive CompensationThe information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference. 80 Table of ContentsItem 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference. Item 13.Certain Relationships and Related Transactions and Director IndependenceThe information, if any, required by this item will be set forth in the Proxy Statement and is incorporated herein by reference. Item 14.Principal Accountant Fees and ServicesThe information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.81 Table of ContentsPART IV Item 15.Exhibits and Financial Statement Schedules(a) The following documents are filed as part of this report:1. Consolidated Financial StatementsSee Index to Consolidated Financial Statements at Item 8 herein.2. Financial Statement SchedulesSchedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in thefinancial statements or notes herein.3. ExhibitsSee the Exhibit Index immediately following the signature page of this Annual Report on Form 10-K.The exhibits listed below are filed or incorporated by reference as part of this Annual Report on Form 10-K.82 Table of ContentsSignaturesPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. GUIDEWIRE SOFTWARE, INC. By: /S/ MARCUS S. RYU Marcus S. Ryu President and Chief Executive OfficerPOWER OF ATTORNEYEach person whose individual signature appears below hereby authorizes and appoints Marcus S. Ryu, Karen Blasing, and Winston King, and each of them,with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in hisor her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and allamendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with theSecurities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each andevery act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully door cause to be done by virtue thereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantand in the capacities and on the dates indicated.Signature Title Date /S/ MARCUS S. RYU President, Chief Executive Officer and Director (Principal ExecutiveOfficer) September 17, 2014Marcus S. Ryu /S/ KAREN BLASING Chief Financial Officer (Principal Financial and Accounting Officer) September 17, 2014Karen Blasing /S/ John Cavoores Director September 17, 2014John Cavoores /S/ Craig Conway Director (Chairman of the Board) September 17, 2014Craig Conway /S/ Andrew Brown Director September 17, 2014Andrew Brown /S/ Guy Dubois Director September 17, 2014Guy Dubois /S/ Paul Lavin Director September 17, 2014Paul Lavin /S/ Clifton Thomas Weatherford Director September 17, 2014Clifton Thomas Weatherford 83 Table of ContentsEXHIBIT INDEXExhibitNumber Description Incorporated byReference FromForm Incorporatedby ReferenceFromExhibitNumber Date Filed3.1 Amended and Restated Certificate of Incorporation. 10-Q 3.1 March 14, 20123.2 Amended and Restated Bylaws. 8-K 3.1 January 22, 20134.1 Form of Common Stock certificate of the Registrant. S-1/A 4.1 January 9, 201210.1 Form of Indemnification Agreement between the Registrantand each of its directors and executive officers. S-1/A 10.1 October 28, 201110.2 2006 Stock Plan and forms of agreements thereunder. S-1 10.2 September 2, 201110.3 2009 Stock Plan and forms of agreements thereunder. S-1 10.3 September 2, 201110.4 2010 Restricted Stock Unit Plan and forms of agreementsthereunder. S-1 10.4 September 2, 201110.5 2011 Stock Plan and forms of agreements thereunder. S-1/A 10.5 December 13, 201110.6 Form of Executive Agreement. Filed herewith — —10.7 Senior Executive Incentive Bonus Plan. S-1/A 10.12 December 13, 201110.8 Lease Agreement between Parkside Towers, L.P. and theRegistrant dated as of December 5, 2011. S-1/A 10.13 December 13, 201118.1 KPMG, LLP Preferability Letter. Filed herewith — —21.1 Subsidiaries of the Registrant. 10-K 21.1 September 26, 201323.1 Consent of KPMG LLP, Independent Registered PublicAccounting Firm. Filed herewith — —31.1 Certification of the Chief Executive Officer pursuant toSection 302 of the Sarbanes-Oxley Act. Filed herewith — —31.2 Certification of the Chief Financial Officer pursuant toSection 302 of the Sarbanes-Oxley Act. Filed herewith — — 32.1* Certification of the Chief Executive Officer and the ChiefFinancial Officer pursuant to Section 906 of the Sarbanes-Oxley Act. Furnished herewith — —101.INS** XBRL Instance Document. Filed herewith — 101.SCH** XBRL Taxonomy Extension Schema Document. Filed herewith — 101.CAL** XBRL Taxonomy Extension Calculation LinkbaseDocument. Filed herewith — — 101.DEF** XBRL Taxonomy Extension Definition Linkbase Document. Filed herewith — 101.LAB** XBRL Taxonomy Extension Label Linkbase Document. Filed herewith — — 101.PRE** XBRL Taxonomy Extension Presentation LinkbaseDocument. Filed herewith — *The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed” forpurposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certifications will not be deemed to be incorporated by reference intoany filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the registrantspecifically incorporates it by reference.84 Table of Contents**Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registrationstatement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 andotherwise are not subject to liability under these sections.85 Exhibit 10.6EXECUTIVE AGREEMENTThis Executive Agreement (“Agreement”) is made as of the ___ day of ________, 201__ (the “Effective Date”), betweenGuidewire Software, Inc., a Delaware corporation (the “Company”), and ______________ (the “Executive”)[and amends and restatesin its entirety the executive agreement between the Company and the Executive dated as of ______________, 201__.]In consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, thereceipt and sufficiency of which is hereby acknowledged, the parties agree as follows:1.Employment.Term. The Company desires to employ the Executive, and the Executive desires to be employed by the Company,pursuant to the terms of this Agreement, until this Agreement is terminated by either party in accordance with the terms hereof. TheExecutive’s employment with the Company will be “at will,” meaning that the Executive’s employment may be terminated by theCompany or the Executive at any time and for any reason.Position. The Executive will serve as the [insert Officer Title] of the Company, and will have such powers and duties asmay from time to time be prescribed by the [Board of Directors] [Chief Executive Officer of the Company (the “CEO”) or otherauthorized executive], provided that such duties are consistent with the Executive’s position. While the Executive renders services tothe Company, the Executive will not engage in any other employment, consulting or business activity that would create a conflict ofinterest with the Company.2.Compensation and Related Matters.(a)Base Salary. The Executive’s initial annual base salary will be $__________, subject to redetermination bythe Board of Directors of the Company (the “Board of Directors”) or Compensation Committee. The annual base salary in effect at anygiven time is referred to herein as “Base Salary.” The Base Salary will be payable in a manner that is consistent with the Company’susual payroll practices for senior executives.(b)[Incentive Compensation. The Executive will be eligible to be considered for annual cash incentivecompensation as determined by the Board of Directors or Compensation Committee from time to time. The Executive’s initial annualtarget bonus will be ____ percent of Base Salary. To earn incentive compensation, the Executive must be employed by the Companyon the day such incentive compensation is paid.] OR [Commission Compensation. The Executive will be eligible to participate in theCompany’s annual sales commission plan (the “Commission Plan”). The Executive’s annual target commission will be $________,based on bookings targets established by the Compensation Committee and/or CEO and other metrics as mutually agreed upon by theExecutive and the CEO, within the broader terms of the Commission Plan. The Executive’s annual target commission for fiscal year2014 shall be prorated based on the Effective Date of this Agreement. Further details of the Commission Plan will be providedseparately as soon as practicable after the Effective Date, as well as for each year Executive participates in the Commission Plan. TheCommission Plan may be revised at the discretion of the Company at any time.](c)Other Benefits. The Executive will be entitled to participate in the Company’s employee benefit plans, subjectto the terms and the conditions of such plans and to the Company’s ability to amend and modify such plans. The Executive will be entitled to paid vacation in accordance with the terms of the Company’svacation policy, as in effect from time to time.3.Termination. The Executive’s employment may be terminated under the following circumstances:(a)Death. The Executive’s employment will terminate upon the Executive’s death.(b)Disability. The Company may terminate the Executive’s employment if the Executive is disabled and unableto perform the essential functions of the Executive’s then existing position or positions under this Agreement with or withoutreasonable accommodation for a period of 180 days (which need not be consecutive) in any 12-month period. Nothing in this Section3(b) will be construed to waive the Executive’s rights, if any, under existing law including, without limitation, the Family and MedicalLeave Act of 1993, 29 U.S.C. §2601 et seq. and the Americans with Disabilities Act, 42 U.S.C. §12101 et seq.(c)Termination by Company for Cause. The Company may terminate the Executive’s employment for Cause asdetermined by the Board of Directors. For purposes of this Agreement, “Cause” means: (i) the Executive’s unauthorized use ordisclosure of the Company’s confidential information or trade secrets, which use or disclosure causes material harm to the Company;(ii) the Executive’s material breach of any written agreement between the Executive and the Company; (iii) the Executive’s materialfailure to comply with the Company’s written policies or rules after receiving written notification of the failure from the Company’s[Board of Directors] [Chief Executive Officer] and eight days to cure such failure; (iv) the Executive’s conviction of, or plea of“guilty” or “no contest” to, a felony under the laws of the United States or any State; (v) the Executive’s gross misconduct in theperformance of his duties; (vi) the Executive’s continuing failure to perform assigned duties after receiving written notification of thefailure from the Company’s Chief Executive Officer; or (vii) the Executive’s failure to cooperate in good faith with a governmental orinternal investigation of the Company or its directors, officers or employees, if the Company has requested the Executive’s cooperationtherewith.(d)Termination Without Cause. The Company may terminate the Executive’s employment at any time withoutCause. Any termination by the Company of the Executive’s employment that does not constitute a termination for Cause under Section3(c) and does not result from the death or disability of the Executive under Sections 3(a) or (b) will be deemed a termination withoutCause.(e)Termination by the Executive. The Executive may terminate employment at any time for any reason,including but not limited to Good Reason. For purposes of this Agreement, “Good Reason” means that the Executive has compliedwith the “Good Reason Process” (hereinafter defined) following the occurrence of any of the following events: (i) a materialdiminution in the Executive’s responsibilities, authority or duties; (ii) a material diminution in the Executive’s Base Salary; (iii) amaterial change in the geographic location at which the Executive provides services to the Company; or (iv) the material breach of thisAgreement by the Company. “Good Reason Process” means that (1) the Executive reasonably determines in good faith that a “GoodReason” condition has occurred; (2) the Executive notifies the Company in writing of the first occurrence of the Good Reasoncondition within 60 days of the first occurrence of such condition; (3) the Executive cooperates in good faith with the Company’sefforts, for a period not less than 30 days following such notice (the “Cure Period”), to remedy the condition; (4) notwithstanding suchefforts, the Good Reason condition continues to exist; and (5) the Executive terminates employment within 60 days after the end of theCure Period. If the Company cures the Good Reason condition during the Cure Period, Good Reason will be deemed not to haveoccurred. (f)Notice of Termination. Except for termination as specified in Section 3(a), any termination of the Executive’semployment by the Company or any such termination by the Executive will be communicated by written Notice of Termination to theother party hereto. For purposes of this Agreement, a “Notice of Termination” means a notice that indicates the specific terminationprovision in this Agreement relied upon.(g)Date of Termination. “Date of Termination” means: (i) if the Executive’s employment is terminated by death,the date of Executive’s death; (ii) if the Executive’s employment is terminated on account of disability under Section 3(b) or by theCompany for Cause under Section 3(c), the date on which Notice of Termination is given; (iii) if the Executive’s employment isterminated by the Company under Section 3(d), 30 days after the date on which a Notice of Termination is given; (iv) if theExecutive’s employment is terminated by the Executive under Section 3(e) without Good Reason, 30 days after the date on which aNotice of Termination is given, and (v) if the Executive’s employment is terminated by the Executive under Section 3(e) with GoodReason, the date on which a Notice of Termination is given after the end of the Cure Period. Notwithstanding the foregoing, in theevent that either party gives a Notice of Termination, the Company may unilaterally accelerate the Date of Termination.4.Compensation Upon Termination.(a)Termination Generally. If the Executive’s employment with the Company is terminated for any reason, theCompany will pay or provide to the Executive (or to Executive’s authorized representative or estate), on or before the time required bylaw but in no event more than 30 days after the Executive’s Date of Termination, any Base Salary earned through the Date ofTermination, unpaid expense reimbursements and unused vacation that accrued through the Date of Termination (collectively, the“Accrued Benefits”). Upon any termination of the Executive’s employment for any reason, the Executive will tender to the Companythe Executive’s resignation from all positions with the Company and its subsidiaries, including without limitation, any positions as amember of the Board of Directors of the Company and/or any of its subsidiaries.(b)Termination by the Company Without Cause. If the Executive’s employment is terminated by the Companywithout Cause as provided in Section 3(d), then the Company will pay the Executive the Accrued Benefits. In addition, subject to theExecutive signing a general release of claims in favor of the Company and related persons and entities in a form and mannersatisfactory to the Company (the “Release”) and the expiration of the seven-day revocation period for the Release:(i)the Company will pay the Executive an amount equal to [CEO: the sum of the Executive’s BaseSalary and target annual incentive compensation in effect in that year] [OFFICERS: the sum of 0.50 of the Executive’s BaseSalary plus the amount of standard cash severance to which the Executive is entitled under the Company’s then currentseverance practice] [MTEAM: the sum of 0.25 of the Executive’s Base Salary plus the amount of standard cash severance towhich the Executive is entitled under the Company’s then current severance practice] (the “Severance Amount”). TheSeverance Amount will be paid out in a lump sum, in accordance with the Company’s payroll practices, within 60 days afterthe Date of Termination; provided, however, that if the 60-day period begins in one calendar year and ends in a secondcalendar year, the Severance Amount will begin to be paid in the second calendar year. Solely for purposes of Section 409A ofthe Internal Revenue Code of 1986, as amended (the “Code”), each installment payment (if any) is considered a separatepayment; and(ii)if the Executive was participating in the Company’s group health plan immediately prior to the Dateof Termination, then the Company will, in its sole discretion, either (x) continue to provide health coverage to the Executive or (y) pay to the Executive a lump sum cash payment (at the same time asthe Severance Amount) equal to the amount of employer contributions that the Company would have made to provide healthinsurance to the Executive if the Executive had remained employed by the Company, in either case ((x) or (y)), for a period oftime equal to the number of weeks of the Executive's Base Salary that the Executive Severance Amount is equal to.Notwithstanding the foregoing, in the event the Company elects to continue to provide health coverage to the Executive (in lieuof a cash payment), then the Company may discontinue such coverage in the event that the Executive obtains comparablehealth coverage prior to the end of the period specified above.5.Change in Control. The provisions of this Section 5 set forth certain terms of an agreement reached between theExecutive and the Company regarding the Executive’s rights and obligations upon the occurrence of a Change in Control of theCompany. These provisions are intended to assure and encourage in advance the Executive’s continued attention and dedication toExecutive’s assigned duties and Executive’s objectivity during the pendency and after the occurrence of any such event.(a)Change in Control Severance Benefits. These provisions will apply in lieu of, and expressly supersede, theprovisions of Section 4(b) regarding severance pay and benefits upon a termination of employment, if such termination of employmentoccurs within 2 months before or 12 months after a Change in Control. These provisions will terminate and be of no further force oreffect beginning 12 months after the occurrence of a Change in Control. If within 2 months before or within 12 months after a Changein Control, the Executive’s employment is terminated by the Company without Cause as provided in Section 3(d) or the Executiveterminates employment for Good Reason as provided in Section 3(e), then, subject to the signing of the Release by the Executive andthe expiration of the seven-day revocation period for the Release,the Company will pay the Executive an amount equal to the sum of [CEO: 150%] [OFFICERS: 100%][MTEAM: 75%] of the Executive’s then-current Base Salary and then-current annual target [bonus] [commission] (the “CICPayment”). The CIC Payment will be paid in a single lump sum within 60 days after the Date of Termination; provided,however, that if the 60-day period begins in one calendar year and ends in a second calendar year, the CIC Payment will bepaid in the second calendar year; and(i)if the Executive was participating in the Company’s group health plan immediately prior to the Date ofTermination, then the Company will, in its sole discretion, either (x) continue to provide health coverage to the Executive or (y)pay to the Executive a lump sum cash payment (at the same time as the Severance Amount) equal to the amount of monthlyemployer contributions that the Company would have made to provide health insurance to the Executive if the Executive hadremained employed by the Company, in either case ((x) or (y)), for a period of [18][12][9] months. Notwithstanding theforegoing, in the event the Company elects to continue to provide health coverage to the Executive (in lieu of a cash payment),then the Company may discontinue such coverage in the event that the Executive obtains comparable health coverage prior tothe end of the period specified above; and(ii)notwithstanding anything to the contrary in any applicable option agreement, restricted stock unitagreement, or other stock-based award agreement, 100% of the then outstanding stock options, restricted stock units, and otherstock-based awards held by the Executive, including any such awards granted prior to the date hereof, will be fully acceleratedand vested as of the Date of Termination.(b)Additional Limitation. (i)Anything in this Agreement to the contrary notwithstanding, in the event that the amount of anycompensation, acceleration, payment or distribution by the Company to or for the benefit of the Executive, whether paid orpayable or distributed or distributable pursuant to the terms of this Agreement or otherwise, calculated in a manner consistentwith Section 280G of the Code and the applicable regulations thereunder (the “Severance Payments”), would be subject to theexcise tax imposed by Section 4999 of the Code, the following provisions will apply:(A)If the Severance Payments, reduced by the sum of (1) the Excise Tax and (2) the total of theFederal, state, and local income and employment taxes payable by the Executive on the amount of the SeverancePayments which are in excess of the Threshold Amount, are greater than or equal to the Threshold Amount, theExecutive will be entitled to the full benefits payable under this Agreement.(B)If the Threshold Amount is less than (x) the Severance Payments, but greater than (y) theSeverance Payments reduced by the sum of (1) the Excise Tax and (2) the total of the Federal, state, and local incomeand employment taxes on the amount of the Severance Payments which are in excess of the Threshold Amount, thenthe Severance Payments will be reduced (but not below zero) to the extent necessary so that the sum of all SeverancePayments will not exceed the Threshold Amount. In such event, the Severance Payments will be reduced in thefollowing order: (1) cash payments not subject to Section 409A of the Code; (2) cash payments subject to Section 409Aof the Code; (3) equity-based payments and acceleration; and (4) non-cash forms of benefits. To the extent any paymentis to be made over time (e.g., in installments, etc.), then the payments will be reduced in reverse chronological order.(ii)For the purposes of this Section 5(b), “Threshold Amount” means three times the Executive’s “baseamount” within the meaning of Section 280G(b)(3) of the Code and the regulations promulgated thereunder less one dollar($1.00); and “Excise Tax” means the excise tax imposed by Section 4999 of the Code, and any interest or penalties incurred bythe Executive with respect to such excise tax.(iii)The determination as to which of the alternative provisions of Section 5(b)(i) will apply to theExecutive will be made by an accounting firm selected by the Company (the “Accounting Firm”), which will provide detailedsupporting calculations both to the Company and the Executive within 15 business days of the Date of Termination, ifapplicable, or at such earlier time as is reasonably requested by the Company or the Executive. For purposes of determiningwhich of the alternative provisions of Section 5(b)(i) will apply, the Executive will be deemed to pay federal income taxes atthe highest marginal rate of federal income taxation applicable to individuals for the calendar year in which the determination isto be made, and state and local income taxes at the highest marginal rates of individual taxation in the state and locality of theExecutive’s residence on the Date of Termination, net of the maximum reduction in federal income taxes which could beobtained from deduction of such state and local taxes. Any determination by the Accounting Firm will be binding upon theCompany and the Executive.(c)Change in Control Definition. For purposes of this Section 5, “Change in Control” means any of thefollowing:(i)the date any “person,” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Actof 1934, as amended (the “Act”) (other than the Company, any of its subsidiaries, or any trustee, fiduciary or other person orentity holding securities under any employee benefit plan or trust of the Company or any of its subsidiaries), together with all “affiliates” and “associates” (as such terms aredefined in Rule 12b-2 under the Act) of such person, becomes the “beneficial owner” (as such term is defined in Rule 13d-3under the Act), directly or indirectly, of securities of the Company representing 50 percent or more of the combined votingpower of the Company’s then outstanding securities having the right to vote in an election of the Board of Directors (“VotingSecurities”) (in such case other than as a result of an acquisition of securities directly from the Company); or(ii)the date a majority of the members of the Board of Directors is replaced during any 12-month periodby directors whose appointment or election is not endorsed by a majority of the members of the Board of Directors before thedate of the appointment or election; or(iii)the date of consummation of (A) any consolidation or merger of the Company where thestockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidationor merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing inthe aggregate more than 50 percent of the voting shares of the Company issuing cash or securities in the consolidation ormerger (or of its ultimate parent corporation, if any), or (B) any sale or other transfer (in one transaction or a series oftransactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company.Notwithstanding the foregoing, a “Change in Control” will not be deemed to have occurred for purposes of the foregoingclause (i) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares of VotingSecurities outstanding, increases the proportionate number of Voting Securities beneficially owned by any person to 50 percent ormore of the combined voting power of all of the then outstanding Voting Securities; provided, however, that if any person referred toin this sentence will thereafter become the beneficial owner of any additional shares of Voting Securities (other than pursuant to a stocksplit, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the Company) and immediatelythereafter beneficially owns 50 percent or more of the combined voting power of all of the then outstanding Voting Securities, then a“Change in Control” will be deemed to have occurred for purposes of the foregoing clause (i).6.Section 409A.(a)Anything in this Agreement to the contrary notwithstanding, if at the time of the Executive’s separation fromservice within the meaning of Section 409A of the Code, the Company determines that the Executive is a “specified employee” withinthe meaning of Section 409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that the Executive becomes entitled tounder this Agreement on account of the Executive’s separation from service would be considered deferred compensation subject to the20 percent additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) ofthe Code, such payment will not be payable and such benefit will not be provided until the date that is the earlier of (A) six months andone day after the Executive’s separation from service, or (B) the Executive’s death. If any such delayed cash payment is otherwisepayable on an installment basis, the first payment will include a catch-up payment covering amounts that would otherwise have beenpaid during the six-month period but for the application of this provision, and the balance of the installments will be payable inaccordance with their original schedule.(b)All in-kind benefits provided and expenses eligible for reimbursement under this Agreement will be providedby the Company or incurred by the Executive during the time periods set forth in this Agreement. All reimbursements will be paid assoon as administratively practicable, but in no event will any reimbursement be paid after the last day of the taxable year following the taxable year in which the expense was incurred. Theamount of in-kind benefits provided or reimbursable expenses incurred in one taxable year will not affect the in-kind benefits to beprovided or the expenses eligible for reimbursement in any other taxable year. Such right to reimbursement or in-kind benefits is notsubject to liquidation or exchange for another benefit.(c)To the extent that any payment or benefit described in this Agreement constitutes “non-qualified deferredcompensation” under Section 409A of the Code, and to the extent that such payment or benefit is payable upon the Executive’stermination of employment, then such payments or benefits will be payable only upon the Executive’s “separation from service.” Thedetermination of whether and when a separation from service has occurred will be made in accordance with the presumptions set forthin Treasury Regulation Section 1.409A‑1(h).(d)The parties intend that this Agreement will be administered in accordance with Section 409A of the Code. Tothe extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision will beread in such a manner so that all payments hereunder comply with Section 409A of the Code. The parties agree that this Agreementmay be amended, as reasonably requested by either party, and as may be necessary to fully comply with Section 409A of the Code andall related rules and regulations in order to preserve the payments and benefits provided hereunder without additional cost to eitherparty.(e)The Company makes no representation or warranty and will have no liability to the Executive or any otherperson if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A of the Code butdo not satisfy an exemption from, or the conditions of, such Section.7.Consent to Jurisdiction. The parties hereby consent to the jurisdiction of the Federal and State courts located in SanMateo County, California with respect to all matters arising under this Agreement. Accordingly, with respect to any such court action,the Executive (a) submits to the personal jurisdiction of such courts; (b) consents to service of process; and (c) waives any otherrequirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction or service of process.8.Integration. This Agreement constitutes the entire agreement between the parties with respect to the subject matterhereof and supersedes all prior agreements between the parties concerning such subject matter; provided that the ProprietaryInformation and Inventions Agreement between the Company and the Executive dated as of [Date] will not be superseded by thisAgreement but will remain in full force and effect in accordance with its terms.9.Enforceability. If any portion or provision of this Agreement (including, without limitation, any portion or provision ofany section of this Agreement) will to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then theremainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is sodeclared illegal or unenforceable, will not be affected thereby, and each portion and provision of this Agreement will be valid andenforceable to the fullest extent permitted by law.10.Survival. The provisions of this Agreement will survive the termination of this Agreement and/or the termination ofthe Executive’s employment to the extent necessary to effectuate the terms contained herein. 11.Waiver. No waiver of any provision hereof will be effective unless made in writing and signed by the waiving party.The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of anybreach of this Agreement, will not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of anysubsequent breach.12.Notices. Any notices, requests, demands and other communications provided for by this Agreement will be sufficientif in writing and delivered in person or sent by a nationally recognized overnight courier service or by registered or certified mail,postage prepaid, return receipt requested, to the Executive at the last address the Executive has filed in writing with the Company or, inthe case of the Company, at its main offices, attention of the Board of Directors.13.Amendment. This Agreement may be amended or modified only by a written instrument signed by the Executiveand by a duly authorized representative of the Company.14.Governing Law. This is a California contract and will be construed under and be governed in all respects by the lawsof the State of California, without giving effect to the conflict of laws principles of such State.15.Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed anddelivered will be taken to be an original; but such counterparts will together constitute one and the same document.16.Successor to Company. The Company will require any successor (whether direct or indirect, by purchase, merger,consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to performthis Agreement to the same extent that the Company would be required to perform it if no succession had taken place. Failure of theCompany to obtain an assumption of this Agreement at or prior to the effectiveness of any succession will be a material breach of thisAgreement.17.Gender Neutral. Wherever used herein, a pronoun in the masculine gender will be considered as including thefeminine gender unless the context clearly indicates otherwise. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written.Guidewire Software, Inc.By: Name:Title:Executive [Name] Exhibit 18.1September 17, 2014Guidewire Software, Inc.Foster City, CaliforniaLadies and Gentlemen:We have audited the consolidated balance sheets of Guidewire Software, Inc. (the Company) as of July 31, 2014 and 2013, and therelated consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows, for each of the years in thethree-year period ended July 31, 2014, and have reported thereon under date of September 17, 2014. The aforementioned consolidatedfinancial statements and our audit report thereon are included in the Company's annual report on Form 10-K for the year ended July 31,2014. As stated in note 2 to those financial statements, the Company changed its method of accounting for recognition of stock-basedcompensation expense from the accelerated attribution method to the straight-line method for its time-based awards and states that thenewly adopted accounting principle is preferable in the circumstances because it better reflects the employees’ pattern of service. Inaccordance with your request, we have reviewed and discussed with Company officials the circumstances and business judgment andplanning upon which the decision to make this change in the method of accounting was based.With regard to the aforementioned accounting change, authoritative criteria have not been established for evaluating the preferability ofone acceptable method of accounting over another acceptable method. However, for purposes of the Company's compliance with therequirements of the Securities and Exchange Commission, we are furnishing this letter.Based on our review and discussion, with reliance on management’s business judgment and planning, we concur that the newlyadopted method of accounting is preferable in the Company’s circumstances.Very truly yours,/S/ KPMG LLP Exhibit 23.1Consent of Independent Registered Public Accounting FirmThe Board of DirectorsGuidewire Software, Inc.:We consent to the incorporation by reference in the registration statements (Nos. 333-179799, 333-187004, and 333-194290) on Form S-8, and in theregistration statements (Nos. 333-191856 and 333-191834) on Form S-3 of Guidewire Software, Inc. of our report dated September 17, 2014, with respect tothe consolidated balance sheets of Guidewire Software, Inc. as of July 31, 2014 and 2013, and the related consolidated statements of income, comprehensiveincome, stockholders' equity, and cash flows for each of the years in the three-year period ended July 31, 2014, and the effectiveness of internal control overfinancial reporting as of July 31, 2014, which report appears in the July 31, 2014 annual report on Form 10-K of Guidewire Software, Inc. Our report refers to achange in method of accounting for recognizing stock-based compensation expense./S/KPMG LLPSanta Clara, CaliforniaSeptember 17, 2014 Exhibit 31.1CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OFTHE SECURITIES EXCHANGE ACT OF 1934,AS ADOPTED PURSUANT TO SECTION 302 OFTHE SARBANES-OXLEY ACT OF 2002I, Marcus S. Ryu, certify that:1.I have reviewed this Annual Report on Form 10-K of Guidewire Software, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of thedisclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (theregistrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internalcontrol over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditorsand the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financialreporting. Date:September 17, 2014 By:/s/ MARCUS S. RYU Marcus S. Ryu President and Chief Executive Officer (Principal Executive Officer) Exhibit 31.2CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OFTHE SECURITIES EXCHANGE ACT OF 1934,AS ADOPTED PURSUANT TO SECTION 302 OFTHE SARBANES-OXLEY ACT OF 2002I, Karen Blasing, certify that:1.I have reviewed this Annual Report on Form 10-K of Guidewire Software, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of thedisclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (theregistrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internalcontrol over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditorsand the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financialreporting. Date:September 17, 2014 By:/s/ KAREN BLASING Karen Blasing Chief Financial Officer (Principal Financial Officer) Exhibit 32.1CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICERPURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K of Guidewire Software, Inc. for the year ended July 31, 2014 as filed with the Securities and Exchange Commissionon the date hereof (the “Report”), Marcus S. Ryu, as Chief Executive Officer of Guidewire Software, Inc., hereby certifies, pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge, the Report fully complies with the requirements of Section 13(a) or 15(d) of theSecurities Exchange Act of 1934, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of GuidewireSoftware, Inc.Date:September 17, 2014 By:/s/ MARCUS S. RYU Marcus S. Ryu President and Chief Executive Officer (Principal Executive Officer) In connection with the Annual Report on Form 10-K of Guidewire Software, Inc. for the year ended July 31, 2014 as filed with the Securities and ExchangeCommission on the date hereof (the “Report”), Karen Blasing, as Chief Financial Officer of Guidewire Software, Inc., hereby certifies, pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of her knowledge, the Report fully complies with the requirements of Section 13(a) or 15(d) ofthe Securities Exchange Act of 1934, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations ofGuidewire Software, Inc.Date:September 17, 2014 By:/s/ KAREN BLASING Karen Blasing Chief Financial Officer (Principal Financial Officer)
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