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RM plcTable 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, 2016OR¨ 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, 2016, the last business day of the registrant’s most recently completed second fiscal quarter, as reported on the New York Stock Exchange, was approximately $2.1 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, 2016, the registrant had 73,068,434 shares of common stock outstanding.DOCUMENTS INCORPORATED BY REFERENCE Table of ContentsPortions of the registrant’s definitive Proxy Statement relating to its 2016 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 Factors7Item 1B.Unresolved Staff Comments23Item 2.Properties23Item 3.Legal Proceedings23Item 4.Mine Safety Disclosures23 Part IIItem 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities24Item 6.Selected Financial Data26Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations27Item 7A.Quantitative and Qualitative Disclosures About Market Risk47Item 8.Financial Statements and Supplementary Data48Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosures75Item 9A.Controls and Procedures75Item 9B.Other Information76 Part IIIItem 10.Directors, Executive Officers and Corporate Governance76Item 11.Executive Compensation76Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters76Item 13.Certain Relationships and Related Transactions, and Director Independence76Item 14.Principal Accounting Fees and Services76 Part IVItem 15.Exhibits, Financial Statement Schedules77 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, results of operations, 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;•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;•benefits to be achieved from our acquisitions;•our gross margins and factors that affect gross margins;•our provision for tax liabilities and other critical accounting estimates;•our exposure to market risks, including geographical and political events that may negatively impact our customers; 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 and casualty (“P&C”) insurers. Our software serves as a technology platform forP&C insurance carriers. Guidewire InsurancePlatformTM consists of three key elements: core transaction processing, data management and analytics, anddigital engagement, which work together to strengthen our customers’ ability to adapt and succeed. Guidewire InsuranceSuite™ provides core transactionalsystems of record supporting the entire insurance lifecycle. Our data and analytics products enable insurers to manage data more effectively and gain insightsinto their business. Our digital engagement products support digital sales, service and claims experiences for policyholders, agents, and field employees. Oursolutions are delivered through a web-based interface and can be deployed either on-premise, which a majority of customers choose, or in cloudenvironments. To support the global operations of our customers, our software has been localized for use in a variety of international regulatory, languageand currency environments.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 AXA and Zurich to nationalcarriers such as Basler Versicherung (Switzerland), Direct Line Group (U.K.), Farmers Insurance (U.S.), IAG (Australia), MS&AD (Japan), Nationwide (U.S.),PZU (Poland), and San Cristobal Seguros S.A. (Argentina) and carriers that serve specific states and/or regions such as Automobile Club of SouthernCalifornia, Canadian Automobile Association Insurance Company (Ontario), and Kentucky Farm Bureau. As of July 31, 2016, we had 260 customers usingone or more of our products in 31 countries. This includes 23 new customers gained through our acquisition of EagleEye Analytics, Inc. during fiscal year2016, but excludes new customers gained through our acquisition of FirstBest Systems, Inc. which closed on August 31, 2016 after the end of fiscal year2016.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. We primarily derive our services revenues from implementation and training services performed for our customers. A significant majority of servicesare billed on a time and materials basis.Industry BackgroundThe P&C insurance industry is large, fragmented, highly regulated and complex. This industry is highly competitive, with carriers competing primarilyon the following factors: product differentiation, pricing options, customer service, marketing and advertising, affiliate programs and channel strategies.New technologies are placing demands on many insurers that require them to adapt how they engage with, sell to and manage relationships withcustomers. Insurers adopting modern infrastructures can more rapidly introduce innovative products that are intended to protect consumers in new ways fromexisting and emerging risks. We anticipate that insurers will respond to these new technologies and market demands by adopting software that will allowthem to:•develop new distribution channels;•define products that are more targeted;•leverage data more effectively to improve underwriting and claims decisions;•improve customer service across different channels; and•lower their operating costs.The key functional areas in P&C insurance are underwriting and policy administration, claims management and billing. Underwriting and policyadministration involves collecting information from potential policyholders, determining appropriate coverages and terms, pricing the policy, issuing thepolicy and updating and maintaining the policy over its lifetime. Claims management includes loss report intake, investigation and evaluation of incidents,claims negotiation, payment processing and litigation management. Billing includes account creation, policyholder invoicing, payment collection,commission calculation and disbursement.1 Table of ContentsGuidewire’s ProductsCore Transaction ProcessingGuidewire InsuranceSuiteGuidewire InsuranceSuite is comprised of our individual core system applications: PolicyCenter, ClaimCenter and BillingCenter. We have built oursuite 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.Guidewire Underwriting Management.Guidewire Underwriting Management, gained through the acquisition of FirstBest Systems which closed on August 31, 2016, is a cloud-based,integrated business application designed for commercial and specialty line insurers to drive premium growth and profit from better underwriting. Thisfeature-rich workstation delivers straight-through processing, exception-based underwriting, real-time collaboration, and knowledge management in oneintegrated solution. Guidewire Underwriting Management provides value alongside Guidewire PolicyCenter as well as any policy administration system(PAS), including non-Guidewire policy administration 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.Guidewire 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 Product Content Management. Guidewire Product Content Management provides software tools and standards-based, line-of-businesstemplates to enable insurers to introduce and modify products more rapidly by reducing product configuration and maintenance efforts which must connectto and incorporate regulatory or industry-standard data and content, such as ISO content.Guidewire London Market Messaging. Guidewire London Market Messaging is a specialized add-on for Guidewire ClaimCenter that provides out ofthe box functionality to address requirements of international insurers operating in the London Market.Data Management and AnalyticsGuidewire DataHubGuidewire DataHub is an operational data store that unifies, standardizes and stores data from the patchwork of an insurer’s systems as well as fromexternal sources. DataHub enables carriers to accelerate legacy system replacement.2 Table of ContentsGuidewire InfoCenterGuidewire InfoCenter is a business intelligence warehouse for P&C insurers which provides information in easy-to-use formats for business intelligence,analysis and enhanced decision making. With InfoCenter, customers gain flexible operational insights as well as the ability to optimize their business.Guidewire LiveGuidewire Live is a cloud-based suite of analytical applications that aggregate data from internal and third-party sources and analyze and visualize thedata in ways that provide insurers with valuable insights into their business. These insights can be acted upon through the processes managed byInsuranceSuite. To date, Guidewire Live applications have been made available only to Guidewire ClaimCenter or PolicyCenter customers.Guidewire Predictive AnalyticsGuidewire Predictive Analytics is a cloud-based tool which allows insurers to make data-driven decisions throughout the insurance lifecycle. Bybuilding predictive models from multiple data sets, analyzing model output, and deploying predictive models, insurers can realize significant reductions inloss ratio and expenses.Digital EngagementGuidewire Digital PortalsOur Digital Portals deliver real-time, self-service capabilities for people operating outside the corporate intranet. We have developed a number ofdifferent digital portal products that are targeted at different constituencies, such as customers, agents and brokers. These portals expose the data and businessprocesses within Guidewire InsuranceSuite.TechnologyWe developed our suite of applications on a unified technology platform, which combines standards-based elements and proprietary components. Wedesigned our suite of applications to help P&C insurance carriers grow their business, improve customer and agent engagement, and lower operating costs.Our customers’ IT departments manage and administer our applications through their development, test and production environments. We continue to investin research and development to enhance existing products and introduce new ones. These investments focus on continued architectural refinements of ourcore applications designed to meet evolving customer needs relating to scalability, features and functions, and cloud delivery.ServicesWe provide implementation and integration services to help our customers realize benefits from our software products. Our implementation teams assistcustomers in building implementation plans, integrating our software with their existing systems and defining business rules and specific requirementsunique to each customer and installation. We also partner with leading system integration consulting firms, certified on our software, to achieve scalable,cost-effective implementations for our customers. As of July 31, 2016, we had 573 employees in our professional services organization, compared to 500 as ofJuly 31, 2015.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, 2016, we had 260 customers using one or more of our products in 31 countries. This includes 23 new customers gained through our acquisitionof EagleEye Analytics, Inc. during fiscal year 2016, but excludes new customers gained through our acquisition of FirstBest Systems, Inc. which closed onAugust 31, 2016 after the end of fiscal year 2016.Strategic RelationshipsWe have extensive relationships with system integration, consulting and industry partners. Our network of partners has expanded as 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, 2016, we employed 267 employees in a sales and marketing capacity, including 48 direct sales representatives organized by geographicregion across the Americas, EMEA and APAC. This team serves as both our exclusive sales channel and our account management function. We augment oursales professionals with a presales team possessing insurance domain and technical expertise, who engage customers in sessions to understand their specificbusiness needs and then represent our products through demonstrations tailored to address 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, 2016, our research and development department had 464 employees. We incurred $112.5 million, $93.4 million and $76.2 million inresearch and development expenses for fiscal years 2016, 2015 and 2014, 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 competitors include, but are not limited to: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, Computer Sciences Corporation and Tata Consultancy Services Limited offersoftware and systems or develop custom, proprietary solutions for the P&C insurance industry;P&C insurance software vendors Vendors such as 1insurer (formerly Innovation Group), Duck Creek, eBaoTech Corporation, Exigen,Fadata AD, FINEOS, Insurity, Inc., ISCS, Inc., Majesco, One, Inc., OneShield, Inc., Sapiens InternationalCorporation, StoneRiver, Inc., and TIA Technology A/S provide software solutions that are specificallydesigned 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 theneeds of P&C insurance carriers.Competitive factors in our industry depend on the size, geographic market and line of business of potential customers. The principal competitivefactors include product functionality, performance, customer references, total cost of ownership, solution completeness, implementation track record, and in-depth knowledge of the P&C insurance industry. We typically compete favorably on the basis of these factors in most geographies.4 Table of ContentsIntellectual PropertyThe 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. Our success and ability to compete depend in part upon our ability to protect our proprietary technology, to establish andadequately protect our intellectual property rights, and to protect against third-party claims and litigation related to intellectual property. To accomplishthese objectives, we rely on a combination of patent, trademark, copyright and trade secret laws in the United States and other jurisdictions, as well as licenseagreements and other contractual protections. We own or have pending, a significant number of patents and patent applications, which generally apply to oursoftware. Our owned patents have expiration dates starting in 2025. We also rely on several registered and unregistered trademarks, and applications forregistrations, to protect our brand, both in the United States and internationally.EmployeesAs of July 31, 2016, we had 1,536 employees, including 267 in sales and marketing, 573 in professional services, 69 in technical support and licensingoperations, 464 in research and development and 163 in general and administrative capacity. As of July 31, 2016, we had 965 employees in the United Statesand 571 employees internationally. Our employees in the United States are not represented by a labor union, however, for certain foreign subsidiaries,workers’ councils represent our employees. We have not experienced any work stoppages and we consider our 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 have historically experienced seasonal variations in our revenues as a result of increased customer orders in our second and fourth fiscal quarters.We generally see increased orders in our second fiscal quarter, which is the quarter ended January 31, due to customer buying patterns. We also see increasedorders in our fourth fiscal quarter, which is the quarter ended July 31, due to efforts by our sales team to achieve annual incentives. This seasonal pattern,however, may be absent in any given year. For example, in fiscal year 2016, we had higher licensing orders in the third fiscal quarter than in the second fiscalquarter. Our maintenance revenues are not impacted by these seasonal trends.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 billable days in a given fiscal quarter. The quarter ended January 31 usually has fewer billable days due to the impact of the Thanksgiving,Christmas and New Year’s holidays. The quarter ended July 31 usually also has fewer billable days due to the impact of vacation times taken by ourprofessional staff. Because we pay our services professionals the same amounts throughout the year, our gross margins on our services revenues are lower inthese quarters.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-0330.5 Table of ContentsWe 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 as part of our investor relations website. Investors and others can receive notifications of new information posted on our investor relationswebsite in real time by signing up for email alerts and RSS feeds. Further corporate governance information, including our governance guidelines and code ofbusiness conduct and ethics, is also available on our investor relations website under the heading “Corporate Governance.” The contents of our websites arenot 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, and anyreferences to our websites are intended to be inactive textual references only.6 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 results of operations could differ materially from the plans, projections and other forward-looking statements included inthe section 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 results of operations 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 with substantial negotiatingleverage, at comparable prices;•our ability to renew existing contracts for multiple year terms versus annual automatic renewals;•our ability to attract new 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;•introduction of new, or the increase of existing, licensing models that feature ratable revenue recognition;•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;•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;•erosion in services margins or significant increase or decrease in services revenues both in absolute terms and as a percentage of total revenues;•our ability to realize expected benefits from our acquisitions;•timing of commissions expense related to large transactions;•bonus expense based on the bonus attainment rate;•the timing and cost of hiring personnel and of large expenses such as third-party professional services;•stock-based compensation expenses, which vary along with changes to our stock price;•fluctuations in foreign currency exchange rates;•unanticipated trade sanctions and other restrictions that may impede our ability to sell internationally;•general domestic and international economic conditions, in the insurance industry in particular; and•future accounting pronouncements or changes in accounting rules or our accounting policies.In addition, our revenue may fluctuate if our customers make an early payment of their annual license fees in advance of the invoice due date. This maycause an unexpected increase in revenues in one quarter which can reduce revenue growth rates in future periods.The foregoing factors are difficult to forecast, and these, as well as other factors, could materially adversely affect our quarterly and annual results ofoperations. We believe our ability to adjust spending quickly enough to compensate for a7 Table of Contentsrevenues shortfall is very limited and our inability to do so could magnify the adverse impact of such revenues shortfall on our results of operations. If we failto achieve our quarterly forecasts, if our forecasts fall below the expectations of research analysts or investors, or if our actual results fail to meet theexpectations of research analysts or investors, our stock price may decline.Seasonal 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 future product delivery requirements or specified terms for product upgrades or functionality, whichmay require us to delay revenue recognition for the initial period;•our term licenses may include payment terms that are modest at the outset and increase over time; and•we may enter into license agreements with other contractual terms that may affect the timing of revenue recognition.These seasonal patterns, however, may be absent in any given year. For example, in fiscal year 2016, we had higher licensing orders in the third fiscalquarter than in the second fiscal quarter.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 license fees inadvance of the invoice due date. Our ability to renew existing contracts for multiple year terms versus annual automatic renewals may also impact revenuerecognition.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.8 Table of ContentsOur 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 significant portion of our revenues. While thecomposition of our individual top customers will vary from year to year, in fiscal years 2016, 2015 and 2014, our ten largest customers accounted for 27%,31% and 35% of our revenues, respectively. While we expect this reliance to decrease over time, we expect that we will continue to depend upon a relativelysmall number of customers for a significant portion of our revenues for the foreseeable future. As a result, if we fail to successfully sell our products andservices to one or more anticipated customers in any particular period or fail to identify additional potential customers or an anticipated customer purchasesfewer of our products or services, defers or cancels orders, fails to renew its license agreements or terminates its relationship with us, our business, results ofoperations and financial condition would be harmed. Some of our orders are realized at the end of the quarter or are subject to delayed payment terms. As aresult of this concentration and timing, if we are unable to complete one or more substantial sales or achieve any required performance or acceptance criteriain any given quarter, our quarterly results of operations may fluctuate significantly.Increases in services revenues as a percentage of total revenues or lower services margins could adversely affect our overall gross margins andprofitability.Our services revenues were 34%, 40% and 45% of total revenues for each of fiscal years 2016, 2015 and 2014, respectively. Our services revenuesproduce lower gross margins than our license revenues. The gross margin of our services revenues was 8%, 12% and 13% for fiscal years 2016, 2015 and2014, respectively, while the gross margin for license revenues was 97% for each of the three fiscal years presented. An increase in the percentage of totalrevenues represented by services revenues or lower services margins could reduce our overall gross margins and adversely affect our results of operations.These trends can be the result of several factors, some of which are outside of our control, including the rates we charge for our services and the utilization ofour personnel, unexpected difficulty in projects which may require additional efforts without commensurate compensation and the extent to which systemintegrators provide services directly to customers. Any erosion in our services margins or any significant increase in services revenues as a percentage of totalrevenues at current services margins would adversely affect our gross and operating margins. For example, services margin may erode for a period of time ifwe hire and train additional services personnel to support the sale of new products, enter into new markets, or introduce innovative software delivery models.Services margins may also decline if we are required to defer services revenues in connection with an engagement. This may happen if there is a specificproduct deliverable associated with a broader services engagement. In these situations, we would defer only the direct costs associated with the engagement.Deferring all revenue but only direct costs will reduce margins. In fiscal year 2017, for example, we expect to defer a significant amount of revenue and directcosts associated with one project, which would reduce margins during fiscal year 2017. The recognition of such deferred revenues in subsequent periods,conversely, may increase services revenues as a percentage of total revenues in future periods.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 holding such intellectual property rights, including leadingcompanies, competitors, patent holding companies and/or non-practicing entities, may assert patent, copyright, trademark or other intellectual propertyclaims against us, our customers and partners, and those from whom we license technology and intellectual 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.If we are forced to defend against any infringement or misappropriation claims, whether they are with or without merit, are settled out of court, or aredetermined in our favor, we may be required to expend significant time and financial resources on the defense of such claims. Furthermore, an adverseoutcome of a dispute may require us to pay damages, potentially including treble damages and attorneys’ fees, if we are found to have willfully infringed aparty’s intellectual property; cease making, licensing or using our products or services that are alleged to infringe or misappropriate the intellectual propertyof others; expend additional development resources to redesign our products or services; enter into potentially unfavorable royalty or license agreements inorder to obtain the right to use necessary technologies or works; and to indemnify our partners,9 Table of Contentscustomers, and other third parties. Any of these events could seriously harm our business, results of operations and financial condition.We may expand through acquisitions 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 includes the potential acquisitions of the shares or assets of companies with complementary software, technologies or businessesor alliances with such companies. For example, in March 2016, we acquired EagleEye Analytics Inc., a provider of cloud-based predictive analytics productsdesigned for property and casualty insurers, and in August 2016, we acquired FirstBest Systems, Inc., a provider of an underwriting management system forproperty and casualty insurers. Acquisitions and alliances may result in unforeseen operating difficulties and expenditures and may not result in the benefitsanticipated by such corporate activity. In particular, we may fail to: assimilate or integrate the businesses, technologies, services, products, personnel oroperations of the acquired companies; retain key personnel necessary to favorably execute the combined companies business plan; retain existing customersor sell acquired products to new customers. Acquisitions and alliances may also disrupt our ongoing business, divert our resources and require significantmanagement attention that would otherwise be available for ongoing development of our current business. We also may be required to use a substantialamount of our cash or issue debt or equity securities to complete an acquisition or realize the potential of an alliance, which could deplete our cash reservesand/or dilute our existing stockholders. Following an acquisition or the establishment of an alliance offering new products, we may be required to defer therecognition of revenues that we receive from the sale of products that we acquired or that result from the alliance, or from the sale of a bundle of products thatincludes such new products, if we have not established vendor-specific objective evidence (“VSOE”) for the undelivered elements in the arrangement. Inaddition, our ability to maintain favorable pricing of new products may be challenging if we bundle such products with sales of existing products. A delay inthe recognition of revenues from sales of acquired or alliance products, or reduced pricing due to bundled sales, may cause fluctuations in our quarterlyfinancial results, may adversely affect our operating margins and may reduce the benefits of such acquisitions or alliances.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, in addition to our failure to realize the anticipated benefits of any acquisition, including our revenues or return on investment assumptions, wemay be exposed to unknown liabilities or impairment charges as a result of acquisitions we do complete.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. We compete with legacy systems, many of which have been in operation fordecades. Maintaining these legacy systems may be so time consuming and costly for our customers that they do not have adequate resources to devote to thepurchase and implementation of our products. Our implementation cycle is lengthy, variable and requires the investment of significant time and expense byour customers. We also compete against technology consulting firms that offer software and systems or develop custom, proprietary products for the P&Cinsurance industry. These consulting firms generally have greater name recognition, larger sales and marketing budgets and greater resources than we do andmay have pre-existing relationships with our potential customers, including relationships with, and access to, key decision makers within theseorganizations. Since sales of software products may be a small part of their business and they may be more focused on related services revenues, they mayoffer their software products at significantly reduced prices or under terms that we cannot match. The competitors we face in any sale may change depending,among other things, on the line of business purchasing the software, the application being sold, the geography in which we’re operating and the size of theinsurance carrier to which we are selling. For example, we are more likely to face competition from small independent firms when addressing the needs ofsmall insurers. These competitors compete on the basis of price, the time and cost required for software implementation, custom developments, or uniqueproduct features or functions. Outside of the United States, we are more likely to compete against vendors that may differentiate themselves based on localadvantages in language, market knowledge and pre-built content applicable to that jurisdiction. We also complete with vendors of horizontal softwareproducts that may be customized to address needs of the P&C insurance industry.We expect the intensity of competition to remain high in the future as new or existing companies obtain new capital, consolidate with other vendors,improve product or sales capabilities, or create and expand partnerships with systems integrators. Such intense competition could result in increased pricingpressure, increased sales and marketing expenses, and greater investments in research and development, each of which could negatively impact ourprofitability. In addition, failure to increase, or the loss of, market share, would harm our business, results of operations, financial condition or futureprospects. Our larger competitors may be able to devote greater resources to the development, promotion and sale of their products than10 Table of Contentswe can devote to ours, which could allow them to respond more quickly than we can to new technologies and changes in customer needs leading to widermarket acceptance. We may not be able to compete effectively and competitive pressures may prevent us from acquiring and maintaining the customer basenecessary 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 other vendors or third parties with greater available resources. As a result of suchacquisitions, our current or potential competitors might be more able than we to adapt more quickly to new technologies and customer needs, devote greaterresources to the promotion or sale of their products and services, initiate or withstand substantial price competition, or take advantage of other opportunitiesto more readily or develop and expand their product and service offerings more quickly. Additionally, they may hold larger portfolios of patents and otherintellectual property rights as a result of such acquisitions. If we are unable to compete effectively for a share of our market, our business, results of operationsand financial condition could be materially and adversely affected.If our products or cloud-based services experience data security breaches, and there is unauthorized access to our customers’ data, we may lose current orfuture customers and our reputation and business may be harmed.If our security measures are breached or unauthorized access to customer data is otherwise obtained, our products may be perceived as not being secure,customers may reduce the use of or stop using our products, and we may incur significant liabilities. Our software and cloud services involve the storage andtransmission of data, and security breaches could result in the loss of this information, litigation, indemnity obligations and other liability. While we havetaken steps to protect the confidential information that we have access to, including confidential information we may obtain through our customer supportservices or customer usage of our cloud-based services, our security measures could be breached. Because techniques used to obtain unauthorized access orsabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniquesor to implement adequate preventative measures. Any or all of these issues could negatively impact our ability to attract new customers and increaseengagement by existing customers, cause existing customers to elect to not renew their term licenses, or subject us to third-party lawsuits, regulatory fines orother action or liability, thereby adversely affecting our financial results. We use third-party technology and systems for a variety of reasons, including,without limitation, encryption and authentication technology, employee email, content delivery to customers, back-office support and other functions.Although we have developed systems and processes that are designed to protect customer information and prevent data loss and other security breaches,including systems and processes designed to reduce the impact of a security breach at a third-party vendor, such measures cannot provide absolute security.Privacy concerns could result in regulatory changes and impose additional costs and liabilities on us, limit our use of information, and adversely affect ourbusiness.Our current and predominant business model does not significantly collect and transfer personal information from our customers to us, however, alimited number of our product solutions may collect, process, store, and use transaction-level data aggregated across insurers using our common data model.We anticipate that over time we may expand our business model to include greater collection and transfer of personal information from our customers to usand we recognize that personal privacy has become a significant issue in the United States, Europe, and many other jurisdictions where we operate. Manyfederal, state, and foreign legislatures and government agencies have imposed or are considering imposing restrictions and requirements about the collection,use, and disclosure of personal information.In the European Community, Directive 95/46/EC (the “Directive”) has required European Union member states to implement data protection laws tomeet the strict privacy requirements of the Directive. Among other requirements, the Directive regulates transfers of personally identifiable data that is subjectto the Directive (“Personal Data”) to third countries, such as the United States, that have not been found to provide adequate protection to such Personal Data.We have in the past relied upon adherence to the U.S. Department of Commerce’s Safe Harbor Privacy Principles and compliance with the U.S.-EU and U.S.-Swiss Safe Harbor Frameworks as agreed to and set forth by the U.S. Department of Commerce, and the European Union and Switzerland, which established ameans for legitimating the transfer of Personal Data collected by US companies doing business in the European Economic Area (or “EEA”), to the UnitedStates. As a result of the October 6, 2015 European Union Court of Justice, or ECJ, opinion in Case C-362/14 (Schrems v. Data Protection Commissioner)regarding the adequacy of the U.S.-EU Safe Harbor Framework, the U.S. - EU Safe Harbor Framework was no longer deemed to be a valid method ofcompliance with requirements set forth in the Directive (and member states’ implementations thereof) regarding the transfer of Personal Data outside of theEEA.However, on July 12, 2016, the EU Commission formally adopted a new mechanism for the transfer of personal data from the European Union ( the“EU”) to the United States, branded the “EU-US Privacy Shield” (“Privacy Shield”). We are currently preparing for the process of certifying with the U.S.Department of Commerce (“DOC”) to comply with the framework’s terms. While the EU Commission and the U.S. have formally adopted the Privacy Shield,we will continue to face uncertainty to the limited extent we may transfer any Personal Data and as to whether our efforts to comply with our obligationsunder European11 Table of Contentsprivacy laws will be sufficient. If we are investigated by a European data protection authority, we could face fines and other penalties. Any such investigationor charges by European data protection authorities could have a negative effect on our existing business and on our ability to attract and retain newcustomers.In light of any continued concerns in view of the ECJ opinion in the Schrems case, we continue to undertake efforts in the event of any necessarytransfers of Personal Data from the EEA based on current regulatory obligations, available guidance of data protection authorities, and evolving bestpractices. Despite this, we may be unsuccessful in conforming to means of transferring such data from the EEA, including due to resistance to the adoption ofPrivacy Shield by EU member countries, which may vary the current data protection landscape for the transfer of Personal Data.We may also experience hesitancy, reluctance, or refusal by European or multi-national customers to continue to use some of our services due to thepotential risk exposure to such customers as a result of the ECJ ruling in the Schrems case and the current data protection obligations imposed on them bycertain data protection authorities. Such customers may also view any alternative approaches to the transfer of any Personal Data as being too costly, tooburdensome, too legally uncertain or otherwise objectionable, and therefore may decide not to do business with us if the transfer of Personal Data is anecessary requirement.Though our current and predominant business model does not significantly collect and transfer personal information from our customers to us, given thecurrent data protection landscape in view of the ECJ opinion in the Schrems case, we may be at risk of potential inquiries and/or enforcement actions takenby certain EU data protection authorities until such point in time that we may be able to ensure that any transfers of Personal Data to us from the EEA areconducted in compliance with all applicable regulatory obligations, the guidance of data protection authorities, and evolving best practices. We may find itnecessary to establish systems to maintain Personal Data originating from the EU in the EEA, which may involve substantial expense and may cause us toneed to divert resources from other aspects of our business, all of which may adversely affect our business.The Directive may also be replaced in time with the pending European General Data Protection Regulation, which may impose additional obligationsand risk upon our business as we may expand our business model to include greater collection and transfer of personal information from our EEA customersto Guidewire. The pending European General Data Protection Regulation may increase substantially the penalties to which we could be subject in the eventof any non-compliance. We may incur substantial expense in complying with the new obligations to be imposed by the European General Data ProtectionRegulation and we may be required to make significant changes to our expanding business operations, all of which may adversely affect our revenues andour business overall.Changes to laws or regulations affecting privacy could impose additional costs and liabilities on us and could limit our use of such information to addvalue for customers. If we were required to change our business activities or revise or eliminate services, or to implement burdensome compliance measures,our business and results of operations could be harmed. In addition, we may be subject to fines, penalties, and potential litigation if we fail to comply withapplicable privacy and/or data security laws, regulations, standards and other requirements. The costs of compliance with and other burdens imposed byprivacy-related laws, regulations and standards may limit the use and adoption of our product solutions and reduce overall demand.Furthermore, concerns regarding data privacy and/or security may cause our customers’ customers to resist providing the data and information necessaryto allow our customers to use our product solutions effectively. Even the perception that the privacy and/or security of personal information is notsatisfactorily protected or does not meet applicable legal, regulatory and other requirements could inhibit sales of our products or services, and could limitadoption of our solutions.If we are required to, and fail to successfully manage any changes to our business model, including the transition of our products to cloud offerings, ourresults of operations could be harmed.To address the trends of the industry, we will likely offer customers the use of our software products through a cloud-based offering in addition to ouron-premises offering. Any such transition requires a considerable investment of technical, financial, legal and sales resources. Such transition will divert ourresources and may increase our costs in a given period and such investments may not improve our long term growth and results of operations. The revenuethat we would recognize under widely adopted cloud-based licensing models is more likely to be ratable. That transition may reduce license revenue in thoseperiods in which the portion of our revenues attributable to ratable recognition grows. In addition, market acceptance of our cloud-based offerings may beaffected by a variety of factors, including but not limited to: security, reliability, performance, customer preference and public concerns regarding privacyand the enactment of restrictive laws or regulations. We are in the early stages of rearchitecting our exiting products and developing new products in an effortto offer customers greater choices on how they would prefer to consume software. We will also be required to develop the associated subscription agreementsin connection with this effort. Whether our product development efforts or business model transition will prove successful and will accomplish our businessand financial objectives is subject to numerous uncertainties and risks, including but not limited to: customer demand, impact on our customers, our abilityto further develop and scale infrastructure, our ability to include12 Table of Contentsfunctionality and usability in such offerings that address customer requirements, tax and accounting implications, pricing and our costs. In addition, themetrics we use to gauge the status of our business model transition may evolve over the course of the transition as significant trends emerge. It may bedifficult, therefore, to accurately determine the impact of such transition on our business on a contemporaneous basis or communicate clearly the appropriatemetrics to our investors. If we are unable to successfully establish these new cloud offerings and navigate our business model transition in light of theforegoing risks and uncertainties, our results of operations could be harmed.Our customers may defer or forego purchases of our products or services in the event of weakened global economic conditions and industry consolidation.General worldwide economic conditions continue to remain unstable. Prolonged economic uncertainties or downturns could harm our businessoperations or financial results. For example, in June 2016, the decision by referendum to withdraw the United Kingdom (U.K.) from the European Union(“Brexit”) caused significant volatility in global stock markets and fluctuations in currency exchange rates. The results of this referendum, or other globalevents, may continue to create global economic uncertainty not only in the U.K., but in other regions in which we have significant operations. Theseconditions make it difficult for our customers and us to forecast and plan future business activities accurately, and they could cause our customers toreevaluate their decision to purchase our products, which could delay and lengthen our sales cycles or result in cancellations of planned purchases.Furthermore, during challenging economic times our customers may face issues in gaining timely access to sufficient credit, which could result in animpairment of their ability to make timely payments to us. If that were to occur, we may be required to record an allowance for doubtful accounts, whichwould adversely affect our financial results. A substantial downturn in the P&C insurance industry may cause firms to react to worsening conditions byreducing their capital expenditures in general or by specifically reducing their spending on information technology. P&C insurance companies may delay orcancel information technology projects or seek to lower their costs by renegotiating vendor contracts. Negative or worsening conditions in the generaleconomy both in the United States and abroad, including conditions resulting from financial and credit market fluctuations, could cause a decrease incorporate spending on enterprise software in general, and in the insurance industry specifically, and negatively affect the rate of growth of our business.The increased pace of consolidation in the P&C insurance industry may result in reduced overall spending on our products. Acquisitions of customerscan delay or cancel sales cycles and because we cannot predict the timing or duration of such acquisitions, our results of operations could be materiallyimpacted by the change in the industry.Factors outside of our control including but not limited to natural catastrophes and terrorism may adversely impact the P&C insurance industry,preventing us from expanding or maintaining our existing customer base and increasing our revenues.Our customers are P&C insurance carriers which have experienced, and will likely experience in the future, losses from catastrophes or terrorism thatmay adversely impact their businesses. Catastrophes can be caused by various events, including, amongst others, hurricanes, tsunamis, floods, windstorms,earthquakes, hail, tornadoes, explosions, severe weather and fires. Global warming trends are contributing to an increase in erratic weather patterns globallyand intensifying the impact of certain types of catastrophes. Moreover, acts of terrorism or war could cause disruptions in our or our customers’ businesses orthe economy as a whole. The risks associated with natural catastrophes and terrorism are inherently unpredictable, and it is difficult to predict the timing ofsuch events or estimate the amount of loss they will generate. Future events may adversely impact our current or potential customers, which may prevent usfrom maintaining or expanding our customer base and increasing our revenues as such events may cause customers to postpone purchases of new productsand professional service engagements or discontinue projects.Our sales and implementation cycles are lengthy and variable, depend upon factors outside our control, and could cause us to expend significant time andresources prior to generating 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. We spend substantial time, effort and money in our sales efforts without any assurancethat our efforts will produce any sales. Even if we succeed at completing a sale, we may be unable to predict the size of an initial license until very late in thesales cycle. In addition, we sometimes commit to include specific functions in our base product offering at the request of a customer or group of customersand are unable to recognize license revenues until the13 Table of Contentsspecific functions have been added to our products. Providing this additional functionality may be time consuming and may involve factors that are outsideof our control.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.Failing to meet the expectations of our customers for the implementation of our products could result in a loss of customers and negative publicity regardingus and our products and services. 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.The lengthy and variable sales and implementation cycles may have a negative impact on the timing of our revenues, causing our revenues and resultsof operations to vary significantly from period to period.If we are unable to continue the successful development of our global direct sales force and the expansion of our relationships with our strategic partners,sales of our 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 global 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 global direct sales personnel. New hires require significanttraining and 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 ofproductive global direct 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 which, in some cases, may require the establishment of effective relationships with regional systems integrators.Although we have established relationships with some of the leading system integrators, our products and services may compete directly against productsand services that such leading system integrators support or market. We are unable to control the quantity or quality of resources that our system integratorpartners commit to implementing our products, or the quality or timeliness of such implementation. If our partners do not commit sufficient or qualifiedresources to these activities, our customers will be less satisfied, be less supportive with references, or may require the investment of our resources atdiscounted rates. These, and other failures by our partners to successfully implement our products, will have an adverse effect on our business and our resultsof operations could fail to grow in line with our projections.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 results of operations.Some of our customers include the largest P&C insurance carriers. These customers have significant bargaining power when negotiating new licenses orrenewals of existing licenses, and have the ability to buy similar products from other vendors or develop such systems internally. These customers have andmay continue to seek advantageous pricing and other commercial terms and may require us to develop additional features in the products we sell to them. Wehave and may continue to be required to reduce the average selling price, or increase the average cost, of our products in response to these pressures. If we areunable to avoid reducing our average selling prices or increasing our average costs, our results of operations could be harmed.Because we derive a significant majority of our revenues and cash flows from InsuranceSuite or its component applications - ClaimCenter, PolicyCenterand BillingCenter products and related services - failure of any of these products or services to satisfy customer demands or to maintain market acceptancewould harm our business, results of operations, financial condition and growth prospects.We derive a significant majority of our revenues and cash flows from software licenses, support and services related to our InsuranceSuite product or itsindividual component applications: ClaimCenter, PolicyCenter and BillingCenter. We expect to continue to derive a substantial portion of our revenuesfrom these sources. As such, continued market acceptance of these14 Table of Contentsproducts is critical to our growth and success. Demand for our products is affected by a number of factors, some of which are beyond our control, includingthe successful implementation of our products, the timing of development and release of new products by us and our competitors, technological advanceswhich reduce the appeal of our products, and the growth or contraction in the worldwide market for technological solutions for the P&C insurance industry. Ifwe are unable to continue to meet customer demands, to achieve and maintain a technological advantage over competitors, or to maintain market acceptanceof our products, our business, results of operations, financial condition and growth prospects may be 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, or the sale of their operations to a buyer that is not a current customer. For example,in fiscal 2016, two customers, each with DWP of less than $150 million, informed us of their intention to not renew their license upon their expiration. In thefirst case, the reason not to renew was due to the licensee being acquired. In the second case, the non-renewal was as a result of our decision to discontinuesupport for the licensee’s legacy product, which we had acquired through the Millbrook acquisition in fiscal 2013.In addition, in some cases, our customers have a right to exercise a perpetual buyout of their term licenses at the end of the initial contract term. If ourcustomers do not renew their term licenses for our solutions or renew on less favorable terms, our revenues may decline or grow more slowly than expectedand our profitability may be harmed.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. Because our products are complex and require rigorous testing, development cycles can be lengthy, taking us multiple years to develop andintroduce new products or provide updates to our existing products. Additionally, market conditions may dictate that we change the technology platformunderlying our existing products or that new products be developed on different technology platforms, potentially adding material time and expense to ourdevelopment cycles. The nature of these development cycles may cause us to experience delays between the time we incur expenses associated with researchand development and the time we generate revenues, if any, from such expenses.If we fail to develop new products or enhancements to our existing products, our business could be adversely affected, especially if our competitors areable to introduce products with enhanced functionality. It is critical to our success for us to anticipate changes in technology, industry standards andcustomer requirements and to successfully introduce new, enhanced and competitive products to meet our customers’ and prospective customers’ needs on atimely basis. We have invested and intend to increase investments in research and development to meet these challenges. Revenues may not be sufficient tosupport the future product development that is required for us to remain competitive. If we fail to develop products in a timely manner that are competitive intechnology and price or develop products that fail to meet customer demands, our market share will decline and our business and results of operations couldbe harmed.Real or perceived errors or failures in our products or implementation services may affect our reputation, cause us to lose customers and reduce saleswhich may harm our business and results of operations and 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.15 Table of ContentsWe provide our customers with upfront estimates regarding the duration, resources and costs associated with the implementation of our products.Failure to meet these upfront estimates and the expectations of our customers could result from our product capabilities or service engagements by us, oursystem integrator partners or our customers’ IT employees, the latter two of which are beyond our direct control. The consequences could include, and haveincluded: monetary credits for current or future service engagements, reduced fees for additional product sales, and a customer’s refusal to pay theircontractually-obligated license, maintenance or service fees. In addition, time-consuming implementations may also increase the amount of servicespersonnel we must allocate to each customer, thereby increasing our costs and adversely affecting our business, results of operations and financial condition.The license and support of our software creates the risk of significant liability claims against us. Our license agreements with our customers containprovisions designed to limit our exposure to potential liability claims. It is possible, however, that the limitation of liability provisions contained in suchlicense agreements may not be enforced as a result of international, federal, state and local laws or ordinances or unfavorable judicial decisions. Breach ofwarranty or damage liability, or injunctive relief resulting from such claims, could harm our 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 extent of the protection afforded by 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.We attempt to protect our intellectual property, technology, and confidential information by generally requiring our employees and consultants toenter into confidentiality and assignment of inventions agreements and third parties to enter into nondisclosure agreements, all of which offer only limitedprotection. These agreements may not effectively prevent unauthorized use or disclosure of our confidential information, intellectual property or technologyand may not provide an adequate remedy in the event of unauthorized use or disclosure of our confidential information, intellectual property or technology.Despite our efforts to protect our confidential information, intellectual property, and technology, unauthorized third parties may gain access to ourconfidential proprietary information, develop and market products or services similar to ours, or use trademarks similar to ours, any of which could materiallyharm our business and results of operations. In addition, others may independently discover our trade secrets and confidential information, and in such cases,we could not assert any trade secret rights against such parties. Existing U.S. federal, state and international intellectual property laws offer only limitedprotection. The laws of some foreign countries do not protect our intellectual property rights to as great an extent as the laws of the United States, and manyforeign countries do not enforce these laws as diligently as governmental agencies and private parties in the United States. Moreover, policing ourintellectual 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.16 Table of ContentsWe 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 certain of our products by exercising this right, and others may do so in the future.Disclosing 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.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.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. In addition to risks related to licenserequirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do notprovide warranties or controls on origin of the software. Additionally, some open source licenses require that source code subject to the license be madeavailable to the public and that any modifications or derivative works to open source software continue to be licensed under open source licenses. Theseopen source licenses typically mandate that proprietary software, when combined in specific ways with open source software, become subject to the opensource license. If we combine our proprietary software in such ways with open source software, we could be required to release the source code of ourproprietary 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 many of the restrictions in an open source license. However, few courts have interpreted open source licenses, and themanner in which these licenses may be interpreted and enforced is therefore subject to some uncertainty. Additionally, we rely on multiple softwareprogrammers to design our proprietary technologies, and although we take steps to prevent our programmers from including objectionable open sourcesoftware in the technologies and software code that they design, write and modify, we do not exercise complete control over the development efforts of ourprogrammers and we cannot be certain that our programmers have not incorporated such open source software into our proprietary products and technologiesor that they will not do so in the future. In the event that portions of our proprietary technology are determined to be subject to an open source license, wecould be required to publicly release the affected portions of our source code, re-engineer all or a portion of our technologies, or otherwise be limited in thelicensing of our technologies, each of which could reduce or eliminate the value of our services and technologies and materially and adversely affect ourbusiness, results of operations and prospects.Incorrect or improper use of our products or our failure to properly train customers on how to utilize our products could result in customer dissatisfactionand 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. Our products may also be intentionally misused or abused bycustomers or their employees or third parties who are able to access or use our products. Because our customers rely on our products, services andmaintenance support to manage a wide range of17 Table of Contentsoperations, the incorrect or improper use of our products, our failure to properly train customers on how to efficiently and effectively use our products, or ourfailure to properly provide maintenance services to our customers may result in negative publicity or legal claims against us. Also, as we continue to expandour customer base, any failure by us to properly 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 use of our products, or if customer personnel are not well trained in theuse of our products, customers may defer the deployment of our products, may deploy them in a more limited manner than originally anticipated or may notdeploy them at all. Further, if there is substantial turnover of the customer personnel responsible for use of our products, our ability to make additional salesmay 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 services, 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 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, including Marcus Ryu, one of our co-founders and our current president and chief executive officer, sales and marketing personnel, professionalservices personnel and software engineers. Our inability to attract and retain qualified personnel, or delays in hiring required personnel, may seriously harmour business, results of operations and financial condition.Each of our executive officers and other key employees could terminate his or her relationship with us at any time. The loss of any member of our seniormanagement team might significantly delay or prevent the achievement of our business or development objectives and could materially harm our business.We face competition for qualified individuals, who are in high demand, from numerous software and other technology companies. Competition forqualified personnel is particularly intense in the San Francisco Bay Area, where our headquarters are located. Often, significant amounts of time and resourcesare required to train technical, sales and other personnel. We may incur significant costs to attract and retain them, and we may lose new employees to ourcompetitors or other technology companies before we realize the benefit of our investment in recruiting and training them. Also, to the extent we hirepersonnel from competitors, we may be subject to allegations that they have been improperly solicited or divulged proprietary or other confidentialinformation. We have a limited number of sales people and the loss of several sales people within a short period of time could have a negative impact on oursales efforts. We may be unable to attract and retain suitably qualified individuals who are capable of meeting our growing technical, operational andmanagerial requirements, or we may be required to pay increased compensation in order to do so.Our ability to expand geographically depends, in large part, on our ability to attract, retain and integrate both leaders for the local business and peoplewith the appropriate skills. Similarly, our profitability depends on our ability to effectively utilize personnel with the right mix of skills and experience toperform services for our clients, including our ability to transition employees to new assignments on a timely basis. If we are unable to effectively deploy ouremployees globally on a timely basis to fulfill the needs of our clients, our reputation could suffer and our ability to attract new clients may be harmed.Because of the technical nature of our products and services and the dynamic market in which we compete, any failure to attract, integrate and retainqualified direct sales, professional services and product development personnel, as well as our18 Table of Contentscontract workers, could harm our ability to generate sales or successfully develop new products, customer and consulting services and enhancements ofexisting products.Failure to manage our expanding operations effectively could harm our business.We have recently experienced rapid growth and expect to continue to expand our operations, among other factors, in the number of employees and inthe locations and scope of our international operations. This expansion has placed, and will continue to place, a significant strain on our operational andfinancial resources and our personnel. To manage our anticipated future operational expansion effectively, we must continue to maintain and may need toenhance our information technology infrastructure, financial and accounting systems and controls and manage expanded operations and employees ingeographically distributed locations. Our growth could require significant capital expenditures and may divert financial resources from other projects, suchas the development of new products. If we increase the size of our organization without experiencing an increase in sales of our products and services, we willexperience reductions in our gross and operating margins and net income. If we are unable to effectively manage our expanding operations, our expenses mayincrease more than expected, our revenues could decline or grow more slowly than expected and we may be unable to implement our business strategy.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 2016, 2015 and 2014, 35%, 35% and 31% 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 and costs 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;•compliance by international staff with accounting practices generally accepted in the United States, including adherence to our accountingpolicies and internal controls;•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;•government sanctions that may interfere with our ability to sell into particular countries, such as Russia; 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.Our revenues, results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes inthe Canadian dollar, Australian dollar, Euro, British Pound, Japanese Yen and Brazilian Real.The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. Although we believe our operating activitiesact as a natural hedge for a substantial portion of our foreign currency exposure at the cash flow or operating income level because we typically collectrevenues and incur costs in the currency in the location in which we provide our application, our contracts with our customers are long term in nature so it isdifficult to predict if our operating19 Table of Contentsactivities will provide a natural hedge in the future. In addition, because our contracts are characterized by large annual payments, significant fluctuations inforeign currency exchange rates that coincide with annual payments may affect our revenues or financial results in such quarter. Our results of operations mayalso be impacted by transaction gains or losses related to revaluing certain current asset and liability balances that are denominated in currencies other thanthe functional currency of the entities in which they are recorded. Moreover, significant and unforeseen changes in foreign currency exchange rates maycause us to fail to achieve our stated projections for revenue and operating income, which could have an adverse effect on our stock price. We will continueto experience fluctuations in foreign currency exchange rates, which, if material, may harm our revenues or results of operations.The nature of our business requires the application of complex revenue and expense recognition rules that require management to make estimates andassumptions. Additionally, the current legislative and regulatory environment affecting U.S. Generally Accepted Accounting Principles ("GAAP") isuncertain and significant changes in current principles could affect our financial statements going forward.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, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenuesand expenses that are not readily apparent from other sources.While we believe that our financial statements have been prepared in accordance with accounting principles generally accepted in the United States,we cannot predict the impact of future changes to accounting principles or our accounting policies on our financial statements going forward. In addition,were we to change our critical accounting estimates, including the timing of recognition of license revenue and other revenue sources, our reported revenuesand results of operations could be significantly impacted.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.The FASB issued new accounting guidance on revenue recognition that becomes effective for us beginning August 1, 2018. The standard permits theuse of either the full retrospective or cumulative effect transition method. We currently intend to select the cumulative effect transition method. While wecontinue to evaluate the impact this guidance will have on our financial condition and results of operations, any change in how we recognize revenues canhave a significant impact on our quarterly or annual financial results from operations. In order to reduce the risk of financial statement volatility, we havebegun to revise our contracting practices primarily by shortening the initial non-refundable term of our licenses. If we are unsuccessful in adapting ourbusiness to the requirements of the new revenue standard, or if changes to our go-to-market strategy create new risks, then we may experience greatervolatility in our quarterly and annual results, which may cause our stock price to decline. In addition to greater volatility, the application of this new standardmay result in the exclusion of a portion of the licensing revenues from contracts in effect prior to the adoption date, which, despite no change in associatedcash flows, could have a material adverse effect on our recognized revenues and net income.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 of 2002 (the “Sarbanes-Oxley Act”) requires, among otherthings, that as a publicly-traded company we disclose whether our internal control over financial reporting and disclosure controls and procedures areeffective.If a material misstatement occurs in the future, we may fail to meet our future reporting obligations. For example, we may fail to file periodic reports in atimely manner or may need to restate our financial results, either of which may cause the price of our common stock to decline. Any failure of our internalcontrols could also adversely affect the results of the periodic management evaluations and annual independent registered public accounting firm attestationreports regarding the effectiveness of our internal control over financial reporting that are required under Section 404 of the Sarbanes-Oxley Act. Effectiveinternal controls are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. Furthermore, any potentialtransition in enterprise resource planning or other major operational system could impact the timely generation of our financial statements. If we cannotprovide reliable financial reports or prevent fraud, our20 Table of Contentsbusiness and results of operations could be harmed, investors could lose confidence in our reported financial information, and the trading price of our stockcould 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.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 develop new or enhance existing products andservices, acquire businesses and technologies, or otherwise to 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 our operations, takeadvantage of unanticipated opportunities, develop or enhance our products and services, or otherwise respond to competitive pressures would besignificantly limited. Any of these factors could harm our 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.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. To the extent that such disruptions result in delays or cancellations of customer orders, or the deployment of our products, our business,results of operations and financial condition would be adversely 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 and research analystcoverage about our business.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 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.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.21 Table of ContentsCertain 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.22 Table of ContentsItem 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. As of July 31, 2016, we also lease facilities for our distributed sales and development centers in Columbia, SouthCarolina; Dublin, Ireland; Edina, Minnesota; Exton, Pennsylvania; Krakow, Poland; London, United Kingdom; Mississauga, Ontario, Canada; Paris, France;Sydney, Australia; Tokyo, Japan.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 ProceedingsFrom time to time we are involved in legal proceedings that arise in the ordinary course of our business. Any such proceedings, whether meritorious ornot, could be time consuming, costly, and result in the diversion of significant operational resources or management time.Although the outcomes of legal proceedings are inherently difficult to predict, we are not currently involved in any legal proceeding in which theoutcome, in our judgment based on information currently available, is likely to have a material adverse effect on our business or financial position.Item 4.Mine Safety DisclosuresNot applicable.23 Table of ContentsItem 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 2016 Fiscal Year 2015 High Low High LowFirst Quarter$59.21 $50.68 $50.14 $39.76Second Quarter$61.90 $51.74 $52.73 $45.60Third Quarter$58.02 $43.05 $55.66 $49.61Fourth Quarter$63.79 $55.25 $60.08 $47.40On July 31, 2016, the last reported sale price of our common stock on the New York Stock Exchange was $61.47 per share. As of July 31, 2016, we had68 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 of our filings under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act.24 Table of ContentsThe following graph shows a comparison from January 25, 2012, (the date our common stock commenced trading on the NYSE) through July 31, 2016,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. 1/25/20127/31/20127/31/20137/31/20147/31/20157/31/2016 Guidewire Software, Inc.100.00197.38336.62311.54454.23473.85NASDAQ Composite-Total Returns100.00104.89131.27160.16190.13194.61Zacks Computer Software Services Total Return100.0090.80103.9090.0279.0271.48Unregistered 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 and the fiscal year ended July 31, 2016.25 Table of ContentsPART II Item 6.Selected Financial DataSELECTED CONSOLIDATED FINANCIAL DATAThe following tables set forth selected financial data as of and for the last five fiscal years. This selected financial data should be read in conjunctionwith our historical financial statements, including the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results ofOperations,” included elsewhere in this report. Fiscal years ended July 31, 2016 2015 2014 2013 2012 (in thousands, except share and per share data)Total revenues$424,446 $380,537 $350,246 $300,649 $232,061Total cost of revenues151,834 147,184 148,947 125,651 90,005Total gross profit272,612 233,353 201,299 174,998 142,056Income from operations16,437 16,493 18,422 29,739 28,934Net income$14,976 $9,885 $14,721 $24,658 $18,664Net income per share: Basic$0.21 $0.14 $0.22 $0.44 $0.36Diluted$0.20 $0.14 $0.21 $0.40 $0.32Shares used in computing net income per share: Basic72,026,694 70,075,908 65,748,896 56,331,018 34,774,983Diluted73,765,960 72,314,433 69,112,733 61,569,195 41,759,338 As of July 31, 2016 2015 2014 2013 2012 (in thousands)Cash, cash equivalents and investments$735,802 $677,752 $647,781 $207,739 $205,718Working capital588,589 557,235 421,044 135,309 169,278Total assets916,178 799,947 757,227 305,673 281,286Total stockholders’ equity783,935 689,388 650,686 221,832 181,00026 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 a software platform for property and casualty (“P&C”) insurers. Guidewire InsurancePlatformTM consists of three keyelements: core transaction processing, data management and analytics, and digital engagement, which work together to strengthen our customers’ ability toengage and empower their customers, agents, and employees. Our InsuranceSuite products provide transactional systems of record, which support the entireinsurance lifecycle. Our data management and analytics products enable insurers to manage data more effectively and gain insights that can lead to betterbusiness decisions. Our digital engagement products support digital sales, service and claims experiences for policyholders, agents, and other keystakeholders.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 through investments in sales and marketing in Europe, Asia and Latin America.Our customer engagement is led by our direct sales model and supported by our system integrator (“SI”) partners. In addition to our investments in sales andmarketing and in our SI partnerships, we work to align with each insurer’s strategic goals in order to address any sales cycle risk. Strong customerrelationships are a key driver of our success given the long-term nature of our contracts and the importance of customer references for new sales. We continueto focus on deepening our customer relationships through continued successful product implementations, robust product support, strategic engagement onnew products and technologies, and ongoing account management.Our sales cycles for new and existing customers remain protracted as customers are deliberate and the decision making and product evaluation processis long. Sales to new customers also involve extensive customer due diligence and reference checks. We must also earn credibility as we expand our salesoperations and enter new markets which require investment not only in sales and services capabilities, but in development to optimize our products for suchnew markets.Customers can buy our core transaction processing applications, Guidewire PolicyCenter, Guidewire ClaimCenter and Guidewire BillingCenter, eitherseparately or in combination as a suite. We refer to the combination of all three applications as InsuranceSuite. Sales of our core applications typicallyinclude sales of add-on applications such as Rating Management and Reinsurance Management that offer additional functionality which customers may findvaluable.Our data management and analytics and digital engagement products are sold to customers of InsuranceSuite or one of its component applications,which naturally limits the quantity of potential customers. Some sales of new products are generated at the same time as an insurance carrier becomes a newcustomer of InsuranceSuite or one of its applications, or are sold later as cross-sell opportunities.A majority of our term based licenses range from 2 to 5 years. These contracts are renewable on an annual or multi-year basis. In preparing for ouradoption of the new revenue recognition standard, we have begun revising our contracting practices by shortening the initial non-refundable term of ourlicenses. We generally price our licenses based on the amount of direct written premiums (“DWP”) that will be managed by our solutions. We typicallyinvoice our customers annually in advance or, in certain cases, quarterly for both recurring term license and maintenance fees. Our sales and marketing effortsare affected by seasonal variations in which our customer orders are generally higher in the second and fourth quarters of our fiscal year. This seasonal patternmay not be exhibited in each fiscal year. For example, in fiscal year 2016, sales in the third quarter were higher than in the second quarter. We primarilyderive our services revenues from implementation, integration and training services. Our implementation teams assist customers in building implementationplans, integrating our software with their existing systems, and defining business rules and requirements unique to each customer.To extend our technology leadership in the global market, we continue to invest in research and development to enhance and improve our currentproducts and introduce new products to market. Continued investment in product innovation is critical as we seek to: assist our customers in their IT goals;maintain our competitive advantage; grow our revenues and expand internationally; and meet evolving customer demands. In certain cases we will alsocontinue to explore the acquisition of skills and technologies to accelerate our time to market for new products and solutions.27 Table of ContentsIn March 2016, we acquired EagleEye Analytics Inc. (“EagleEye”), a provider of cloud-based predictive analytics products specifically designed forproperty and casualty insurers for cash consideration of approximately $42 million. The acquisition added Guidewire Predictive Analytics to our productofferings. We believe that, over time, the acquisition will enable our customers to apply predictive analytics to make better decisions across the insurancelifecycle. The results of EagleEye’s operations since the date of acquisition have been included in our results of operations for fiscal year 2016 and were notmaterial.In August 2016 after the end of fiscal year 2016, we added Guidewire Underwriting Management through the acquisition of FirstBest Systems, Inc., aprovider of an underwriting management system to P&C insurers for cash consideration of approximately $34 million. The results of FirstBest’s operationswill be included in the our first quarter of fiscal year 2017 results of operations. Sales of these new products are expected to grow following an investment tointegrate them with our core transactional systems, educate our sales force in their attributes and train SI partners in their implementation. As a result, revenuein connection with any sales of these products are expected to be minimal in fiscal year 2017. In addition, if we are unable to establish VSOE, revenuerecognized in connection with such sales will be delayed.We partner with leading SIs to assist in the implementation of our products in a manner that increases efficiency and scale while reducing customerimplementation costs. Our extensive relationships with SIs and industry partners have strengthened and expanded in line with the interest in and adoption ofour products. We encourage our partners to co-market, pursue joint sales initiatives and drive broader adoption of our technology, helping us grow ourbusiness more efficiently and focus our engineering resources on continued innovation. Our track record of success with customers and their implementationsare central to our strategy. We continue to focus and invest time and resources in increasing the number of qualified consultants employed by our SI partners,develop relationships with new SIs in existing and new markets, and ensure that all partners are ready to assist with implementing our products.We face a number of risks in the execution of our strategy including risks related to expanding to new markets, managing lengthy sales cycles,competing effectively in the global market, relying on sales to a relatively small number of large customers, developing new or acquiring existing productssuccessfully, and increasing the overall adoption of our products. In response to these and other risks we might face, we continue to invest in many areas ofour business. Our investments in sales and marketing align with our goal of winning new customers in both existing and new markets, and enable us tomaintain a persistent, consultative relationship with our existing customers. Our investments in product development are designed to meet the evolvingneeds of our customers.SeasonalityWe have historically experienced seasonal variations in our revenues as a result of increased customer orders in our second and fourth fiscal quarters.We generally see increased orders in our second fiscal quarter, which is the quarter ended January 31, due to customer buying patterns. We also see increasedorders in our fourth fiscal quarter, which is the quarter ended July 31, due to efforts by our sales team to achieve annual incentives. This seasonal pattern,however, may be absent in any given year. For example, in fiscal year 2016, we had higher licensing orders in the third fiscal quarter than in the second fiscalquarter. Our maintenance revenues are not impacted by these seasonal trends.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 billable days in a given fiscal quarter. The quarter ended January 31 usually has fewer billable days due to the impact of the Thanksgiving,Christmas and New Year’s holidays. The quarter ended July 31 usually also has fewer billable days due to the impact of vacation times taken by ourprofessional staff. Because we pay our services professionals the same amounts throughout the year, our gross margins on our services revenues are lower inthese quarters. 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 flows.Four-Quarter Recurring RevenuesWe measure four-quarter recurring revenues by adding the total term license revenues and total maintenance revenues recognized under GAAP in thepreceding four quarters ended in the stated period. This metric excludes perpetual license28 Table of Contentsrevenues, revenues from perpetual buyout rights and services revenues. This metric allows us to better understand the trends in our recurring revenuesbecause it typically reduces the variations in any particular quarter caused by seasonality, the effects of the annual invoicing of our term licenses and certaineffects of contractual provisions that may accelerate or delay revenue recognition in some cases. This metric applies revenue recognition rules under GAAPand does not substitute individually tailored revenue recognition and measurement methods. Our four-quarter recurring revenues for each of the nine periodspresented were: Four quarters ended July 31,2016 April 30,2016 January 31,2016 October 31,2015 July 31,2015 April 30,2015 January 31,2015 October 31,2014 July 31,2014 (in thousands)Term license revenues$208,430 $194,458 $184,647 $173,232 $169,366 $160,114 $157,542 $150,309 $139,902Total maintenancerevenues59,931 56,103 53,610 51,516 50,024 48,785 47,041 44,768 41,888Total four-quarterrecurring revenues$268,361 $250,561 $238,257 $224,748 $219,390 $208,899 $204,583 $195,077 $181,790Adjusted 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;•it is useful to exclude non-cash charges, such as depreciation and amortization and stock-based compensation because the amount of suchexpenses in any specific period may not directly correlate to the underlying performance of our business operations and these expenses can varysignificantly between periods; and•it is also useful to exclude the effect of income taxes, interest income and other income or expenses because the amount of such items may notdirectly correlate to the underlying performance of our business operations.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.29 Table of ContentsAdjusted 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. The following provides areconciliation of net income to Adjusted EBITDA: Fiscal years ended July 31, 2016 2015 2014 (unaudited, in thousands)Net income$14,976 $9,885 $14,721Non-GAAP adjustments: Provision for income taxes5,806 6,855 5,225Other (income) expense, net505 1,998 (174)Interest (income), net(4,850) (2,245) (1,350)Depreciation and amortization8,842 7,480 6,751Stock-based compensation66,131 51,375 42,538Adjusted EBITDA$91,410 $75,348 $67,711Operating 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. As a result, our operating cash flows fluctuate significantly. Operating cashflows were $99.9 million, $63.7 million and $75.5 million for fiscal years 2016, 2015 and 2014, respectively. For a further discussion of our operating cashflows, 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. Thepreparation of our consolidated financial statements requires our management to make estimates, assumptions, and judgments that affect the reportedamounts of assets and liabilities and disclosures for contingent assets and liabilities as of the date of the financial statements, and the reported amounts ofrevenues and expenses during the applicable periods.We believe that of our significant accounting policies, which are described in Note 1 “The Company and a Summary of Significant AccountingPolicies” to our consolidated financial statements, the following accounting policies require significant judgments, assumptions, and estimates used in thepreparation of the consolidated financial statements and actual results could differ materially from the amounts reported based on these policies. To theextent there are material differences between our estimates and the actual results, our future 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. This requires us to make judgments andestimates in determining the fair value of each element when we apply the revenue recognition rules as described in Note 1 of the notes to our consolidatedfinancial statements. Revisions of estimates may result in increases or decreases to revenues as reflected in our consolidated financial statements in theperiods in which they are first identified and revised.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; and30 Table of Contents(iii)Services fees, related to professional services related to implementation of our software, reimbursable travel and training.VSOE 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. For term licenses withduration of one year or less, no VSOE of fair value for maintenance exists. VSOE of fair value for services is established if a substantial majority of historicalstand-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.We sell some of our software licenses on a subscription basis. The related revenues are recognized ratably over the contract term. While this is currentlynot a significant part of our business, we expect it to grow as we introduce new or acquired products.In certain professional service offerings sold as fixed fee arrangements, we recognize 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, 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, thezero gross margin or the completed contract method is applied to revenues and direct costs. Under the zero gross margin method, revenues recognized arelimited to the direct costs incurred for the implementation services. Under the completed contract method, revenues and costs are deferred until the project iscomplete.Income TaxesDetermining the consolidated provision for income tax expense, income tax liabilities and deferred tax assets and liabilities involves judgment.Deferred tax assets and liabilities, measured using enacted tax rates, are recognized for the future tax consequences of temporary differences between the taxand financial statement bases of assets and liabilities. As a global company, we calculate and provide for income taxes in each of the tax jurisdictions inwhich we operate. This involves estimating current tax exposures in each jurisdiction as well as making judgments regarding the recoverability of deferredtax assets. Tax exposures can involve complex issues and may require an extended period to resolve. In assessing the realizability of deferred tax assets, weconsider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized and adjust the valuation allowancesaccordingly. Factors considered in making this determination include the period of expiration of the tax asset, planned use of the tax asset, tax planningstrategies and historical and projected taxable income as well as tax liabilities for the tax jurisdiction in which the tax asset is located. Valuation allowanceswill be subject to change in each future reporting period as a result of changes in one or more of these factors. Changes in the geographic mix or estimatedlevel of annual income before taxes can affect the overall effective tax rate.We apply an estimated annual effective tax rate to our quarterly results of operations to determine the interim provision for income tax expense. Achange in judgment that impacts the measurement of a tax position taken in a prior year is recognized as a discrete item in the interim period in which thechange occurs. In the event there is a significant unusual or infrequent item recognized in our quarterly results of operations, the tax attributable to that itemis recorded in the interim period in which it occurs.No taxes have been provided on undistributed foreign earnings that are planned to be indefinitely reinvested. If future events, including materialchanges in estimates of cash, working capital and long-term investment requirements, necessitate that these earnings be distributed, an additional provisionfor taxes may apply. This could materially affect our future effective tax rate.31 Table of ContentsOur estimates and assumptions made in our tax provisions may differ from the actual results as reflected in our income tax returns and we record therequired adjustments when they are identified or resolved. For a description of our accounting for income tax, see Note 1 of the notes to our consolidatedfinancial statements.Business Combination and Valuation of Intangible Assets and GoodwillAccounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect totangible and intangible assets acquired and liabilities assumed. We use our best estimates and assumptions to accurately assign fair value to the tangible andintangible assets acquired and liabilities assumed at the acquisition date. Examples of critical estimates in valuing certain of the intangible assets andgoodwill we have acquired include but are not limited to: future expected cash flows from subscription and support contracts, professional services contracts,other customer contracts and acquired developed technologies; the acquired company’s existing customer and partner relationship, as well as assumptionsabout the period of time the acquired intangible assets will continue to be used in our offerings; uncertain tax positions and tax related valuation allowancesassumed; and discount rates. In addition, on an ongoing basis, we make estimates, assumptions, and judgments when evaluating the recoverability of our goodwill and intangibleassets. We consider qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as abasis for determining whether it is necessary to perform the two-step goodwill impairment test. Examples of qualitative factors are described in Note 1 of thenotes to our consolidated financial statements.Stock-Based Compensation We have awarded more restricted stock units than granted stock options in recent years. Consequently, our restricted stock units (“RSUs”)compensation expense represents a larger portion of total stock-based compensation expense recorded in our financial statements than stock optionscompensation expense. The fair value of our restricted stock units, including performance-based restricted stock units (“PSUs”), is determined based on thefair value of the award on the grant date. The number of shares expected to vest for our performance-based restricted stock units is based on the targetedannual revenue during the year the PSUs are granted. On a quarterly basis during the year the PSUs are granted, we estimates the number of PSUs that will bevested based on our probability assessment of the targeted annual revenues. Actual results may vary significantly from our assessment and may result inmaterial quarterly adjustments to our financial results.We estimate the grant date fair value of our stock options using the Black-Scholes option-pricing model with the assumptions of expected term,expected volatility, risk-free interest rate and expected dividend. Each of these assumptions is subjective and generally requires significant judgment todetermine. Beginning with fiscal year 2016, we began estimating the expected term of stock options using a historical data method, instead of the simplifiedmethod, because we now have sufficient data to estimate the stock option exercise period based on its historical stock option activity and employeetermination data. In addition, we began estimating the volatility using our own common stock data, instead of volatility of several comparable publicly listedpeers, as we now have sufficient trading history of our stock.We recognize the fair value of stock-based compensation expense for stock options and restricted stock units over the requisite service period, net ofestimated forfeitures. Our forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differed fromthose estimates. Changes in the estimated forfeiture rate can have a significant impact on our stock-based compensation expense as the cumulative effect ofadjusting the rate is recognized in the period the forfeiture rate is revised.Recent Accounting PronouncementSee Note 1 “The Company and Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in Item 8 of Part IIof this Annual Report on Form 10-K, for a full description of recent accounting pronouncements, including the expected dates of adoption, which isincorporated herein by reference.Results of OperationsThe following tables set forth our results of operations for the periods presented. The data have been derived from the Consolidated FinancialStatements contained in this Annual Report on Form 10-K which, in the opinion of our management, reflect all adjustments, consisting only of normalrecurring adjustments, necessary to present fairly the financial position and results of operations for the years presented. The operating results for any periodshould not be considered indicative of results for any future period. 32 Table of Contents Fiscal years ended July 31, 2016 2015 2014 (in thousands)Revenues: License$219,751 $179,172 $151,921Maintenance59,931 50,024 41,888Services144,764 151,341 156,437Total revenues424,446 380,537 350,246Cost of revenues: License7,184 4,605 4,442Maintenance11,547 9,073 8,118Services133,103 133,506 136,387Total cost of revenues151,834 147,184 148,947Gross profit: License212,567 174,567 147,479Maintenance48,384 40,951 33,770Services11,661 17,835 20,050Total gross profit272,612 233,353 201,299Operating expenses: Research and development112,496 93,440 76,178Sales and marketing92,765 82,023 71,295General and administrative50,914 41,397 35,404Total operating expenses256,175 216,860 182,877Income from operations16,437 16,493 18,422Interest income4,850 2,245 1,350Other income (expenses), net(505) (1,998) 174Income before provision for income taxes20,782 16,740 19,946Provision for income taxes5,806 6,855 5,225Net income$14,976 $9,885 $14,72133 Table of Contents Fiscal years ended July 31, 2016 2015 2014 (percentage of total revenues)Revenues: License52% 47% 43%Maintenance14 13 12Services34 40 45Total revenues100 100 100Cost of revenues: License2 1 1Maintenance3 3 3Services31 35 39Total cost of revenues36 39 43Gross profit: License50 46 42Maintenance11 10 9Services3 5 6Total gross profit64 61 57Operating expenses: Research and development26 25 22Sales and marketing22 21 20General and administrative12 11 10Total operating expenses60 57 52Income from operations4 4 5Interest income1 1 —Other income (expenses), net— — —Income before provision for income taxes5 5 5Provision for income taxes1 2 1Net income4% 3% 4%Comparison of the Fiscal Years Ended July 31, 2016 and 2015RevenuesWe derive our revenues from licensing our software applications, providing maintenance support and providing professional services. Our licenserevenues are primarily generated through annual license fees that recur during the term of our multi-year contracts. A majority of these multi-year contractshave licensing terms ranging from 2 to 5 years and are renewable on an annual or multi-year basis. In certain cases, when required by a customer, we licenseour software on a perpetual basis. In addition, certain of our multi-year term licenses provide the customer with the option to purchase a perpetual license atthe end of the initial contract term, which we refer to as a perpetual buyout right. We generally price our licenses based on the amount of direct writtenpremiums, or DWP, that will be managed by our solutions. We typically invoice our customers annually in advance or quarterly for both term license andmaintenance fees, and we invoice our perpetual license customers either in full at contract signing or on an installment basis and invoice related maintenancefees annually in advance. Our license revenues have generally been recognized when payment is due or cash is received from our customers.Our maintenance revenues are generally recognized over the committed maintenance term. Our maintenance fees are typically priced as a fixedpercentage of the associated license fees.A substantial majority of our services engagements generate revenues on a time and materials basis and revenues are typically recognized upon deliveryof our services. We derive our services revenues primarily from implementation services performed for our customers, reimbursable travel expenses andtraining fees.We will adopt ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” on August 1, 2018, which provides revenue recognitionguidance. We currently expect that we will apply the cumulative effect method. In evaluating the potential impacts that this guidance will have on ourconsolidated financial statements, we have begun revising our contracting practices primarily by shortening the initial non-refundable term of our licenses.Refer to Note 1 of Notes to Consolidated Financial Statements for a description of our accounting policy related to revenue recognition.34 Table of Contents Fiscal years ended July 31, 2016 2015 Change % of total % of total Amount revenues Amount revenues ($) (%) (in thousands, except percentages)Revenues: License$219,751 52% $179,172 47% $40,579 23%Maintenance59,931 14 50,024 13 9,907 20Services144,764 34 151,341 40 (6,577) (4)Total revenues$424,446 100% $380,537 100% $43,909 12%License RevenuesThe $40.6 million increase in license revenues during fiscal year 2016 was primarily driven by the combined effect from an increased adoption ofInsuranceSuite and sales of our newer products in data management and digital engagement. Our license revenues are comprised of term license revenues andperpetual license revenues. Term licenses remain our predominant licensing model. Fiscal years ended July 31, 2016 2015 Change % of license % of license Amount revenues Amount revenues ($) (%) (In thousands, except percentages)License revenues: Term$208,430 95% $169,366 95% $39,064 23%Perpetual11,321 5 9,806 5 1,515 15Total license revenues$219,751 100% $179,172 100% $40,579 23%The $39.1 million increase in term license revenues during fiscal year 2016 was primarily driven by the combined effect from an increase of $33.2million in revenues recognized from current year orders from new and existing customers and a net increase of $5.9 million in revenues recognized in thecurrent year from orders originated in the prior year but which were deferred as a result of the timing of the invoicing and the corresponding due dates or othercontractual terms that affected revenue recognition from these customer contracts.The $1.5 million increase in perpetual license revenues during fiscal year 2016 was primarily due to the net effect from an increase of $3.8 million inperpetual orders in fiscal year 2016 compared to 2015 related to our expansion in certain regions where perpetual licenses are the preferred licensing model,partially offset by a decrease of $2.3 million from fewer perpetual buyouts in the current fiscal year compared to the prior fiscal year.We expect that our revenues from the sale and delivery of our perpetual licenses will continue to represent a small percentage of our total licenserevenues. However, we expect volatility across quarters for our perpetual license revenues due to the timing of billings and corresponding due dates, timingof perpetual license sales and the exercise of perpetual buyout rights in term licenses. Additionally, our license revenues may fluctuate if our customers makean early payment of their annual license fees in advance of the invoice due date which may cause an unexpected increase in revenues in one quarter whichcan reduce revenue growth rates in future periods.Maintenance RevenuesThe $9.9 million increase in maintenance revenues during fiscal year 2016 reflects our growing customer base and increased license revenues.We expect that our maintenance revenues will continue to grow as license revenues grow.35 Table of ContentsServices RevenuesThe $6.6 million decrease in services revenues during fiscal year 2016 was primarily due to the net effect from decreases of $19.7 million in servicesrevenues resulting from the combined effect from the completion of certain large implementation projects in fiscal year 2016, our continued increasedengagement with our system integrator partners with whom our customers can contract for services related to our products, and deferrals of services billings asa result of certain contractual terms, partially offset by an increase of $12.7 million in services revenue related to services performed on new projects.While we continue to expand our network of third-party system integrators with whom our customers can contract for services related to our products,our services revenues may fluctuate as the result of several factors, including the rates we charge for our services and unexpected difficulty in projects as wesupport the sale of new products, enter into new markets, or introduce different software delivery models.Deferred Revenues As of July 31, 2016 2015 Change Amount Amount ($) (%) (In thousands, except percentages)Deferred revenues: Deferred license revenues$19,841 $13,558 $6,283 46%Deferred maintenance revenues38,928 32,365 6,563 20Deferred services revenues11,246 6,643 4,603 69Total deferred revenues$70,015 $52,566 $17,449 33%The $6.3 million increase in deferred license revenues was primarily driven by a $5.8 million net increase in billings related to existing customercontracts that are being deferred due to the timing of the invoices and the corresponding due dates, contracts that are being recognized on a ratable basis, andlicense billings related to new contracts executed during fiscal year 2016 which contributed an additional increase of $2.4 million which will be recognizedwhen contractual obligations are met or on a ratable basis over the contractual period. These increases in deferred revenues were partially offset by therecognition of $1.9 million in license revenue upon meeting certain contractual obligations.The $6.6 million increase in deferred maintenance revenues was primarily driven by billings in excess of revenues recognized from new and existingorders during fiscal year 2016.The $4.6 million increase in deferred services revenues was primarily driven by the net effect from an increase of $6.5 million in services billingsdeferred in the current fiscal year, partially offset by the recognition in the current year based upon the fulfillment of certain contractual obligations of $1.9million of billings which were invoiced and deferred in the prior year. The $6.5 million in deferred service billings includes $5.1 million related to anarrangement entered into during fiscal 2016 with a large, national insurer to implement Guidewire InsurancePlatformTM in a cloud-delivered, digitally-richformat which includes InsuranceSuite and our data products together with a new version of our digital portal product. As a result of our agreement to developnew digital portal functionality in conjunction with the implementation, all license and services revenues will be deferred until the implementation iscomplete, which we currently project to occur during the second half of fiscal 2017, at which point, revenue will be recognized ratably. As a result of thisarrangement, we anticipate deferred revenues to increase significantly above historical norms when such implementation is complete.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 ProfitOur cost of revenues and gross profit are variable and depend on the type of revenues earned in each period. Our cost of license revenues is primarilycomprised of royalty fees paid to third parties, amortization of our acquired intangible assets, and fulfillment services personnel costs. Our cost ofmaintenance revenues is comprised of compensation and benefit expenses for our technical support team, including stock-based awards and allocatedoverhead. Our cost of services revenues is primarily comprised of compensation and benefit expenses for our professional service employees and contractors,including stock-based awards, travel-related costs and allocated overhead.36 Table of ContentsWe allocate overhead such as IT support, facility and other administrative costs to all functional departments based on headcount. As such, generaloverhead expenses are reflected in cost of revenue and each functional operating expense category. Fiscal years ended July 31, 2016 2015 Change Amount Amount ($) (%) (In thousands, except percentages)Cost of revenues: License$7,184 $4,605 $2,579 56%Maintenance11,547 9,073 2,474 27Services133,103 133,506 (403) —Total cost of revenues$151,834 $147,184 $4,650 3%Includes stock-based compensation of: Cost of license revenues$433 $222 $211 Cost of maintenance revenues1,491 1,158 333 Cost of services revenues17,878 15,022 2,856 Total$19,802 $16,402 $3,400 The $4.7 million increase in cost of revenues during the fiscal year ended July 31, 2016 was primarily driven by the net effect from increases in the costsof license and maintenance revenues of $2.6 million and 2.5 million, respectively, partially offset by a $0.4 million decrease in the cost of service revenues.The $2.6 million increase in the cost of license revenues was primarily attributable to increases in expenses from royalty and intangible asset amortizationand increases in headcount and related expenses. The $2.5 million increase in cost of maintenance revenues was primarily attributable to the aggregate effectof increased headcount and related expenses. The $0.4 million decrease in cost of services revenues was primarily attributable to the net effect from adecrease of $7.0 million in costs for third-party services due to the completion of certain large implementation projects in fiscal year 2016, and a $2.4 millionincrease in the deferral of costs associated with deferred service revenues, partially offset by an increase of $8.9 million in headcount and related expenseswhich included an increase of $2.9 million of stock-based compensation expense. We had 573 professional service employees and 69 technical support andlicensing operations employees at July 31, 2016 compared to 500 professional services employees and 50 technical support and licensing operationsemployees at July 31, 2015. Of the incremental 73 employees in the services organization, 64 were hired in the second half of fiscal year 2016. Thesignificant increase in hiring was driven by our anticipated need to staff a large, cloud-based deployment, our need to meet demand for new implementationsof our data products and to minimize capacity constraints in the Americas. We anticipate continued near-term growth in the headcount, and the relatedexpenses attributable to, the services organization as a result of these needs. Fiscal years ended July 31, 2016 2015 Change Amount margin % Amount margin % ($) (%) (In thousands, except percentages)Gross profit: License$212,567 97% $174,567 97% $38,000 22 %Maintenance48,384 81% 40,951 82% 7,433 18 %Services11,661 8% 17,835 12% (6,174) (35)%Total gross profit$272,612 64% $233,353 61% $39,259 17 %Our gross margin percentage improved from 61% to 64% primarily due to the benefit we realized from increased license and maintenance revenues as apercentage of total revenues, partially offset by the impact from the lower margin contribution from services revenue which carry higher costs due toincreased costs primarily related to headcount. Our license and maintenance revenues yield a higher gross margin than our professional services.We expect our gross margin to vary in percentage terms as we experience changes in the mix between higher gross margin license revenues and lowergross margin service revenues. We anticipate our services margin to decline significantly in fiscal year 2017 as the effect of acquisitions, sizable hiring andtraining requirements and the sizable deferral of services revenues during the year depress services profitability. We anticipate this impact to be limited tofiscal year 2017 as the37 Table of Contentsrecognition of deferred amounts and the potential increase in sales of newly acquired products may increase services margins in fiscal year 2018.Operating ExpensesOur operating expenses consist of research and development, sales and marketing and general and administrative expenses. The largest components of ouroperating expenses are compensation and benefit expenses for our employees, including stock-based awards and, to a lesser extent, professional services, andrent and facility costs. Fiscal years ended July 31, 2016 2015 Change % of total % of total Amount revenues Amount revenues ($) (%) (In thousands, except percentages)Operating expenses: Research and development$112,496 27% $93,440 25% $19,056 20%Sales and marketing92,765 22 82,023 21 10,742 13General and administrative50,914 12 41,397 11 9,517 23Total operating expenses$256,175 60% $216,860 57% $39,315 18%Includes stock-based compensation of: Research and development$15,555 $10,683 $4,872 Sales and marketing15,090 12,090 3,000 General and administrative15,684 12,200 3,484 Total$46,329 $34,973 $11,356 Research and DevelopmentOur research and development expenses consist primarily of costs incurred for compensation and benefit expenses for our technical staff, includingstock-based awards and allocated overhead, as well as professional services costs.The $19.1 million increase in research and development expenses was primarily related to increased compensation and related headcount costs of$14.3 million and increased costs for stock-based compensation costs of $4.9 million. Our research and development headcount was 464 in fiscal year 2016compared with 406 in fiscal year 2015. The increase in headcount reflects our continued investment in data management and analytics, and digitalengagement, including the addition of employees from the acquisition of EagleEye which was completed on March 31, 2016.Sales and MarketingOur sales and marketing expenses consist primarily of costs incurred for compensation and benefit expenses for our sales and marketing employees,including stock-based awards. It also includes allocated overhead, commission payments, travel expenses and professional services for marketing activities.The $10.7 million increase in sales and marketing expenses was primarily related to the combined effect from increases in compensation and relatedheadcount costs of $9.3 million, which included increased costs for stock-based compensation of $3.0 million, and increases in our selling expenses of $1.8million primarily related to increases in our sales commissions as a result of the increases in our customer orders. Our sales and marketing headcount was 267at July 31, 2016 compared with 238 at July 31, 2015. The increase in headcount was required to support the growth in our revenue base.We expect our sales and marketing expenses to continue to increase in absolute dollars as we continue to increase our sales and marketing activities tosupport business growth.General and AdministrativeOur general and administrative expenses consist primarily of compensation and benefit expenses, including stock-based awards, as well as professionalservices and facility costs related to our executive, finance, human resources, information technology, corporate development and legal functions.38 Table of ContentsThe $9.5 million increase in general and administrative expenses was primarily related to increased expenses for headcount and related costs, increasedcosts for stock-based compensation, and to a lesser extent, increased costs for professional services resulting from the acquisition of EagleEye. Our generaland administrative headcount was 163 at July 31, 2016 compared with 147 at July 31, 2015. The increase in headcount was required to support the growth ofour business.Interest Income and Other Income (Expense) Fiscal years ended July 31, 2016 2015 Change Amount Amount ($) (%) (In thousands, except percentages)Interest income$4,850 $2,245 $2,605 116 %Other income (expenses), net(505) (1,998) 1,493 (75)Interest IncomeInterest income represents interest earned on our cash, cash equivalents and investments.Interest income increased by $2.6 million for fiscal year 2016 due to the combined effect from higher yields on our cash equivalents and investmentsand $1.0 million in imputed interest income realized upon the conversion in the third fiscal quarter of 2016 of our strategic investment from convertible debtto preferred equity.Other Income (Expense), NetOther income (expense), net consists primarily of foreign exchange gain or loss due to fluctuations in foreign exchange rates on receivables andpayables denominated in currencies other than the U.S. dollar.Other expense decreased by $1.5 million primarily due to improvements in the current year in the foreign exchange rates realized between the U.S.dollar and the Australian dollar, British Pound, Canadian dollar, Euro, and Japanese Yen compared to fiscal year 2015.Provision for Income TaxesWe are subject to taxes in the United States as well as other tax jurisdictions or countries in which we conduct business. Earnings from our non-U.S.activities are subject to local country income tax and may be subject to current U.S. income tax. Fiscal years ended July 31, 2016 2015 Change Amount Amount ($) (%) (In thousands, except percentages)Provision for income taxes$5,806 $6,855 $(1,049) (15)%We recognized an income tax provision of $5.8 million for fiscal year 2016 compared to $6.9 million for fiscal year 2015. Our effective income tax ratedecreased to 28% for fiscal year 2016 compared to 41% for fiscal year 2015, which was primarily due to increased benefits from the permanent extension ofthe federal research and development credits under the Protecting Americans from Tax Hikes (“PATH”) Act of 2015 that was signed into law during thecurrent fiscal year, partially offset by tax charge from the re-measurement of deferred tax assets due to a recent change in domestic state tax law.Comparison of the Fiscal Years Ended July 31, 2015 and 2014Revenues39 Table of Contents Fiscal years ended July 31, 2015 2014 Change % of totalrevenues % of totalrevenues Amount Amount ($) (%) (in thousands, except percentages)Revenues: License$179,172 47% $151,921 43% $27,251 18%Maintenance50,024 13 41,888 12 8,136 19Services151,341 40 156,437 45 (5,096) (3)Total revenues$380,537 100% $350,246 100% $30,291 9%License RevenuesThe $27.3 million increase in license revenues during fiscal year 2015 was primarily driven by increased adoption of InsuranceSuite and sales of newerproducts to both new and existing customers. Our license revenue growth across geographies was led by international markets.Our license revenues are comprised of term license revenues and perpetual license revenues. Term license revenues as a percentage of total licenserevenues increased for fiscal year 2015, which reflects a continuing shift from perpetual license to term license arrangements. Fiscal years ended July 31, 2015 2014 Change % of licenserevenues % of licenserevenues Amount Amount ($) (%) (In thousands, except percentages)License revenues: Term$169,366 95% $139,902 92% $29,464 21%Perpetual9,806 5 12,019 8 (2,213) (18)Total license revenues$179,172 100% $151,921 100% $27,251 18%Term license revenues grew 21% from $139.9 million in fiscal year 2014 to $169.4 million in fiscal year 2015. This $29.5 million growth was the resultof $30.8 million of revenues recognized from current year orders from new and existing customers, offset by a net decline of $1.3 million in revenues relatedto prior year orders that were recognized in fiscal year 2014 but were not recognizable in fiscal year 2015 due to timing of invoicing and corresponding duedates, early payments made by our customers or other contractual terms that affected license revenue recognition from customer contracts.The $2.2 million decrease in perpetual license revenues during fiscal year 2015 was primarily due to fewer perpetual buyouts and perpetual licensecontracts as compared to fiscal year 2014, driven by our strategy to promote adoption of term licenses.Maintenance RevenuesThe $8.1 million increase in maintenance revenues during fiscal year 2015 reflects our growing customer base and increased term license revenues.Services RevenuesThe $5.1 million decrease in service revenues during fiscal year 2015 was primarily due to the completion of several large implementation projectsthroughout the fiscal year and our efforts to transfer a greater portion of the implementation work to our system integrator partners on new implementationprojects, resulting in a $7.0 million decrease in service revenues compared to fiscal year 2014. This is partially offset by $1.9 million in revenues recognizedon an order previously deferred pending completion of certain project implementation milestones which was completed during fiscal year 2015.40 Table of ContentsDeferred Revenues As of July 31, 2015 2014 Change Amount Amount ($) (%) (In thousands, except percentages)Deferred revenues: Deferred license revenues$13,558 $19,295 $(5,737) (30)%Deferred maintenance revenues32,365 28,702 3,663 13Deferred services revenues6,643 7,335 (692) (9)Total deferred revenues$52,566 $55,332 $(2,766) (5)%The $5.7 million decrease in deferred license revenues compared to prior year end was primarily driven by $8.7 million of revenue recognized fromexisting orders previously deferred due to contractual terms affecting revenue recognition, and revenue recognized upon meeting performance obligations oncertain arrangements. This is partially offset by $3.0 million in current year billings on existing orders being recognized on a ratable basis and new ordersbeing deferred due to contractual terms effecting revenue recognition.The $3.7 million increase in deferred maintenance revenues compared to the prior year end was primarily driven by revenues deferred from new andexisting orders during the current fiscal year. This increase reflects the combined effect of the annual billing pattern of our multi-year arrangements andincreased volume of orders being recognized over the respective service periods.The $0.7 million decrease in deferred services revenues compared to the prior year end was primarily driven by $1.9 million of services revenuesrecognized for upon completion of certain project implementation milestones, partially offset by $1.2 million of services billings deferred due to certaincontractual terms.Cost of Revenues and Gross Profit Fiscal years ended July 31, 2015 2014 Change Amount Amount ($) (%) (In thousands, except percentages)Cost of revenues: License$4,605 $4,442 $163 4 %Maintenance9,073 8,118 955 12Services133,506 136,387 (2,881) (2)Total cost of revenues$147,184 $148,947 $(1,763) (1)%Includes stock-based compensation of: Cost of license revenues$222 $184 $38 Cost of maintenance revenues1,158 797 361 Cost of services revenues15,022 11,929 3,093 Total$16,402 $12,910 $3,492 The $1.8 million decrease in cost of revenues was primarily driven by a decrease of $6.8 million in third-party consultant costs and billable expensesand $0.2 million decrease in royalty fees, partially offset by an increase of $2.8 million in allocated overhead, an increase of $1.4 million in compensationand benefit expenses including stock-based awards, an increase of $0.7 million in recruiting and general office expenses, and an increase of $0.3 million inprofessional services. The decrease in third-party consultant costs and billable expenses was due to completion of several large implementation projects thatrequired significant contractor support. The increase in allocated overhead costs was attributable to higher IT support, facility and other administrative costs,as a result of an increase in headcount. The increase in compensation and benefit expenses was primarily due to the issuance of equity awards to new andexisting employees. Our professional service and technical support headcount was 550 at July 31, 2015 compared with 516 at July 31, 2014. The increase inheadcount was primarily attributable to hiring in our international locations as we expanded our global operations.41 Table of Contents Fiscal years ended July 31, 2015 2014 Change Amount margin % Amount margin % ($) (%) (In thousands, except percentages)Gross profit: License$174,567 97% $147,479 97% $27,088 18%Maintenance40,951 82 33,770 81% 7,181 21Services17,835 12 20,050 13% (2,215) (11)Total gross profit$233,353 61% $201,299 57% $32,054 16%The $32.1 million increase in gross profit was driven by higher term license and maintenance revenues. Our gross margin percentage improved from57% to 61% due to increases in term license revenues and maintenance revenues that have higher gross margins combined with a decrease in lower grossmargin service revenues.Operating Expenses Fiscal years ended July 31, 2015 2014 Change % of total % of total Amount revenues Amount revenues ($) (%) (In thousands, except percentages)Operating expenses: Research and development$93,440 25% $76,178 22% $17,262 23%Sales and marketing82,023 21 71,295 20 10,728 15General and administrative41,397 11 35,404 10 5,993 17Total operating expenses$216,860 57% $182,877 52% $33,983 19%Includes stock-based compensation of: Research and development$10,683 $9,008 $1,675 Sales and marketing12,090 10,744 1,346 General and administrative12,200 9,876 2,324 Total$34,973 $29,628 $5,345 The $34.0 million increase in operating expenses was primarily driven by an increase of $22.1 million in compensation and benefit expenses,including stock-based awards, an increase of $8.8 million in professional services, an increase of $1.8 million in IT support, facility and other administrativecosts, and an increase of $1.3 million in travel and marketing expenses.Research and DevelopmentThe $17.3 million increase in research and development expenses was primarily due to an increase of $9.2 million in compensation and benefitexpenses, including stock-based awards, an increase of $4.0 million in consultant costs, an increase of $2.9 million in allocated overhead, an increase of $0.9million in recruiting, employee training and other general office expenses, and an increase of $0.3 million in travel expense. Increases in compensation andbenefit expenses, allocated overhead, employee travel, recruiting and training expenses were due to the increase in headcount in fiscal year 2015, the fullyear impact of employees hired throughout fiscal year 2014 and the issuance of equity awards to new and existing employees. The increase in consultingcosts was driven by product development and enhancement projects. Our research and development headcount was 406 at July 31, 2015 compared with 328at July 31, 2014.Sales and MarketingThe $10.7 million increase in sales and marketing expenses was primarily due to an increase of $7.5 million in compensation and benefit expensesincluding stock-based awards and commissions, an increase of $1.8 million in allocated overhead, an increase of $0.7 million in employee travel expensesand marketing programs, an increase of $0.5 million in consultant costs, and an increase of $0.2 million in recruiting, training and general office expenses.Increases in compensation and benefit expenses, allocated overhead, recruiting and training expenses were due to the increase in headcount in fiscal year2015, the full year impact of employees hired throughout fiscal year 2014 and the issuance of equity awards to new and42 Table of Contentsexisting employees. The increases in consultant costs, travel and marketing programs were primarily driven by an increase in sales activities for our newproducts in new geographical markets. Our sales and marketing headcount was 238 at July 31, 2015 compared with 219 at July 31, 2014.General and AdministrativeThe $6.0 million increase in general and administrative expenses was primarily due to increases in compensation and benefit expenses, includingstock-based compensation, professional services costs, IT support, facility and other administrative costs, net of allocations to other functional departments.The increase in general and administrative expenses was due to business growth and headcount increase. Our general and administrative headcount was 147at July 31, 2015 compared with 120 at July 31, 2014.Other Income (Expense) Fiscal years ended July 31, 2015 2014 Change Amount Amount ($) (%) (In thousands, except percentages)Interest income, net$2,245 $1,350 $895 *Other income (expense), net(1,998) 174 (2,172) *Total$247 $1,524 $(1,277) ** Not meaningfulInterest Income, NetInterest income increased by $0.9 million primarily due to higher yields on our cash equivalents and investments as well as higher investment balances.Other Expense, NetOther expense increased by $2.2 million primarily due to higher foreign exchange losses resulting from the U.S. dollar strengthening against theAustralian dollar, Canadian dollar, Euro, British pound, and Japanese Yen during fiscal year 2015 compared to fiscal year 2014.Provision for Income Taxes Fiscal years ended July 31, 2015 2014 Change Amount Amount ($) (%) (In thousands, except percentages)Provision for income taxes$6,855 $5,225 $1,630 31%We recognized an income tax provision of $6.9 million for fiscal year 2015 compared to $5.2 million for fiscal year 2014. Our effective income tax rateincreased to 41% for fiscal year 2015 compared to 26% for fiscal year 2014, which was primarily due to a change in estimate resulting in a decrease in taxcredits for prior fiscal years, and the tax rate differences between the United States and foreign countries.43 Table of ContentsQuarterly Results of OperationsThe following table sets forth our selected unaudited quarterly financial information for each of the eight quarters ended July 31, 2016. 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 the data. The results of historical periods are not necessarilyindicative of the results to be expected for a full year or any future period. Fiscal quarters ended July 31, 2016 April 30, 2016 January 31,2016 October 31,2015 July 31, 2015 April 30,2015 January 31,2015 October 31,2014 (unaudited)(in thousands, except per share amounts)Total Revenues$141,177 $98,860 $102,129 $82,280 $125,917 $85,440 $89,446 $79,734Total cost of revenues42,756 39,007 34,901 35,170 39,429 37,904 34,080 35,771Total Gross profit98,421 59,853 67,228 47,110 86,488 47,536 55,366 43,963Income (loss) from operations23,475 (5,777) 7,702 (8,963) 23,496 (6,700) 3,335 (3,638)Net income (loss)16,097 (404) 913 (1,630) 11,893 (2,987) 3,976 (2,997)Income (loss) per share - basic$0.22 $(0.01) $0.01 $(0.02) $0.17 $(0.04) $0.06 $(0.04)Income (loss) per share - diluted$0.22 $(0.01) $0.01 $(0.02) $0.16 $(0.04) $0.06 $(0.04)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 significantquarterly and annual fluctuations in our results of operations due to a number of factors” and “Risk Factors—Seasonal sales patterns and other variationsrelated to our revenue recognition may cause significant fluctuations in our results of operations and cash flows and may prevent us from achieving ourquarterly or annual forecasts, which may cause our stock price to decline” 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.44 Table of ContentsLiquidity and Capital ResourcesAs of July 31, 2016, 2015 and 2014, we had $223.6 million, $212.4 million and $148.1 million of cash and cash equivalents, respectively, and workingcapital of $588.6 million, $557.2 million and $421.0 million, respectively.Cash flows provided by operating activities were $99.9 million, $63.7 million and $75.5 million during the years ended July 31, 2016, 2015 and 2014,respectively. We had capital expenditures of $7.1 million, $6.3 million and $5.0 million for the years ended July 31, 2016, 2015 and 2014, respectively. Ourcapital expenditures consisted of purchases of property and equipment, primarily consisting of computer hardware, software and leasehold improvements.As of July 31, 2016, approximately $26.5 million of our cash and cash equivalents were domiciled in foreign tax jurisdictions. While we have no plansto repatriate these funds to the United States in the short term, if we choose to do so, we would be required to accrue and pay additional taxes on any portionof the repatriation where no United States income tax had been previously provided.Our cash flows from operations are significantly impacted by timing of invoicing and collections of accounts receivable, annual bonus payment, as wellas payments of payroll and other taxes. We expect that we will continue to generate positive cash flows from operations on an annual basis, although thismay fluctuate significantly on a quarterly basis. In particular, we typically use more cash during the first fiscal quarter ended October 31, as we generally paycash bonuses to our employees for the prior fiscal year during that period and pay seasonally higher sales commissions from increased orders in our fourthfiscal quarter. We believe that our existing cash and cash equivalents and sources of liquidity will be sufficient to fund our operations for at least the next 12months. Our future capital requirements will depend on many factors, including our rate of revenues growth, the expansion of our sales and marketingactivities and the timing and extent of our spending to support our research and development efforts and expansion into other markets. We also anticipateinvesting in, or acquiring complementary businesses, applications or technologies, which may require the use of significant cash resources and may requireincremental financing.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, 2016 2015 2014 (in thousands)Net cash provided by operating activities$99,900 $63,677 $75,491Net cash provided by (used in) investing activities(101,253) 23,070 (380,420)Net cash provided by (used in) financing activities13,454 (17,351) 372,564Cash Flows from Operating ActivitiesNet cash provided by operating activities increased by $36.2 million in fiscal year 2016 as compared to fiscal year 2015. This is attributable to a net$25.8 million increase in cash provided by working capital activity, and a $10.5 million increase in profitability after excluding the impact of non-cashcharges such as stock-based compensation, depreciation and amortization expense, deferred taxes and other non-cash items. We generated more cash forworking capital activity for fiscal year 2016 as compared to fiscal year 2015, primarily due to higher cash collections from customers and changes in deferredrevenues, partially offset by higher payments to vendors in fiscal year 2016.Net cash provided by operating activities decreased by $11.8 million in fiscal year 2015 from fiscal year 2014. This is attributable to a net $24.3million decrease in cash provided by working capital activity, partially offset by a $12.5 million increase in profitability after excluding the impact of non-cash charges such as stock-based compensation, depreciation and amortization expense, deferred taxes and other non-cash items. The decrease in cashprovided by working capital activity was due to changes in deferred revenues, moderate increases in bonus and commission accruals, timing of invoicing tocustomers, and timing of payments to vendors during fiscal year 2015 as compared to fiscal year 2014.45 Table of ContentsCash 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.Net cash used in investing activities was $101.3 million in fiscal year 2016, as compared to $23.1 million net cash provided in fiscal year 2015. Theincrease of $124.3 million in net cash used in investing activities was primarily due to a net increase of $79.0 million in purchases of marketable securities,net of sales proceeds, $39.5 million used for our acquisition of EagleEye during the third quarter of fiscal year 2016, and a $5.0 million strategic investment.Net cash provided by investing activities was $23.1 million in fiscal year 2015, as compared to $380.4 million net cash used in fiscal year 2014. Theincrease of $403.5 million in fiscal year 2015, was primarily due to a $208.8 million increase in proceeds from sales and maturity of our available-for-salesecurities and a $195.8 million decrease in purchases of available-for-sale securities, as compared to fiscal year 2014 when we invested excess cash intoavailable-for-sale securities from our follow-on public offering. This net increase in cash provided by investing activities was offset by a $1.3 million increasein capital expenditures to purchase property and equipment as compared to fiscal year 2014.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. During the fourth quarter of fiscal year 2015, we began requiring that the generalemployee population sell a portion of the shares that they receive upon the vesting of RSUs in order to cover any required withholding taxes (“sell-to-cover”), rather than our previous approach of net share settlement. The transition was completed in the quarter ended January 31, 2016. This sell-to-coverapproach materially reduced our cash used for financing activities. In fiscal year 2014, we received net inflows of cash from financing activities related topublic offerings.Net cash provided by financing activities was $13.5 million in fiscal year 2016, as compared to $17.4 million net cash used in fiscal year 2015. Theincrease of $30.8 million in net cash provided by financing activities was primarily a result of the transition from the net share settlement to the sell-to-covertax withholding method. This reduced our cash used by $25.7 million in fiscal year 2016. In addition, a $3.6 million increase in excess tax benefits realizedand a $1.5 million increase in proceeds from options exercise contributed to the increase in cash provided by financing activities.Cash flows provided by financing activities decreased by $389.9 million during fiscal year 2015 when compared to fiscal year 2014. During fiscal year2014, we received $389.5 million in net proceeds from our follow-on offering of common stock, after deducting underwriters’ discounts and commissions andpaying expenses in connection with the offering. Additionally, the net impact of fewer stock option exercises, lower excess tax benefits combined with lesstaxes remitted for RSU releases contributed to the remaining $0.4 million decrease in cash provided by financing activities. Option proceeds have declinedduring fiscal year 2015 and will continue to decline with the decreasing population of exercisable options. Taxes remitted for RSU releases have and willdecline with the switch from the net share settlement to the sell-to-cover tax withholding method. The current year decrease of excess tax benefits is in linewith less options exercised and RSUs released during fiscal year 2015 compared to fiscal year 2014.Contractual ObligationsThe following summarizes our contractual obligations as of July 31, 2016: Payments due by period Less than1 year 1 to 3years 3 to 5years More than5 years Total (in thousands)Operating lease obligations (1)$7,273 $12,836 $2,470 $1,260 $23,839Royalty obligations (2)997 1,183 250 — 2,430Purchase commitments (3)1,743 1,505 — — 3,248Total (4)$10,013 $15,524 $2,720 $1,260 $29,517(1) Operating lease agreements primarily represent our obligations to make payments under our non-cancellable lease agreements for our corporate headquarters and worldwideoffices through 2025.46 Table of Contents(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 long-term commitments forwhich a penalty would be imposed if the agreement was canceled for any reason other than an event of default as described by the agreement.(4) Excluded from the table above are unrecognized tax benefits of $7.7 million associated with our U.S. federal and California research and development tax credits as of July 31,2016. We are unable to estimate when any cash settlement with a taxing authority might occur.Off-Balance Sheet ArrangementsThrough July 31, 2016, 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, 2016, and 2015.Our cash, cash equivalents, and investments as of July 31, 2016 and 2015 were $735.8 million and $677.8 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 theAustralian dollar, Brazilian Real, British Pound, Canadian dollar, Euro, and Japanese Yen. The volatility of exchange rates depends on many factors that wecannot forecast with reliable accuracy. Although we believe our operating activities act as a natural hedge for a substantial portion of our foreign currencyexposure because we typically collect revenues and incur costs in the currency in the location in which we provide our application, our contracts with ourcustomers are long term in nature so it is difficult to predict if our operating activities will provide a natural hedge in the future. Additionally, changes inforeign currency exchange rates can affect our financial results due to transaction gains or losses related to revaluing certain current asset and current liabilitybalances that are denominated in currencies other than the functional currency of the entities in which they are recorded. For example, for the fiscal yearended July 31, 2016, British Pound had a 15 percent decline while the Australian dollar, Brazilian Real, Euro, and Japanese Yen strengthened 2 to 22percent, and as a result, we recorded a net foreign currency loss of $0.5 million as other income (expense) in our consolidated statements of income. Similarly,for the fiscal year ended July 31, 2015, we recorded a foreign currency loss of $2.0 million as other income (expense) in our consolidated statements ofincome as a result of 8 to 22 percent unfavorable exchange rate fluctuations of the above foreign currencies. We will continue to experience fluctuations inforeign currency exchange rates, and if a ten percent change in foreign exchange rates occurs in the future, a similar impact would result. As our internationaloperations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in currency rates.Fair Value of Financial InstrumentsWe do not have material exposure to market risk with respect to investments in financial instruments, as our investments consist primarily of highlyliquid investments purchased with a remaining maturity of two years or less. We do not use derivative financial instruments for speculative or tradingpurposes. However, this does not preclude our adoption of specific hedging strategies in the future.47 Table of ContentsItem 8.Financial Statements and Supplemental DataGUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIESINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm49Consolidated Balance Sheets50Consolidated Statements of Income51Consolidated Statements of Comprehensive Income52Consolidated Statements of Stockholders’ Equity53Consolidated Statements of Cash Flows54Notes to Consolidated Financial Statements55The supplementary financial information required by this Item 8 is included in Item 7 under the caption “Quarterly Results of Operations.”48 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, 2016 and 2015,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, 2016. We also have audited the Company’s internal control over financial reporting as of July 31, 2016, based on criteria established inInternal Control — Integrated Framework (2013) 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, 2016 and 2015, and the results of its operations and its cash flows for each of the years in the three-year period endedJuly 31, 2016, 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, 2016, based on criteria established in Internal Control — Integrated Framework (2013)issued by COSO./s/ KPMG LLPSanta Clara, CaliforniaSeptember 15, 201649 Table of ContentsGUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(in thousands, except for share data) July 31, 2016 July 31, 2015ASSETS CURRENT ASSETS: Cash and cash equivalents$223,582 $212,362Short-term investments404,655 359,273Accounts receivable62,792 62,062Deferred tax assets, current— 13,845Prepaid expenses and other current assets16,643 14,102Total current assets707,672 661,644Long-term investments107,565 106,117Property and equipment, net12,955 12,160Intangible assets, net14,204 3,999Deferred tax assets, noncurrent31,364 5,896Goodwill30,080 9,205Other assets12,338 926TOTAL ASSETS$916,178 $799,947LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable$9,929 $8,816Accrued employee compensation41,267 37,235Deferred revenues, current60,270 50,766Other current liabilities7,617 7,592Total current liabilities119,083 104,409Deferred revenues, noncurrent9,745 1,800Other liabilities3,415 4,350Total liabilities132,243 110,559Commitments and contingencies (Note 6) STOCKHOLDERS’ EQUITY: Common stock, par value $0.0001 per share—500,000,000 shares authorized as of July 31, 2016 and 2015,respectively; 73,039,919 and 71,005,738 shares issued and outstanding as of July 31, 2016 and 2015,respectively7 7Additional paid-in capital742,690 662,869Accumulated other comprehensive loss(6,593) (6,343)Retained earnings47,831 32,855Total stockholders’ equity783,935 689,388TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$916,178 $799,947See accompanying Notes to Consolidated Financial Statements.50 Table of ContentsGUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(in thousands, except share and per share amounts) Fiscal years ended July 31, 2016 2015 2014Revenues: License$219,751 $179,172 $151,921Maintenance59,931 50,024 41,888Services144,764 151,341 156,437Total revenues424,446 380,537 350,246Cost of revenues: License7,184 4,605 4,442Maintenance11,547 9,073 8,118Services133,103 133,506 136,387Total cost of revenues151,834 147,184 148,947Gross profit: License212,567 174,567 147,479Maintenance48,384 40,951 33,770Services11,661 17,835 20,050Total gross profit272,612 233,353 201,299Operating expenses: Research and development112,496 93,440 76,178Sales and marketing92,765 82,023 71,295General and administrative50,914 41,397 35,404Total operating expenses256,175 216,860 182,877Income from operations16,437 16,493 18,422Interest income4,850 2,245 1,350Other income (expenses), net(505) (1,998) 174Income before provision for income taxes20,782 16,740 19,946Provision for income taxes5,806 6,855 5,225Net income$14,976 $9,885 $14,721Earnings per share: Basic$0.21 $0.14 $0.22Diluted$0.20 $0.14 $0.21Shares used in computing earnings per share: Basic72,026,694 70,075,908 65,748,896Diluted73,765,960 72,314,433 69,112,733See accompanying Notes to Consolidated Financial Statements.51 Table of ContentsGUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in thousands) As of July 31, 2016 2015 2014Net income$14,976 $9,885 $14,721Other comprehensive income (loss): Foreign currency translation adjustments(562) (4,937) 288Unrealized (loss) gain on available-for-sale securities, net of tax benefit (expense) of$(187), $38, and $(7)288 (83) (42)Reclassification adjustment for realized loss (gain) included in net income24 44 (39)Other comprehensive income (loss)(250) (4,976) 207Comprehensive income$14,726 $4,909 $14,928See accompanying Notes to Consolidated Financial Statements.52 Table of ContentsGUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(in thousands, except share amounts) Common stock Additionalpaid-incapital Accumulatedothercomprehensiveincome (loss) RetainedEarnings(Accumulateddeficit) Totalstockholders’equity Shares Amount Balance as of July 31, 2013 57,909,277 6 215,151 (1,574) 8,249 221,832Proceeds from issuance of common stock in connection with public 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 2,007,423 — — — — —Shares withheld for taxes related to net share settlement (720,199) — (32,799) — — (32,799)Stock-based compensation — — 42,538 — — 42,538Tax benefit from the exercise of stock options and vesting of RSUs — — 5,891 — — 5,891Net income — — — — 14,721 14,721Foreign currency translation adjustment — — — 288 — 288Unrealized loss on available-for-sale securities, net of tax — — — (42) — (42)Reclassification adjustment for realized gain included in net income — — — (39) — (39)Balance as of July 31, 2014 69,082,261 $7 $629,076 $(1,367) $22,970 $650,686Issuance of common stock upon exercise of stock options 665,665 — 6,294 — — 6,294Issuance of common stock upon RSU release 1,819,825 — — — — —Shares withheld for taxes related to net share settlement (562,013) — (27,183) — — (27,183)Stock-based compensation — — 51,375 — — 51,375Tax benefit from the exercise of stock options and vesting of RSUs — — 3,307 — — 3,307Net income — — — — 9,885 9,885Foreign currency translation adjustment — — — (4,937) — (4,937)Unrealized loss on available-for-sale securities, net of tax — — — (83) — (83)Reclassification adjustment for realized loss included in net income — — — 44 — 44Balance as of July 31, 2015 71,005,738 $7 $662,869 $(6,343) $32,855 $689,388Issuance of common stock upon exercise of stock options 652,832 — 7,840 — — 7,840Issuance of common stock upon RSU release 1,408,746 — — — — —Shares withheld for taxes related to net share settlement (27,397) — (1,488) — — (1,488)Stock-based compensation — — 66,409 — — 66,409Tax benefit from the exercise of stock options and vesting of RSUs — — 7,060 — — 7,060Net income — — — — 14,976 14,976Foreign currency translation adjustment — — — (562) — (562)Unrealized gain on available-for-sale securities, net of tax — — — 288 — 288Reclassification adjustment for realized loss included in net income — — — 24 — 24Balance as of July 31, 2016 73,039,919 $7 $742,690 $(6,593) $47,831 $783,935See accompanying Notes to Consolidated Financial Statements.53 Table of ContentsGUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Fiscal years ended July 31, 2016 2015 2014CASH FLOWS FROM OPERATING ACTIVITIES: Net income$14,976 $9,885 $14,721Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization8,842 7,480 6,751Stock-based compensation66,131 51,375 42,538Excess tax benefit from exercise of stock options and vesting of RSUs(7,102) (3,538) (7,067)Deferred taxes(4,568) 295 (2,718)Amortization of premium on available-for-sale securities3,283 4,839 3,490Other non-cash items affecting net income(767) 1 99Changes in operating assets and liabilities: Accounts receivable(75) (12,999) (9,276)Prepaid expenses and other assets(7,668) (3,178) (1,372)Accounts payable603 2,266 393Accrued employee compensation4,114 3,261 8,463Other liabilities5,993 6,253 5,288Deferred revenues16,138 (2,263) 14,181Net cash provided by operating activities99,900 63,677 75,491CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of available-for-sale securities(652,017) (491,626) (687,419)Sales and maturities of available-for-sale securities597,405 520,997 312,149Purchase of property and equipment(7,111) (6,301) (4,993)Acquisition, net of cash acquired(39,530) — (157)Net cash provided by (used in) investing activities(101,253) 23,070 (380,420)CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock upon exercise of stock options7,840 6,294 8,755Taxes remitted on RSU awards vested(1,488) (27,183) (32,799)Proceeds from issuance of common stock in connection with stock offerings, net of underwritingdiscounts and commission— — 389,949Costs paid in connection with stock offerings— — (408)Excess tax benefit from exercise of stock options and vesting of RSUs7,102 3,538 7,067Net cash provided by (used in) financing activities13,454 (17,351) 372,564Effect of foreign exchange rate changes on cash and cash equivalents(881) (5,135) 699NET INCREASE IN CASH AND CASH EQUIVALENTS11,220 64,261 68,334CASH AND CASH EQUIVALENTS—BEGINNING OF YEAR212,362 148,101 79,767CASH AND CASH EQUIVALENTS—END OF YEAR$223,582 $212,362 $148,101SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest$— $— $4Cash paid for income taxes, net of tax refunds$3,907 $1,899 $2,141SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES: Accruals for purchase of property and equipment$882 $496 $768See accompanying Notes to Consolidated Financial Statements.54 Table of ContentsGUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. The Company and Summary of Significant Accounting PoliciesCompanyGuidewire Software, Inc., a Delaware corporation, was incorporated on September 20, 2001. Guidewire Software, Inc. together with its subsidiaries (the“Company”) provides a technology platform which consists of three key elements: core transaction processing, data management and analytics, and digitalengagement. It supports core insurance operations, including underwriting and policy administration, claim management and billing, enables new insightsinto data that can improve business decision making and supports digital sales, service and claims experiences for policyholders, agents, and other keystakeholders. The Company’s customers are primarily insurance carriers for property and casualty insurance.Basis of Presentation and ConsolidationOur consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Theconsolidated financial statements include the accounts of Guidewire Software, Inc. and its wholly-owned subsidiaries. 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. These estimates and assumptions are based on management’s best estimates and judgment. Management regularlyevaluates its estimates and assumptions using historical experience and other factors; however, actual results could differ from these estimates.Foreign CurrencyThe 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 in which the transactions occur. The effects of foreign currency translations are recorded inaccumulated other comprehensive income/loss as a separate component of stockholders’ equity in the accompanying consolidated statements ofstockholders’ equity. Transaction gains and losses from foreign currency transactions that arise from exchange rate fluctuations on transactions denominatedin a currency other than the local functional currency are recorded as other income (expense) in the consolidated statements of income.Cash and Cash EquivalentsCash 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.Investments Management determines the appropriate classification of investments at the time of purchase based upon management’s intent with regard to suchinvestments. All investments are held as available-for-sale investments. The Company classifies investments as short-term when they have remaining contractual maturities of one year or less from the balance sheet date, andas long-term when the investments have remaining contractual maturities of more than one year from the balance sheet date. All investments are recorded atfair value with unrealized holding gains and losses included in accumulated other comprehensive (loss) income.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:55 Table of ContentsComputer 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, 2016, costsincurred subsequent to the establishment of technological feasibility have not been material, and therefore, all software development costs have been chargedto research and development expense in the accompanying consolidated statements of income as incurred.Business CombinationsThe Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at theacquisition date. Goodwill is calculated as the difference between the acquisition-date fair value of the consideration transferred and the values assigned tothe assets acquired and liabilities assumed. The Company’s estimates of fair value are based upon assumptions believed to be reasonable, but which areinherently uncertain and subject to refinement and, as a result, actual results may differ from estimates. During the measurement period, which may be up toone year from the acquisition date, if new information is obtained about facts and circumstances that existed as of the acquisition date, the Company mayrecord adjustments to the fair value of these assets and liabilities, with the corresponding offset to goodwill. The Company adopted ASU 2015-16,“Simplifying the Accounting for Measurement-Period Adjustments (Topic 805)” (“ASU 2015-16”), which requires the cumulative impact of measurementperiod adjustments (including the impact on prior periods) to be recognized in the reporting period in which the adjustments are identified. Upon theconclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequentadjustments are recorded to the Company’s consolidated statements of operations.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 not be recoverable. The Company evaluates qualitative factors to determine whether it is more likelythan not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-stepgoodwill impairment test. In performing the qualitative assessment, the Company considers events and circumstances, including but not limited to,macroeconomic conditions, 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 theCompany’s common stock. If, after assessing the totality of events or circumstances, the Company determines that it is more likely than not that the fair valueof a reporting unit is greater than its carrying amount, then the two-step goodwill impairment test is not performed. The Company has not recognized anygoodwill impairment as a result of its impairment analysis during any of the periods presented.Concentration of Credit RiskFinancial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents, investments and accountsreceivable. The Company maintains its cash, cash equivalents and investments with high quality financial institutions. The Company is exposed to creditrisk for cash held in financial institutions in the event of a default to the extent that such amounts recorded on the balance sheet are in excess of amounts thatare insured by the Federal Deposit Insurance Corporation (“FDIC”).No customer individually accounted for 10% or more of the Company’s revenues for the years ended July 31, 2016, 2015 and 2014. No customerindividually accounted for 10% or more of the Company’s total accounts receivable as of July 31, 2016 and 2015.56 Table of ContentsAccounts Receivable and Allowance for Doubtful AccountsAccounts receivable are recorded at invoiced amounts, net of the Company’s estimated allowances for doubtful accounts. The allowance for doubtfulaccounts is estimated based on an assessment of the Company’s ability to collect on customer accounts receivable, and there is judgment involved in suchassessment. The Company regularly reviews the allowance by considering certain factors such as historical experience, industry data, credit quality, age ofaccounts receivable balances, customers’ financial condition and current economic conditions that may affect a customer’s ability to pay. The Company hashad no allowance for doubtful accounts in the periods presented in this Annual Report on Form 10-K. The Company’s accounts receivable are notcollateralized by any security.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 indirect taxes, such as sales tax and value added tax, collected from customers and remitted togovernment 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. The Company assesses whether a fee is fixed or determinable at the outset of the arrangement, primarily basedon the payment terms associated with the transaction. Fees from term licenses are invoiced in annual or quarterly installments over the term ofthe agreement beginning on the effective date of the license. A significant majority are invoiced annually. Perpetual license fees are generallydue between 30 and 60 days from delivery of software. In certain cases extended payment terms may be offered resulting in term and perpetuallicense fees to not be considered to be fixed or determinable until they become due or payment is received.•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. For term licenses withduration of one year or less, no VSOE of fair value for maintenance exists. VSOE of fair value for services is established if a substantial majority of historicalstand-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.The Company sells some of its software licenses on a subscription basis and the related revenues are recognized ratably over the contract term.57 Table of ContentsIn certain professional service offerings sold as fixed fee arrangements, the Company recognizes services revenues on a proportional performance basisas performance obligations are completed by using the ratio of labor hours to date as an input measure compared to total estimated labor hours for theconsulting 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 costscannot be made, the zero gross margin or the completed contract method is applied to revenues and direct costs. Under the zero gross margin method,revenues recognized are limited to the direct costs incurred for the implementation services. Under the completed contract method, revenues and costs aredeferred until the project is complete.As noted above, the Company generally invoices fees for licenses and maintenance to its customers in annual or quarterly installments payable inadvance. Deferred revenues represent amounts, which are billed to or collected from customers for which one or more of the revenue recognition criteria havenot been met. 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.WarrantiesThe 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 amounts incurred were not material during the years ended July 31, 2016, 2015 and 2014.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 awards are subject to time-based vesting, which generally occurs overa period of four years. Option 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.Income TaxesIncome taxes are accounted for under the asset and liability method. Under this method, the Company determines deferred tax assets and liabilities onthe basis of the differences between the financial statement carrying amounts of existing assets and liabilities by using enacted tax rates in effect for the yearin which the difference is expected to reverse. Deferred tax assets related to excess tax benefits are recorded when utilized. The effect on deferred tax assetsand liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance against deferred taxassets is recorded when it is more likely than not that some portion or all of such deferred tax assets will not be realized and is58 Table of Contentsbased on the positive and negative evidence about the future including future reversals of existing taxable temporary differences, projected future taxableincome, tax-planning strategies, and results of recent operations.The Company adopted ASU 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes, effective January 31, 2016 on a prospective basis.As a result, all deferred tax assets and liabilities are classified as non-current. Prior to the adoption, deferred tax assets and liabilities were classified as eithercurrent or non-current based on the related asset or liability.The effective tax rate in any given financial statement period may differ materially from the statutory rate. These differences may be caused by changesin the mix and level of income or losses, changes in the expected outcome of audits, change in tax regulations, or changes in the deferred tax valuationallowance.The Company records interest and penalties related to unrecognized tax benefits as income tax expense in its consolidated statement of income.Recent Accounting PronouncementImprovements on Employee Share-Based Payment AccountingIn March 2016, the FASB issued Accounting Standards Update No. 2016-09, “Improvements on Employee Share-Based Payment Accounting (Topic718)” (“ASU 2016-09”), which simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublicentities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cashflows. The new standard is effective for annual periods beginning after December 15, 2016 and interim periods within those years. Early adoption ispermitted. The standard will be effective for the Company beginning August 1, 2017. The Company is currently evaluating the impact to its consolidatedfinancial statements.Accounting for LeasesIn February 2016, the FASB issued Accounting Standards Update No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which requires lessees to putmost leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. ASU 2016-02 states that alessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the leaseterm. The new standard is effective for annual periods beginning after December 15, 2018 and interim periods within those years. Early adoption is permitted.The standard will be effective for the Company beginning August 1, 2019. The Company is currently evaluating the impact to 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. In August 2015, the FASB issued ASU No. 2015-14 which deferred the effective date to annual reporting periods and interim periods within fiscalyears beginning after December 15, 2017. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, includinginterim reporting periods within that reporting period.Subsequently, the FASB issued ASU No. 2016-08, Principal Versus Agent Consideration (or Reporting Revenue Gross versus Net) in March 2016, ASUNo. 2016-10, Identifying Performance Obligations and Licensing in April 2016, and ASU No. 2016-12, Narrow-Scope Improvements and PracticalExpedients in May 2016. These amendments do not change the core principle of revenue recognition but clarified certain aspects of Topic 606.The Company will adopt the guidance on August 1, 2018 and currently intends to select the cumulative effect transition method. In evaluating thepotential impacts that this guidance will have on its consolidated financial statements, the Company has begun to revise its contracting practices primarilyby shortening the initial non-refundable term of its licenses.59 Table of Contents2. Fair Value of Financial InstrumentsAvailable-for-sale investments within cash equivalents and investments consist of the following: July 31, 2016 Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value (in thousands)U.S. agency securities$58,070 $30 $(12) $58,088Commercial paper152,317 12 (6) 152,323Corporate bonds274,656 321 (38) 274,939U.S. government bonds90,593 58 (2) 90,649Foreign government bonds2,418 9 — 2,427Money market funds114,833 — — 114,833 Total$692,887 $430 $(58) $693,259 July 31, 2015 Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value (in thousands)U.S. agency securities$82,946 $21 $(4) $82,963Commercial paper142,822 13 (4) 142,831Corporate bonds281,942 47 (216) 281,773U.S. government bonds32,529 13 (2) 32,540Foreign government bonds8,663 7 (2) 8,668Certificate of deposit2,700 — — 2,700Money market funds88,319 — — 88,319 Total$639,921 $101 $(228) $639,794The 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, 2016 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$7,961 $(12) $— $— $7,961 $(12)Commercial paper47,484 (6) — — 47,484 (6)Corporate bonds56,197 (28) 7,755 (10) 63,952 (38)U. S. government bonds10,029 (2) — — 10,029 (2) Total$121,671 $(48) $7,755 $(10) $129,426 $(58)As of July 31, 2016, the Company had 44 investments resulting in the insignificant gross unrealized loss position noted above. The unrealized losseson its available-for-sale securities were primarily a result of unfavorable changes in interest rates subsequent to the initial purchase of these securities. TheCompany does not intend to sell, nor believe it will need to sell, these securities before recovering the associated unrealized losses. The Company does notconsider any portion of the unrealized losses at July 31, 2016 to be an other-than-temporary impairment, nor are any unrealized losses considered to be creditlosses. The Company has recorded the securities at fair value in its consolidated balance sheets, with unrealized gains and losses60 Table of Contentsreported as a component of accumulated other comprehensive loss. The amount of realized gains and losses reclassified into earnings are based on thespecific identification of the securities sold. The realized 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, 2016: Less Than 12 Months 12 to 24 Months Total (in thousands)U.S. agency securities$51,539 $6,549 $58,088Commercial paper152,323 — 152,323Corporate bonds205,434 69,505 274,939U.S. government bonds61,565 29,084 90,649Foreign government bonds— 2,427 2,427Money market funds114,833 — 114,833 Total$585,694 $107,565 $693,259Fair 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.The Company bases the fair value of its Level 1 financial instruments, which are in active markets, using quoted market prices for identical instruments.The Company obtains the fair value of its 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 its 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 its primary pricing service by comparing their assessment of the fair values of our Level 2investment portfolio balance against the fair values of its Level 2 investment portfolio balance provided by its investment managers. The Company’sinvestment managers use similar techniques to its professional pricing service to derive pricing as described above.The Company did not have any Level 3 financial assets or liabilities as of July 31, 2016, or 2015.61 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, 2016 Level 1 Level 2 Level 3 Total (in thousands)Assets Cash and cash equivalents: Commercial paper$— $66,206 $— $66,206 Money market funds114,833 — — 114,833Short-term investments: U.S. agency securities— 51,539 — 51,539 Commercial paper— 86,117 — 86,117U. S. government bonds— 61,565 — 61,565 Corporate bonds— 205,434 — 205,434Long-term investments: U.S. agency securities— 6,549 — 6,549 Corporate bonds— 69,505 — 69,505 U.S. government bonds— 29,084 — 29,084Foreign government bonds— 2,427 — 2,427 Total assets$114,833 $578,426 $— $693,259 July 31, 2015 Level 1 Level 2 Level 3 Total (in thousands)Assets Cash and cash equivalents: Commercial paper$— $86,085 $— $86,085 Money market funds88,319 — — 88,319Short-term investments: U.S. agency securities— 68,212 — 68,212 Commercial paper— 56,746 — 56,746U. S. government bonds— 19,983 — 19,983Foreign government bonds— 8,668 — 8,668 Corporate bonds— 202,964 — 202,964Certificate of deposit— 2,700 — 2,700Long-term investments: U.S. agency securities— 14,751 — 14,751 Corporate bonds— 78,809 — 78,809 U.S. government bonds— 12,557 — 12,557 Total assets$88,319 $551,475 $— $639,794In December 2015, the Company invested $5.0 million in a convertible note issued by a privately-held company. The note did not have a readilydeterminable market value. In April 2016, the convertible note with accrued interest of $0.1 million converted to preferred stock. The investment was re-measured at $6.0 million based on the estimated fair value of the preferred stock at the date of conversion. The resulting gain of $0.9 million was recorded asinterest income. The equity investment is accounted for under the cost method of accounting, and reported in long-term other assets on the Company’sconsolidated balance sheet.62 Table of ContentsThe fair value of the investment is not readily available as there is no quoted market prices for the investment. The Company assesses the investmentfor impairment when events or changes in circumstances indicate that its carrying amount may not be recoverable. As of July 31, 2016, the investment with acarrying value of $6.0 million was not impaired.63 Table of Contents3.AcquisitionOn March 31, 2016, the Company purchased all of the outstanding equity interests of EagleEye Analytics, Inc. (“EagleEye”), a privately held providerof cloud-based predictive analytics products specifically designed for property and casualty insurers, for total purchase consideration of $40.2 million,including an amount placed into escrow to cover future potential claims. At the time of the purchase, EagleEye maintained a management incentive programthat required certain payments to management upon the completion of a change in control. Pursuant to this program, an additional $1.6 million was placedinto a separate escrow account to be paid out 18 months after closing to former EagleEye employees. This additional payment is subject to continuedemployment with the Company and therefore is excluded from the purchase consideration. The payment will be recognized as compensation expense overthe requisite service period of 18 months. The Company believes that the acquisition will enable its customers to apply predictive analytics to make betterdecisions across the insurance lifecycle. Acquisition-related costs of $1.4 million were recorded in general and administrative expenses in the Company’sconsolidated statements of operations for the fiscal year ended July 31, 2016.As part of the purchase price allocation, the Company determined that EagleEye’s separately identifiable intangible assets were developed technology,customer contracts and related relationships, partner relationships and order backlog. The Company measured fair values of the intangible assets by applyingthe income and relief from royalty approach. This fair value measurement is based on significant inputs that are not observable in the market and thusrepresents a Level 3 measurement. The valuation models were based on estimates of future operating projections of the acquired business and rights to sellnew products containing the acquired technology as well as judgments on the discount rates used and other variables. The Company developed forecastsbased on a number of factors including future revenue projections, a discount rate that is representative of the weighted average cost of capital, and royaltyand long-term sustainable growth rates based on market analysis. The Company is amortizing the acquired intangible assets over their estimated useful lives.The allocation of the purchase price is preliminary pending final valuation of acquired deferred tax assets and is therefore subject to potential futuremeasurement period adjustments. Preliminary allocation of the purchase consideration was as follows: Total Purchase PriceAllocation Estimated Useful Lives (in thousands) (in years)Assumed Liabilities, net of acquired assets $(550) Developed technology 6,700 4Customer contracts and related relationships 4,500 9Partner relationships 200 9Order backlog 1,100 3Deferred tax assets, net 7,325 Goodwill 20,875 Total purchase price $40,150 The goodwill of $20.9 million arising from the acquisition consists largely of the acquired workforce, the expected company-specific synergies and theopportunity to expand the Company’s customer base. None of the goodwill recognized is expected to be deductible for income tax purposes.The results of EagleEye’s operations since the date of acquisition have been included in the Company’s results for the fiscal year ended July 31, 2016and were not material. Pro forma results of operations have not been presented because the effects of the business combination were not material to theCompany’s consolidated results of operations.64 Table of Contents4. Balance Sheet ComponentsProperty and Equipment, netProperty and equipment, net consists of the following: July 31, 2016 July 31, 2015 (in thousands)Computer hardware$19,257 $15,099Software5,066 4,867Furniture and fixtures3,492 3,065Leasehold improvements8,434 8,040 Total property and equipment36,249 31,071Less accumulated depreciation(23,294) (18,911) Property and equipment, net$12,955 $12,160As of July 31, 2016, and 2015, no property and equipment was pledged as collateral against borrowings. Amortization of leasehold improvements isincluded in depreciation expense. Depreciation expense was $6.5 million, $6.0 million and $5.3 million during the years ended July 31, 2016, 2015 and2014, respectively.Goodwill and Intangible AssetsThe following table presents changes in the carrying amount of goodwill acquired: (in thousands)Goodwill, July 31, 2014$9,205Changes in carrying value—Goodwill, July 31, 2015$9,205Addition - EagleEye acquisition20,875Goodwill, July 31, 2016$30,080Intangible assets consist of the following: July 31, 2016 July 31, 2015 (in thousands) Cost AccumulatedAmortization Net Book Value Cost AccumulatedAmortization Net Book ValueAmortized intangible assets: Acquired technology$13,900 $5,199 8,701 $7,200 3,201 $3,999Customer contracts and relatedrelationships$4,500 $167 4,333 — — —Partner relationships$200 $8 192 — — —Order backlog$1,100 $122 978 — — —Total$19,700 $5,496 $14,204 $7,200 $3,201 $3,99965 Table of ContentsAmortization expense was $2.3 million, $1.4 million and $1.4 million during the years ended July 31, 2016, 2015 and 2014, respectively. Estimatedaggregate amortization expense for each of the next five fiscal years is as follows: Future Amortization (in thousands)2017 $4,0042018 3,6822019 2,4422020 1,6392021 522Thereafter 1,915Total $14,204Accrued Employee CompensationAccrued employee compensation consists of the following: July 31, 2016 July 31, 2015 (in thousands) Accrued bonuses$24,872 $19,819 Accrued commission2,571 5,008 Accrued vacation9,067 7,980Accrued salaries, payroll taxes and benefits4,757 4,428 Total$41,267 $37,235Accumulated Other Comprehensive LossChanges in accumulated other comprehensive loss by component were as follows: Foreign Currency Items Unrealized gain (loss) onavailable-for-sale securities Total (In thousands)Balance as of July 31, 2014$(1,310) $(57) $(1,367)Other comprehensive income (loss) before reclassification adjustments:(4,937) (121) (5,058)Amounts reclassified from accumulated other comprehensive income(loss) to earnings— 44 44Tax effect— 38 38Balance as of July 31, 2015(6,247) (96) (6,343)Other comprehensive income (loss) before reclassification adjustments:(562) 475 (87)Amounts reclassified from accumulated other comprehensive income(loss) to earnings— 24 24Tax effect— (187) (187)Balance as of July 31, 2016$(6,809) $216 $(6,593) 5. Net Income per ShareThe Company calculates basic earnings per share by dividing the net income by the weighted average number of shares of common stock outstandingfor the period. The diluted earnings per share is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. Forpurposes of this calculation, options to purchase common stock and restricted stock units are considered to be common stock equivalents.66 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, 2016, 2015 and2014: Fiscal years ended July 31, 2016 2015 2014 (in thousands, except share and pershare amounts)Numerator: Net income$14,976 $9,885 $14,721Net income per share: Basic$0.21 $0.14 $0.22Diluted$0.20 $0.14 $0.21 Fiscal years ended July 31, 2016 2015 2014 Denominator: Weighted average shares used in computing net income per share: Basic72,026,694 70,075,908 65,748,896Weighted average effect of diluted stock options859,855 1,223,106 1,896,766Weighted average effect of dilutive restricted stock units879,411 1,015,419 1,467,071Diluted73,765,960 72,314,433 69,112,733The following outstanding shares of common stock equivalents are 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, 2016 2015 2014Stock options to purchase common stock77,737 290,670 206,136Restricted stock units22,994 678 76,8406. Commitments and ContingenciesThe following table presents a summary of the Company’s contractual obligations and commitments as of July 31, 2016: Lease Obligations Royalty Obligations (1) Purchase Commitments(2) TotalFiscal Year Ending July 31,(in thousands)2017$7,273 $997 $1,743 $10,01320186,638 666 1,429 8,73320196,198 517 76 6,79120201,324 250 — 1,57420211,146 — — 1,1462022 and thereafter$1,260 $— $— $1,260Total$23,839 $2,430 $3,248 $29,517(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 long term commitments forwhich a penalty 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. On December 5, 2011, the Company entered into a seven-year lease for afacility to serve as its new corporate headquarters, located in Foster City, California, for approximately 97,674 square feet of space commencing August 1,2012. In connection with the lease, the Company opened an67 Table of Contentsunsecured letter of credit with Silicon Valley Bank for $1.2 million. On July 1, 2015, the unsecured letter of credit was reduced from $0.8 million to $0.4million in accordance with the lease agreement.Lease expense for all worldwide facilities and equipment, which is being recognized on a straight-line basis over terms of the various leases, was $5.7million, $5.5 million and $5.8 million during the years ended July 31, 2016, 2015 and 2014, respectively.Letters of CreditThe Company had two outstanding letters of credit required to secure contractual commitments as of July 31, 2016 and 2015, respectively. In additionto the unsecured letter of credit for the building lease, the Company had an unsecured letter of credit agreement related to a customer arrangement for PolishZloty 10.0 million (approximately $2.6 million as of July 31, 2016) to secure contractual commitments and prepayments. No amounts were outstandingunder the Company’s unsecured letters of credit as of July 31, 2016 or July 31, 2015.Legal ProceedingsFrom time to time, the Company is involved in various other legal proceedings and receives claims, arising from the normal course of businessactivities. The Company accrues for estimated losses in the accompanying consolidated financial statements for matters with respect to which the Companybelieves 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 for defending the customer against any claims that the Company’ssoftware infringes upon a patent, copyright, trademark, or other proprietary right of a third-party. Software Licenses also indemnify the customer againstlosses, expenses, and liabilities from damages that may be assessed against the customer in the event the Company’s software is found to infringe upon suchthird-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, 2016 and 2015. 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 CompensationEquity Incentive PlansOn September 14, 2011, the Company’s Board of Directors adopted the 2011 Stock Plan (“2011 Plan”) for the purpose of granting equity-basedincentive awards as compensation tools to motivate the Company’s workforce. The Company had initially reserved 7,500,000 shares of its common stock forthe issuance of awards under the 2011 Plan. The 2011 Plan provides that the number of shares reserved and available for issuance under the plan willautomatically increase each January 1, beginning on January 1, 2013, by up to 5% of the outstanding number of shares of the Company’s common stock onthe immediately preceding December 31. This number is subject to adjustment in the event of a stock split, stock dividend or other defined changes in theCompany’s capitalization.In addition, the Company has equity awards outstanding from its other equity incentive plans, the 2006 Stock Plan, the 2009 Stock Plan and the 2010Restricted Stock Unit Plan, which were discontinued for the purposes of making new grants upon the adoption of the 2011 Plan.68 Table of ContentsStock-Based Compensation ExpenseStock-based compensation cost related to options and restricted stock units (“RSUs”) granted to employee and non-employee is as follows: Fiscal years ended July 31, 2016 2015 2014 (in thousands)Total cost of stock-based compensation$66,409 $51,375 $42,538Amount capitalized in deferred cost of services revenues during the year$(278) $— $—Amount charged to income$66,131 $51,375 $42,538 Stock-based compensation cost charged to the following expense categories:Cost of license revenues$433 $222 $184Cost of maintenance revenues1,491 1,158 797Cost of services revenues17,878 15,022 11,929Research and development15,555 10,683 9,008Sales and marketing15,090 12,090 10,744General and administrative15,684 12,200 9,876 Total stock-based compensation expense66,131 51,375 42,538Tax benefit from stock-based compensation20,092 19,087 15,905Total stock-based compensation expense, net of tax effect$46,039 $32,288 $26,633As of July 31, 2016, total unrecognized compensation cost, adjusted for estimated forfeitures and before tax benefit, was as follows: As of July 31, 2016 Unrecognized Expense Weighted AverageExpected RecognitionPeriod (in thousands) (in years) Restricted stock units$109,968 2.4 Stock options2,621 1.7 $112,589 RSUsRSU activity under the Company’s equity incentive plans is as follows:69 Table of Contents Number of RSUs Weighted AverageGrant Date Fair Value Aggregate IntrinsicValue (1) (in thousands)Balance as of July 31, 20134,027,601 $19.27 $176,248Granted1,667,433 43.87 Released(2,007,423) 18.59 $91,300Canceled(303,390) 31.48 Balance as of July 31, 20143,384,221 30.70 $137,061Granted1,664,413 47.50 Released(1,819,825) 25.99 $88,648Canceled(346,135) 36.72 Balance as of July 31, 20152,882,674 42.65 $170,222Granted1,586,192 54.99 Released(1,408,746) 41.21 $78,763Canceled(332,396) 46.71 Balance as of July 31, 20162,727,724 $50.08 $167,673Expected to vest as of July 31, 20162,553,456 $49.87 $156,961(1)Aggregate intrinsic value at each fiscal year end represents the total market value of RSUs at the Company’s closing stock price of $61.47, $59.05 and $40.50 on July 31,2016, 2015 and 2014, respectively. Aggregate intrinsic value for released RSUs represents the total market value of released RSUs at date of release.The Company’s restricted stock units also included performance stock unit (“PSU”) awards, which have been granted to certain executives andemployees of the Company. The PSU awards included performance conditions as well as time-based vesting which generally vest over four years. Included infiscal year 2016, 2015 and 2014 stock-based compensation were $6.9 million, $2.4 million and $2.4 million of expense for performance-based awards, whichwere tied to the Company’s financial results.In fiscal year 2015, the Company began requiring that the general employee population sell a portion of the shares that they receive upon the vesting ofRSUs in order to cover any required withholding taxes (“sell-to-cover”), rather than its previous approach of net share settlement.70 Table of ContentsStock OptionsStock option activity under the Company’s equity incentive plans is as follows: Number of StockOptions Outstanding WeightedAverageExercise Price WeightedAverageRemainingContractualLife 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 65,300Canceled(8,561) 21.75 Balance as of July 31, 20142,400,253 11.24 5.5 71,640Granted138,643 47.23 Exercised(665,665) 9.46 27,263Canceled(51,169) 23.04 Balance as of July 31, 20151,822,062 14.29 4.9 81,548Granted10,000 54.00 Exercised(652,832) 12.01 29,186Canceled(20,658) 40.86 Balance as of July 31, 20161,158,572 $15.45 4.0 $53,316Vested and expected to vest as of July 31, 20161,153,815 $15.32 4.0 $53,252Exercisable as of July 31, 20161,010,609 $10.95 3.5 $51,060(1) Aggregate intrinsic value at each fiscal year end represents the difference between the Company’s closing stock price of $61.47, $59.05 and $40.50 on July 31, 2016, 2015and 2014 and the exercise price of the option, respectively. Aggregate intrinsic value for exercised options represents the difference between the Company’s stock price at dateof exercise and the exercise price.The per share fair value of each stock option was determined using the Black-Scholes option-pricing model with the following assumptions: Fiscal years ended July 31, 2016 2015 2014Expected life (in years)4.9 6.0 - 6.1 5.0 - 6.1Risk-free interest rate1.5% 1.7% - 1.9% 1.5% - 2.0%Expected volatility38.8% 39.4% - 45.1% 41.3% - 46.2%Expected dividend yield—% —% —%Weighted average fair value of options granted$19.18 $20.78 $21.06Common Stock Reserved for Future IssuanceAs of July 31, 2016 and 2015, the Company had reserved shares of common stock for future issuance as follows: July 31, 2016 July 31, 2015Exercise of stock options to purchase common stock1,158,572 1,822,062Vesting of restricted stock units2,727,724 2,882,674Shares available for grant under stock plans16,746,754 14,363,906Total common stock reserved for issuance20,633,050 19,068,64271 Table of Contents8. Income TaxesThe Company’s income before provision for income taxes for the years ended July 31, 2016, 2015 and 2014 is as follows: Fiscal years ended July 31, 2016 2015 2014 (in thousands)Domestic$11,209 $11,348 $11,956International9,573 5,392 7,990Income before provision for income taxes$20,782 $16,740 $19,946The provision for income taxes consists of the following: Fiscal years ended July 31, 2016 2015 2014 (in thousands)Current: U.S. federal$4,936 $2,509 $5,235State1,006 300 1,326Foreign4,350 3,910 2,509Total current10,292 6,719 9,070Deferred: U.S. federal(4,867) 983 (4,277)State631 169 78Foreign(250) (1,016) 354Total deferred(4,486) 136 (3,845)Total provision for income taxes$5,806 $6,855 $5,225Differences between income taxes calculated using the statutory federal income tax rate of 35% and the provision for income taxes are as follows: Fiscal years ended July 31, 2016 2015 2014 (in thousands)Statutory federal income tax$7,274 $5,858 $6,977Nondeductible items and other2,289 1,575 1,164State income taxes, net of federal benefit191 388 840Impact of state rate changes1,132 — —Foreign income taxed at different rates945 816 (207)Tax credits(5,963) (1,697) (3,612)Change in valuation allowance(62) (85) 63Total provision for income taxes$5,806 $6,855 $5,22572 Table of ContentsThe tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities are as follows: As of July 31, 2016 2015 (in thousands)Accruals and reserves$11,618 $9,974Stock-based compensation6,874 5,534Deferred revenues1,513 410Property and equipment1,815 914Net operating loss carryforwards10,333 436Tax credits12,145 10,435Total deferred tax assets44,298 27,703Less valuation allowance10,505 6,783Net deferred tax assets33,793 20,920Less deferred tax liabilities: Intangible assets2,429 1,179Total net deferred tax assets$31,364 $19,741During the years ended July 31, 2016, 2015 and 2014, the Company was able to consider positive evidence in determining the realizability of itsdeferred tax assets, including projections for future growth, and determined a valuation allowance was not required for a significant portion of its deferred taxassets. A valuation allowance of $10.5 million and $6.8 million remained as of July 31, 2016 and 2015, respectively, primarily for California research anddevelopment credits and net operating loss carryforwards that were not more likely than not realizable.As of July 31, 2016, the Company had U. S. federal, California and other states net operating loss (“NOL”) carryforwards of $221.7 million, $68.5million, and $114.3 million, respectively. The U. S. federal and California NOL carryforwards will start to expire in 2022 and 2017, respectively.The Company had research and development tax credit (“R&D credit”) carryforwards of the following: As of July 31, 2016 (in thousands) U.S. federal$18,820 California18,529 Total R&D credit carryforwards$37,349 The 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 2016 are $195.5 million and $49.8 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, 2016, U.S. income taxes were not provided for on the cumulative total of $29.7 million in undistributedearnings from profitable foreign subsidiaries. As of July 31, 2016, the unrecognized deferred tax liability for these earnings was approximately $9.7 million.Unrecognized Tax BenefitsThe following table summarizes the activity related to unrecognized tax benefits:73 Table of Contents Fiscal years ended July 31, 2016 2015 2014 (in thousands)Unrecognized tax benefit - beginning of period$6,109 $7,976 $6,727Gross increases - prior period tax positions177 1 140Gross decreases - prior period tax positions(216) (2,896) (508)Gross increases - current period tax positions1,617 1,028 1,617Unrecognized tax benefit - end of period$7,687 $6,109 $7,976During the year ended July 31, 2016, the Company’s unrecognized tax benefits increased by $1.6 million, primarily associated with the Company’sU.S. federal and California R&D tax credits. As of July 31, 2016, the Company had unrecognized tax benefits of $3.7 million that, if recognized, would affectthe Company’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 2016. As of July 31, 2016, the Company has no tax audits in progress in the U.S. and in our foreign jurisdictions.9. Defined Contribution and Other Post-retirement PlansThe Company’s employee savings and retirement plan in the United States is qualified under Section 401(k) of the Internal Revenue Code. Employeeson the Company’s U.S. payroll are automatically enrolled when they meet eligibility requirements, unless they decline participation. Upon enrollmentemployees are provided with tax-deferred salary deductions and alternative investment options. Employees may contribute up to 60% of their eligible salaryup to the statutory prescribed annual limit. The Company matches employees’ contributions up to $5,000 per participant per calendar year. Certain of theCompany’s foreign subsidiaries also have defined contribution plans in which a majority of its employees participate and the Company makes matchingcontributions. The Company’s contributions to its 401(k) and foreign subsidiaries’ plans were $5.5 million, $4.3 million and $3.2 million for the fiscal yearsended July 31, 2016, 2015 and 2014, respectively.10. 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 revenue 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 and region based on the billing address of the customer: Fiscal years ended July 31, 2016 2015 2014 (in thousands)United States$230,935 $208,104 $203,791Canada44,717 37,833 39,100Other Americas18,114 7,162 8,106Total Americas293,766 253,099 250,997United Kingdom34,031 44,393 37,890Other EMEA41,914 47,449 35,149Total EMEA75,945 91,842 73,039APAC54,735 35,596 26,210Total revenues$424,446 $380,537 $350,246No country other than those listed above accounted for more than 10% of revenues during the years ended July 31, 2016, 2015 and 2014.74 Table of ContentsThe following table sets forth the Company’s long-lived assets, including goodwill and intangibles, net by geographic region: July 31, 2016 July 31, 2015 (in thousands)Americas$53,826 $22,746EMEA3,085 2,183APAC328 435 Total$57,239 $25,36411. Subsequent Event On August 4, 2016, the Company entered into an agreement to purchase all of the outstanding equity interests of FirstBest Systems, Inc., a providerof an underwriting management system to P&C insurers. On August 31, 2016, the Company completed its acquisition of FirstBest Systems, Inc. Totalconsideration for the transaction was approximately $34 million in cash payable at closing, subject to standard purchase price adjustments and escrows. Thetransaction will be accounted for as a business combination and the preliminary purchase price allocation will be included in the Company’s first quarter offiscal year 2017 results. 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 our financial reporting as defined in Rule 13a-15(f) or15d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, andincludes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactionsand dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations ofour management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use ordisposition 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 our internal control over financial reporting as of July 31, 2016, using the criteria set forth in InternalControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission’s 2013 framework. Based on thisassessment and those criteria, management concluded that our internal control over financial reporting was effective as of July 31, 2016.Our 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.75 Table of ContentsInherent 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, have been detected. These inherent limitations include the realities thatjudgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumventedby the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controlsalso is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achievingits stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree ofcompliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to erroror 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 InformationNone.PART III Item 10.Directors, Executive Officers and Corporate GovernanceWe 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 2016 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, 2016, 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. Item 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.76 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.77 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/ Richard Hart Richard Hart Chief Financial Officer(Principal Financial and Accounting Officer)POWER OF ATTORNEYEach person whose individual signature appears below hereby authorizes and appoints Marcus S. Ryu, Richard Hart, 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 Executive Officer) September 15, 2016Marcus S. Ryu /s/ Richard Hart Chief Financial Officer (Principal Financial and Accounting Officer) September 15, 2016Richard Hart /s/ John Cavoores Director (Chairman of the Board) September 15, 2016John Cavoores /s/ Andrew Brown Director September 15, 2016Andrew Brown /s/ Craig Conway Director September 15, 2016Craig Conway /s/ Guy Dubois Director September 15, 2016Guy Dubois /s/ Peter Gassner Director September 15, 2016Peter Gassner /s/ Paul Lavin Director September 15, 2016Paul Lavin /s/ Clifton Thomas Weatherford Director September 15, 2016Clifton Thomas Weatherford 78 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. 10-K 10.6 September 17, 201410.7 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, 201110.9 Form of Performance-Based Restricted Stock Unit AwardAgreement under the 2011 Stock Plan. 10-Q 10.9 December 2, 201521.1 Subsidiaries of the Registrant. Filed herewith — —23.1 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 Linkbase Document. 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.79 Table of Contents 80 Exhibit 21.1Subsidiaries of the RegistrantSubsidiary Country or JurisdictionGuidewire Software Pty Ltd. (Aus) AustraliaGuidewire Software Services Ltda BrazilGuidewire Canada Ltd. CanadaGuidewire Software (Beijing) Co. Ltd. ChinaGuidewire Software France SAS FranceGuidewire Software GmbH GermanyGuidewire Software Asia Ltd. (HK) Hong KongGuidewire Software (Ireland) Ltd. IrelandGuidewire Software Technology Ltd. IrelandGuidewire Software Italy SRL. ItalyGuidewire Software Japan KK JapanGuidewire Software Poland Sp. Z o.o. PolandGuidewire Software (Spain) SL SpainGuidewire Software (Switzerland) GmbH SwitzerlandGuidewire Software Ltd. (UK) United KingdomEagleEye Analytics (UK) United KingdomMillbrook, Inc. United StatesAdvanced Field Services United StatesEagleEye Analytics, Inc. United States Exhibit 23.1Consent of Independent Registered Public Accounting FirmThe Board of DirectorsGuidewire Software, Inc.:We consent to the incorporation by reference in the registration statement (Nos. 333-209906, 333-202541, 333-179799, 333-187004, and 333-194290) onForm S-8, and in the registration statements (Nos. 333-191856 and 333-191834) on Form S-3 of Guidewire Software, Inc. of our report dated September 15,2016, with respect to the consolidated balance sheets of Guidewire Software, Inc. as of July 31, 2016 and 2015, and the related consolidated statements ofincome, comprehensive income, stockholders' equity, and cash flows for each of the years in the three-year period ended July 31, 2016, and the effectivenessof internal control over financial reporting as of July 31, 2016, which report appears in the July 31, 2016 annual report on Form 10-K of Guidewire Software,Inc./S/KPMG LLPSanta Clara, CaliforniaSeptember 15, 2016 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 15, 2016 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, Richard Hart, 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 15, 2016 By:/s/ Richard Hart Richard Hart Chief Financial Officer (Principal Financial and Accounting 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, 2016 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 15, 2016 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, 2016 as filed with the Securities and ExchangeCommission on the date hereof (the “Report”), Richard Hart, 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 his 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 15, 2016 By:/s/ Richard Hart Richard Hart Chief Financial Officer (Principal Financial and Accounting Officer)
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