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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark one)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number: 001-35394
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Guidewire Software, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
36-4468504
(I.R.S. Employer
Identification No.)
2850 S. Delaware St., Suite 400, San Mateo, California, 94403
(Address of principal executive offices, including zip code)
(650) 357-9100
(Registrant’s telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
(Title of each class)
Common Stock, $0.0001 par value
(Trading Symbol(s))
GWRE
(Name of each exchange on which registered)
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Securities registered pursuant to Section 12(g) of the Act:
None
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Indicate 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 12 months (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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐ No ☒
The 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 on January 31, 2022, the last business day of the registrant’s most recently
completed second fiscal quarter, as reported on the New York Stock Exchange, was approximately $5.4 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 deemed to 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, 2022, the registrant had 84,084,360 shares of common stock issued and outstanding.
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Portions of the registrant’s definitive Proxy Statement relating to its 2022 Annual Meeting of Stockholders are incorporated by reference into Part III of this report 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 report relates.
DOCUMENTS INCORPORATED BY REFERENCE
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Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Guidewire Software, Inc.
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Part I
Part II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Part III
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Exhibits and Financial Statement Schedules
Part IV
3
13
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37
37
37
38
40
40
58
60
101
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102
103
103
103
103
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FORWARD-LOOKING STATEMENTS
The sections titled “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as other parts of this Annual Report on Form 10-K and
certain information incorporated herein by reference contain forward-looking statements within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), and the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to risks and uncertainties. The forward-looking statements may include statements concerning, among other things, our
business strategy (including anticipated trends and developments in, and management plans for, our business and the markets in which we operate), financial results, results of operations, revenue,
gross margins, operating expenses, services, 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-looking words, such as “will,” “may,” “might,” “should,” “could,” “estimate,” “expect,” “suggest,” “believe,” “anticipate,” “intend,” “plan” and
“continue,” the negative or plural of these words and other comparable terminology. Actual events or results may differ materially from those expressed or implied by these statements due to various
factors, including, but not limited to, the matters discussed below, in the section titled “Risk Factors,” and elsewhere in this Annual Report on Form 10-K. Many of the forward-looking statements are
located in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. The forward-looking statements contained in 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 current expectations about future events, which are inherently subject to change and involve
risks and uncertainties. You should not place undue reliance on these forward-looking statements.
We do not undertake any obligation to update any forward-looking statements in this Annual Report on Form 10-K or in any of our other communications, except as required 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.
The principal risks and uncertainties affecting our business include the following:
SUMMARY OF MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS
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growth prospects of the property and casualty (“P&C”) insurance industry and our company;
the developing market for subscription services and uncertainties attendant on emerging sales and delivery models, including the migration of our existing term license customers to
cloud-based offerings on a subscription basis or failure to meet stipulated service levels with our subscription services;
trends in and timing of future sales, including the mix between license and subscription revenue and seasonality;
our competitive environment and changes thereto;
competitive attributes of our software applications and delivery models;
change in our revenue mix resulting in potential declines in our subscription and support gross margin or our services gross margin;
our reliance on orders from a relatively small number of customers in the P&C insurance industry for a substantial portion of our revenue and Annual Recurring Revenue (“ARR”);
our gross and operating margins and factors that affect such margins, including costs related to operating, securing, and enhancing our subscription services;
the timing and number of professional services engagements and the billing rates and utilization of our professional services employees and contractors;
challenges to further increase sales both in the United States and internationally;
potential failure of any of our established services or products to satisfy customer demands or to maintain market acceptance;
our sales and implementation cycles are lengthy and variable, depend upon factors outside our control, and could cause us to expend significant time and resources prior to generating
revenue;
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our large customers have substantial negotiating leverage, which may require that we agree to terms and conditions that result in increased cost of revenue, decreased revenue, and
lower average selling prices and gross margins;
our business depends on customers renewing and expanding their license, support, and subscription contracts for our services and products;
potential inability to develop, introduce, and market new and enhanced versions of our services and products;
effectiveness of our research and development and cloud operations investment and efforts;
our ability to comply with current and evolving local and foreign data privacy laws, including the General Data Protection Regulation in the European Union (“EU”) and in the United
Kingdom (“U.K.”) and the California Consumer Privacy Act, the California Privacy Rights Act, and regulations in various other jurisdictions in the United States and abroad, and
maintain the security of our customer’s data, our cloud-based services or products, and the related costs and liabilities that we may incur;
retaining existing and hiring new personnel;
expenses to be incurred, and benefits to be achieved, from our acquisitions;
our provision for tax liabilities, judgments related to revenue recognition, and other critical accounting estimates;
the timing and amount of any share repurchases by us;
the impact of new or revised regulations, laws, including tax laws in jurisdictions in which we operate, and accounting standards;
our ability to apply accounting guidance that requires management to make estimates and assumptions and to adapt to and interpret the requirements of new guidance, or to clearly
explain to stockholders how new guidance affects reporting of our results of operations;
our exposure to market risks, including geographical and political events such as escalation in the ongoing conflict between Russia and Ukraine, supply chain disruptions and inflation,
that may negatively impact our customers, partners, and vendors or our business operations;
data privacy concerns could result in regulatory changes and impose additional costs and liabilities on us and limit our use of information;
the effect of uncertainties related to the global COVID-19 pandemic and future mutations or related strains of the virus on the U.S. and global economies, our business, our employees,
results of operations, financial condition, demand for our products, sales and implementation cycles, and the health of our customers’ and partners’ businesses;
data security breaches of our cloud-based services or products or unauthorized access to our customers’ or employees’ data;
our stock price may be volatile, which could result in securities class action litigation against us;
our ability to successfully defend litigation brought against us; and
our ability to satisfy future liquidity requirements.
The summary risk factors described above should be read together with the text of the Risk Factors included in Item 1A of Part I of this Annual Report on Form 10-K and the other information
set forth in this Annual Report on Form 10-K, including our consolidated financial statements and related notes thereto, as well as in other documents that we file with the U.S. Securities and
Exchange Commission (the “SEC”). Additional risks and uncertainties, beyond those summarized above or discussed elsewhere in this Annual Report on Form 10-K may apply to our business,
activities, or operations as currently conducted or as we may conduct them in the future or in the markets in which we operate or may in the future operate.
Unless the context requires otherwise, we are referring to Guidewire Software, Inc. together with its subsidiaries when we use the terms “Guidewire,” the “Company,” “we,” “our,” or “us.”
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Item 1.
Business
Overview and Purpose
Guidewire delivers a leading platform that property and casualty (“P&C”) insurers trust to engage, innovate, and grow efficiently. Guidewire’s platform combines core operations, digital
engagement, analytics, and artificial intelligence (“AI”) applications delivered as a cloud service or self-managed software.
Our core operational services and products are InsuranceSuite Cloud, InsuranceNow, and InsuranceSuite for self-managed installations. These services and products are transactional systems of
record that support the entire insurance lifecycle, including insurance product definition, distribution, underwriting, policyholder services, and claims management. Our digital engagement
applications enable digital sales, omni-channel service, and enhanced claims experiences for policyholders, agents, vendor partners, and field personnel. Our Analytics and AI offerings enable
insurers to manage data more effectively, gain insights into their business, drive operational efficiencies, and better underwrite new and evolving risks. To support P&C insurers globally, we have
localized, and will continue to localize, our platform for use in a variety of international regulatory, language, and currency environments.
InsuranceSuite Cloud is a highly configurable and scalable product, delivered as a service and primarily comprised of three core applications (PolicyCenter Cloud, BillingCenter Cloud, and
ClaimCenter Cloud) that can be subscribed to separately or together. These applications are built on and optimized for our Guidewire Cloud Platform (“GWCP”) architecture and leverage our in-
house Guidewire cloud operations team. InsuranceSuite Cloud is designed to support multiple releases each year to ensure that cloud customers remain on the latest version and gain fast access to our
innovation efforts. Additionally, InsuranceSuite Cloud embeds digital and analytics capabilities natively into our platform. Most new sales and implementations are for InsuranceSuite Cloud.
InsuranceNow is a complete, cloud-based application that offers policy, billing, and claims management functionality to insurers.
InsuranceSuite for self-managed installations is comprised of three core applications (PolicyCenter, BillingCenter, and ClaimCenter) that can be licensed separately or together and can be
deployed and updated by our customers and their implementation partners.
Our customers range from some of the largest global insurance companies or their subsidiaries to predominantly national or local insurers that serve specific states and/or regions. Our customer
engagement is led by our direct sales team and supported by our system integrator (“SI”) partners. We maintain and continue to grow our sales and marketing efforts globally, and maintain regional
sales centers throughout the world.
Because our platform is critical to our new and existing customers’ businesses, their decision-making and product evaluation process is thorough, which often results in an extended sales cycle.
These evaluation periods can extend further if a customer purchases multiple services and products or is considering a move to a cloud-based subscription for the first time. Sales to new customers
also involve extensive customer due diligence and reference checks. The success of our sales efforts relies on continued improvements and enhancements to our current services and products, the
introduction of new services and products, efficient operation of our cloud infrastructure, continued development of relevant local content and automated tools for updating content, and successful
implementations.
We sell our cloud-delivered offerings through subscription services and our self-managed products through term licenses. We generally price our services and products based on the amount of
direct written premium (“DWP”) that will be managed by our platform. Our subscription, term license, and support fees are typically invoiced annually in advance. Subscription services are generally
sold with an initial term of between three and five years with optional annual renewals commencing after the initial term. Subscription revenue is recognized on a ratable basis over the committed
term, once all revenue recognition criteria are met including providing access to the service. Term licenses are primarily sold with an initial two-year committed term with optional annual renewals
commencing after the initial term. We may enter into term license arrangements with our customers that have an initial term of more than two years or may renew license arrangements for longer than
one year. A small portion of our revenue is derived from perpetual licenses. Term and perpetual license revenue are typically recognized when software is made available to the customer, provided
that all other revenue recognition criteria have been met. Our support revenue is generally recognized ratably over the committed support term of the licensed software. Our support fees are typically
priced as a fixed percentage of the associated license fees. We also offer professional services, both directly and through SI partners, to help our customers deploy, migrate, and utilize our services,
products, and platform. A majority of our services revenue is billed monthly on a time and materials basis.
We began our principal business operations in 2001.
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Industry Background
The P&C insurance industry is large, fragmented, highly regulated, and complex. It is also highly competitive, with insurers competing primarily on product differentiation, pricing options,
customer service, marketing and advertising, affiliate programs, and channel strategies.
P&C insurers modernize their transactional core systems to manage key functional areas of P&C insurance, including product definition, underwriting and policy administration, claims
management, and billing. Product definition specifies the insurance coverage, pricing, and financial and legal terms of insurance policies. Underwriting and policy administration includes collecting
information from potential policyholders, determining appropriate coverages and terms, pricing policies, issuing policies, and updating and maintaining policies over their lifetimes. Claims
management includes loss intake, investigation and evaluation of incidents, settlement negotiation, vendor management, litigation management, and payment processing. Billing includes policyholder
invoicing, payment collection, and agent commission calculation. We believe insurers that adopt modern core systems can enhance customer experience, operate more efficiently, and introduce
innovative services and products more rapidly.
We believe the P&C insurance industry is experiencing accelerating change in how insurers engage with, sell to, and manage relationships with consumers and businesses. Today, P&C insurers
are striving to respond to significant changes in their competitive marketplace and the character of the risks they underwrite. The most significant changes include:
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an industry rapidly going through change that requires agility and efficiency from its core systems;
an increase in catastrophes and natural disasters impacting the P&C insurance industry that requires agility and efficiency from its core systems;
a rise in customer expectations for digital, mobile, and omni-channel interaction rather than the traditional agent model;
a need for 100% digital engagement capabilities;
a growth in demand for personalized services and products;
an increase in technology and market-driven changes in vehicular risk, including usage and driving habit based insurance;
demand for coverage of emerging risks such as terrorism, cybersecurity, pandemic, and reputational risk;
a wealth of data and desire to harness data to improve and grow business;
advances in the use of data and analytics to better market to and engage with customers, price policies, and manage claims;
development of opportunities to compete or partner with non-traditional players that offer disruptive technology-based value propositions;
established industry leaders are facing increased competition from new entrants in the market, including insurtech companies; and
the introduction and leveraging of new technologies, such as drones, artificial intelligence, the “Internet of Things,” chatbots, and telematics.
Many of these trends, such as digital engagement capabilities and data analytics, have increased in importance as a result of the COVID-19 pandemic. In response to these trends, changes,
challenges, and opportunities, we believe that P&C insurers need a core system that can increase agility and enhance digital engagement and analytics offerings.
While each insurer may have different goals and priorities when pursuing new technology investments, there are several major themes that we believe guide these investments:
• Digital Engagement Models. We believe that insurers will need to provide a more intuitive, digital user experience to reduce the risk of customer dissatisfaction and loss. Investment in
digital user experience will allow insurers to deepen their engagement with customers and transition from passive and transactional customer interactions to active and advisory
relationships. This transition will require investments in software services and products that are designed to model user journeys and enable more frequent, informed, and dynamic
interactions between insurers and their customers. We believe these efforts can improve financial performance for insurers through increased lead conversions and lower customer
churn.
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Cloud-Delivered Solutions. We believe that increased recognition of the compelling economic benefits of deploying software solutions on public infrastructure combined with
increased confidence in the security and reliability of such platforms will cause more insurers to consider cloud-deployed solutions. Insurers benefit from an optimized division of labor
and risk, allowing third parties to manage their infrastructure as they focus on competitively differentiating activities.
• Data Driven Decision-Making. Insurers are seeking to explore, visualize, and analyze proprietary and third-party data to optimize decision-making across the insurance lifecycle. We
believe that such predictive analytical solutions are most effective when they provide predictive scores and other analytical insights to insurers’ employees as they perform their
underwriting and claims management activities. Insurers may also apply data and machine learning to automate certain tasks whenever possible, thereby enabling efficiencies, such as
straight-through processing, that lessen the burden on subject matter experts.
Innovation. Insurers are under pressure to innovate across their product lifecycle in order to grow their business and improve service quality. Examples of focus areas include creating
services and products to target under-insured risks such as cyber, supply chain disruption, and reputational risk and partnering with insurtech providers to streamline operations and
improve service to policyholders and agents.
Legacy System Modernization. A significant portion of the market continues to rely on legacy systems. We believe new claims, policy management, and billing systems will continue
to be adopted as insurers that rely on legacy systems seek to gain operating efficiencies, expand into new markets and lines of business, and introduce new digital and data offerings.
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Products
Guidewire is designed to be the platform insurers trust in order to engage, innovate, and grow efficiently. Our platform combines core operations, digital engagement, analytics, and AI
applications, so that insurers can increase revenue, reduce operational costs and losses, improve pricing, and engage with a customer base that increasingly demands mobile and automated forms of
self-service and communication. We are investing in research and development to accelerate improvements in our cloud platform services, products, and marketplace to better serve our customers.
Core Operational Services and Products
We offer the following core operational services and products: Guidewire InsuranceSuite Cloud, Guidewire InsuranceNow, and Guidewire InsuranceSuite for Self-Managed.
Guidewire InsuranceSuite Cloud
Guidewire InsuranceSuite Cloud is comprised of three primary applications (PolicyCenter Cloud, BillingCenter Cloud, and ClaimCenter Cloud) optimized for our GWCP infrastructure. We
offer several complementary applications designed to work seamlessly with these primary applications. InsuranceSuite Cloud is hosted on Amazon Web Services (“AWS”) and managed by our
internal cloud operations team.
Guidewire PolicyCenter Cloud is our flexible underwriting and policy administration application that serves as a comprehensive system-of-record supporting the entire policy lifecycle,
including product definition, underwriting, quoting, binding, issuance, endorsements, audits, cancellations, and renewals. Guidewire BillingCenter Cloud automates the billing lifecycle, enables the
design of a wide variety of billing and payment plans, manages agent commissions, and integrates with external payment systems. Guidewire ClaimCenter Cloud is a complete end-to-end claims
management solution that offers core claims functionality. These primary applications also include predictive analytics that drive smart decisions, digital engagement, and an ecosystem of partners
and insurtechs.
GWCP is a Guidewire-developed infrastructure layer built on top of AWS that provides specialized cloud services, including multi-tenant cloud-native services that support the core operational
services and integration of digital experiences and analytics. The Guidewire Data Platform is a P&C insurance-specific data repository, built on GWCP, which collects data from InsuranceSuite Cloud
and InsuranceNow, as well as other internal and external sources, to provide analytical insights across the insurance lifecycle for our customers. The Guidewire Data Platform powers all analytical
applications. Additionally, we provide tools for automation and self-service of routine implementation and deployment tasks to increase our customers’ agility while providing enterprise-grade
performance, availability, privacy, and security. Given the specialized needs of the P&C insurance industry, we have developed a scalable cloud architecture that combines these multi-tenant cloud
services and tools with the ability to isolate each customer’s system of record and database instances. This approach provides our customers with the benefits of cloud-native infrastructure and
services and the flexibility to provide differentiated services to their customers.
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Guidewire InsuranceNow
Guidewire InsuranceNow is a complete, cloud-based core system for P&C insurers in the United States, offering policy, billing, and claims management functionality, plus pre-integrated
document production, analytics, and other capabilities, that increases agility without adding complexity.
Guidewire InsuranceSuite for Self-Managed
Guidewire InsuranceSuite for Self-Managed is comprised of three primary applications (PolicyCenter, BillingCenter, and ClaimCenter) that can be licensed separately or together and can be
deployed and updated by our customers and their implementation partners on their premises or in a third-party cloud infrastructure.
Guidewire InsuranceSuite: Complementary Applications
We offer several complementary applications designed to work seamlessly with our core operational services and products, including:
Guidewire Rating Management
Guidewire Rating Management enables P&C insurers to manage the pricing of their insurance services and products.
Guidewire Reinsurance Management
Guidewire Reinsurance Management enables P&C insurers to use rules-based logic to execute their reinsurance strategy through their underwriting and claims processes.
Guidewire Client Data Management
Guidewire Client Data Management helps P&C insurers capitalize on customer information more coherently, 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-business templates to enable insurers to more rapidly introduce and modify services and products
by reducing product configuration and maintenance efforts. Any such product introduction or modification must connect to and incorporate regulatory or industry-standard data and content, such as
Insurance Services Office (“ISO”) or National Council on Compensation Insurance (“NCCI”) content.
Guidewire Underwriting Management
Guidewire Underwriting Management is a cloud-based, integrated business application designed for commercial and specialty line insurers to drive premium growth and profit from better
underwriting. This feature-rich workstation delivers straight-through processing, exception-based underwriting, real-time collaboration, and knowledge management in one integrated solution.
Guidewire Underwriting Management is typically sold alongside Guidewire PolicyCenter, although it functions with other policy administration systems as well.
Guidewire AppReader
Guidewire AppReader is a submission intake management solution that enables P&C insurers to process Association for Cooperative Operations Research and Development (“ACORD”) forms
faster and more accurately than with manual processes or traditional upload solutions. AppReader is available for both Guidewire Underwriting Management and Guidewire PolicyCenter.
Guidewire ClaimCenter Package for the London Market
Guidewire ClaimCenter Package for the London Market supports the claims workflow used by London Market insurers and brokers. Integration of London Market Electronic Claims File
(“ECF”) Write-Back lets insurers perform tasks and interact with the central industry market Claims Loss and Advice Settlement system directly from Guidewire ClaimCenter through message
queues.
Digital Engagement
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Guidewire Digital Engagement Applications
Our Digital Engagement Applications enable insurers to provide digital experiences to customers, agents, vendors, and field personnel through their device of choice. As consumers
increasingly use self-service functions on the internet and on mobile devices, we believe that many of them prefer to interact with their insurance providers digitally and that they expect to have a
consistent and efficient transactional experience through multiple channels, whether online, in-person or by phone. Our Digital Engagement Applications also benefit agents and brokers who are
seeking to automate business processes with insurers to improve customer service and productivity. In order to provide a holistic experience, Digital Applications are unified with InsuranceSuite.
Guidewire for Salesforce
Guidewire for Salesforce integrates Guidewire core systems with Salesforce for insurance carrier agents and service representatives. It provides customer information regarding their policies
and claims.
Data, Analytics, and Artificial Intelligence
We offer a variety of applications that allow insurers to uncover hidden opportunities and write more profitable business by enabling a seamless path from data to value.
Guidewire Predict
Guidewire Predict is a P&C-specific machine-learning platform that empowers insurers to make intelligent data-driven decisions throughout the insurance lifecycle. By building (or importing)
predictive models built from multiple data sets, designing comprehensive solutions, and operationalizing the predictive insights, Predict allows insurers to rapidly turn any model into business value
by delivering guidance to frontline decision makers. Predict for Claims helps customers to better manage claim indemnity and loss-adjustment expenses. Predict for Profitability improves pricing
accuracy and customer satisfaction.
Guidewire HazardHub
Guidewire HazardHub allows insurers to understand, assess, price, and manage property risk quickly and intelligently. HazardHub provides a single source of geospatial risk data, and provides
access to more than 950 risk variables, including perils from air, water, earth, and fire. HazardHub is a cloud-native solution delivered through an Application Programming Interface (“API”) that
provides access to this information for any personal or commercial property located in the United States, and has the ability to evaluate an entire portfolio for property risk.
Guidewire Canvas
Guidewire Canvas is a cloud-native application included with ClaimCenter Cloud. It features an interactive map that enables claims management and catastrophe response teams to geo-
visualize claims to help improve customer satisfaction and reduce indemnity by proactively responding to storm events.
Guidewire Compare
Guidewire Compare is a cloud-native application included with ClaimCenter Cloud that monitors key claims measures and gives feedback on how those compare against peer insurers in the
Guidewire community, or within a single insurer across regions or over time. Compare allows claims organizations to increase their processing efficiency by monitoring key claims measures such as
indemnity, expenses, cycle times, reserves, salvage, subrogation, percentage closed, catastrophe, and litigated.
Guidewire Explore
Guidewire Explore is a cloud-native application that gathers and curates InsuranceSuite data in near real-time to augment decision making inside and outside InsuranceSuite. Explore includes
free-form search across the data set, along with visualizations and dashboards for common business metrics. It allows business users to examine operational claims data, underwriting management
data, and operational policy data.
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Guidewire Cyence
Guidewire Cyence is a cyber-risk economic modeling product that helps P&C insurers accurately measure the financial impact of cyber risk on their customers. It does this by capturing data
about cyber threats from more than 400 sources, including public data, open-source data, proprietary, and third-party data. Cyence then curates and analyzes the data through AI and machine-learning
statistical models to extract meaningful signals. Based on these models, Cyence produces insights delivered through reports that will predict the likelihood and economic impact of cyber attacks on a
target company or individual. This can be used for underwriting, pricing, and developing cyber insurance products.
Guidewire DataHub and InfoCenter
Guidewire DataHub is an operational data store that unifies, standardizes, and stores data from the patchwork of insurer’s systems as well as from external sources. It is available for self-
managed and InsuranceSuite Cloud customers.
Guidewire InfoCenter is a business intelligence warehouse for P&C insurers that provides information in easy-to-use formats for business intelligence, analysis, and enhanced decision making.
With Guidewire InfoCenter, insurers gain flexible operational insights as well as the ability to optimize their business.
Guidewire Marketplace
The Guidewire Marketplace is where insurers find trusted applications and content that complement the Guidewire platform from our PartnerConnect partners, as well as from Guidewire
product and services teams. These applications and content help insurers to rapidly innovate and differentiate their businesses by allowing them to leverage capabilities provided by the Guidewire
partner ecosystem to meet their business goals. The Guidewire Marketplace also empowers customers pursuing innovation initiatives by providing access to a curated collection of insurtech
applications. As of July 31, 2022, the Guidewire Marketplace had over 170 partner-developed integrations that have been validated by us and awarded Ready for Guidewire branding and hundreds of
Guidewire-developed resources available for download. We anticipate expanding the reach of the Guidewire Marketplace.
Technology
We have increased the scope of our platform and business through internal development and acquisitions. This growing scope has required greater investment in the development of application
interfaces and shared services necessary to unify the operations and user experience across our applications. The shift to cloud-delivered solutions has also required significant focus in improving our
ability to manage, secure, and operate our applications since our cloud-based deployments, unlike our self-managed implementations, shift many operational responsibilities to us.
Our cloud infrastructure is designed to maximize the security, stability, scalability and efficiency of our applications. Our cloud infrastructure leverages AWS, provides services hosted in AWS
regions worldwide, and is tailored to provide both the benefit of cloud subscription services delivered in a cloud-native multi-tenant model while still providing insurers with the ability to configure
and extend their applications via single-tenant environments which are easily managed via Guidewire Cloud Console. All of our cloud services and products comply with standards set by ISO,
AICPA, and PCI SSC.
Finally, we continue to improve the scalability of our service, which performs millions of complex, business-critical transactions daily. The accuracy and availability of our services must be
maintained not only during normal business operations, but also during extraordinary events such as catastrophes, which may result in extremely high transaction volume in a short period of time.
Services
We provide implementation, cloud migration, and integration services to help our customers realize the benefits of our cloud-based services and software products. Our delivery services teams
assist customers in building implementation or migration plans, integrating our software with their existing systems, and defining business rules and specific requirements unique to each customer.
We also partner with leading SI consulting firms, certified on our software, to achieve scalable, cost-effective implementations for our customers.
Customer Support
We provide support for our subscription customers as part of our subscription services and to our license customers for an annual fee based on a percentage of the license fees. Subscription
services also include regular updates to Guidewire software to ensure that Guidewire Cloud customers can easily access our latest innovations. New capabilities are often toggled-off so that
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customers can activate them at the right time for their businesses. This enables our customers to deliver improvements at a steady pace, optimized for their employees and customers.
Our subscriptions include Guidewire Cloud Assurance Services, which provides for review of all configurations and integrations to ensure they follow published standards, best practices and
required security methodologies. Furthermore, our internal cloud operations team monitors application performance and our customer success team works directly with customers to optimize
adoption, user experience, and business requirements.
Employees and Human Capital Resources
Our business requires attracting, developing, and retaining a motivated team of individuals who thrive in a culture based on integrity, rationality, and collegiality and that embraces diversity,
inclusion, and belonging. Understanding and proactively anticipating the priorities and needs of our current and future employees is important to realizing our mission to be the platform P&C insurers
trust to engage, innovate, and grow efficiently.
As of July 31, 2022, we had 3,376 employees, including 1,668 in global product development and operations (comprised of research and development, cloud operations, and technical support),
755 in professional services, 475 in sales and marketing, and 478 in general and administrative roles. As of July 31, 2022, we had 1,775 employees in the United States and 1,601 employees
internationally.
Attracting, Developing, and Retaining Employees
Our recruiting, development, and retention objectives focus on attracting skilled and engaged employees who contribute the talent and diverse perspectives critical to our innovative, forward-
looking, and inclusive workforce. Our recruiting process actively sources diverse talent and is designed to reduce bias, supporting our ability to hire candidates with professional qualifications,
personal potential, and differing perspectives. Our flexible work policies expand our ability to hire and retain talent in geographies where we do not have physical offices. Fostering career progression
by encouraging regular professional education empowers our employees to pursue their professional goals, which is critical to developing and retaining our employees. We invest in broad-based
development for all of our employees in various ways such as skills-building programs, on-demand learning options, mentoring programs, and leadership development courses. In an effort to create
more development opportunities for all employees, we are currently expanding our intern, mentoring, and leadership development programs. We gauge progress and efficacy, identify opportunities
for change, and pursue solutions through tracking and analyzing data from various sources such as annual talent reviews and our progress toward hiring/promotion goals in our development, diversity
and inclusion plans.
Diversity, Inclusion, and Belonging
We believe that understanding and respecting another’s perspective, experience, background, and beliefs provides an opportunity to expand horizons, challenge complacency, and foster
empathy. Diversity of perspective, experience, background, and beliefs fuel our innovative, collaborative, and engaged workplace. We aim for the highest standards of fairness and equal opportunity
in recruitment, hiring, promotions, job assignments, and compensation. Initiatives to create greater diversity and belonging among our employees include inclusive recruiting and outreach programs
for diverse candidates, employee resource groups (“ERGs”), and management-led listening circles. Our ERGs are employee-led and comprised of volunteers who represent common interests,
experiences, backgrounds, or demographics. As of the end of fiscal year 2022, we had seven ERGs including Womens’ Leadership, African Ancestry, LGBTQ+, Asian and Pacific Islander, and
LatinX groups.
Guidewire Gives Back (“GGB”) is a program focused on investing in local communities where we operate by encouraging employee volunteerism, philanthropy, and social impact investment.
The GGB program is centered around employee engagement and community impact through volunteer hours from the Guidewire community and financial donations, both of which are geared toward
making a measurable difference. The GGB strategy, programs, and collaborative partnerships reflect employees’ passions and embody Guidewire’s corporate mission as well as our customers'
purpose.
Positive Corporate Culture
Our employees are critical to our success, and we believe creating a positive, inclusive culture is essential to attracting and retaining engaged employees. Our values of integrity, rationality, and
collegiality are the foundation of how we work with one another. We incorporate a wide variety of communication and training activities to encourage collaboration amongst our colleagues around
the world. We measure the program’s efficacy and identify opportunities for improvements through an engagement survey distributed annually, with the last survey completed in May 2022, and
periodic pulse surveys to elicit feedback.
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Health and Wellness
We believe a healthy, engaged, and high-performing workforce is part of our competitive advantage. We want all of our employees to thrive, and we regularly re-evaluate how to best support
our employees’ wellness, health, and safety through benefits and resources. Our current benefit and wellness programs drive engagement that positively impacts our culture, job satisfaction,
recruiting, and retention programs. In response to the COVID-19 pandemic, we expanded our physical, mental, and family health programs and informational outreach through professional
development opportunities and personal empowerment, safe and healthy workspaces, wellness initiatives (including physical, emotional, and mental health), fair compensation, benefits, and
recognition. Additionally, we have announced our intention to transition to a hybrid work environment in which a significant portion of our workforce will work either in-person on a part-time basis
or remotely on a permanent basis.
Labor Relations
Our employees in the United States are not represented by a labor union; however, in certain foreign locations, there are workers’ councils that represent our employees. We have not
experienced any work stoppages, and we consider our relations with our employees to be good. We recognize the critical role that our supervisors and managers play in fostering a productive,
inclusive and respectful work environment, and we encourage employees to work directly with their supervisors, where possible, to efficiently and effectively resolve workplace concerns. We also
respect our employees’ rights to voluntarily establish and join unions and similar associations without unlawful interference. We strive to work collaboratively with the councils and associations that
represent our workers.
Customers
We market and sell our services and products to a wide variety of global P&C insurers ranging from some of the largest global insurers to national and regional companies. We believe strong
customer relationships are a key driver of our success given the long-term nature of our customer engagements and importance of customer references for new sales. We focus on developing and
maintaining our customer relationships through customer service and account management. Customers are defined as entities that have placed orders for our services or products. In some instances, a
parent corporation can have multiple entities, or insurance brands, that place orders for our services or products. As of July 31, 2022, we had approximately 520 customers representing approximately
520 insurance brands, also referred to as insurers, using one or more of our services or products in 38 countries. The acquisition of HazardHub in August 2021 added approximately 160 customers,
many of which are not insurers.
Strategic Relationships
We have extensive relationships with SI, consulting, technology, and industry partners. Our network of partners has expanded as interest in and adoption of our platform 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 resources
on continued innovation and further enhancement of our solutions.
We work closely with our network of third-party SI partners to facilitate new sales and implementations of both our subscription services and self-managed products. Our partnerships with
leading SI partners allow us to increase efficiency and scale while reducing customer implementation costs. We continue to invest time and resources to increase the number of qualified consultants
employed by our SI partners, develop relationships with new partners in existing and new markets, and ensure that all SI partners are qualified to assist with implementing our services and products.
We believe this model will continue to serve us well, and we intend to continue to expand our network of partners and the number of certified consultants with whom we work so we can leverage our
SI partners more effectively, especially for future subscription implementations.
As part of our PartnerConnect alliance program, we have a community of solution partners developing integrations that enable software and insurance business solutions to interoperate with
our services and products, many of which are in the Guidewire Marketplace. These integrations help customers reduce implementation risk and effort, and lower the total cost of implementation and
operation.
Sales and Marketing
Consistent with our industry focus and the mission-critical needs our services and products address, our sales and marketing efforts are tailored to communicate effectively to senior executives
within the P&C insurance industry. Our sales, marketing, and executive teams work together to cultivate long-term relationships with current and prospective customers in each of the geographies in
which we are active.
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Our direct sales team serves as both our exclusive sales channel and our account management function and is organized by geographic region across the Americas, EMEA, and APAC. We
augment our sales professionals with a pre-sales team possessing insurance domain and technical expertise, who engage customers to understand their specific business needs and then represent our
services and 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. We participate at industry conferences, are published
frequently in the industry press, and have active relationships with all of the major industry analysts. We also host Connections, our annual user conference where customers both participate in and
deliver in-person and virtual presentations on a wide range of Guidewire and insurance technology topics. We invite potential customers and partners to our user conference, as we believe customer
references are a key component of driving new sales. Our strong relationships with leading system integrators enhance our direct sales through co-marketing efforts and by providing additional
market validation of the distinctiveness and quality of our offerings.
Research and Development
Our research and development efforts focus on enhancing our platform, services, and products to meet the complex requirements of P&C insurers with a focus on capabilities, operational
efficiency, data analytics, security, and privacy in the cloud. These efforts are intended to help our customers improve their operations; drive greater digital engagement with their customers, agents,
and brokers; and gather, store and analyze data to improve business decisions. We also invest significantly in developing our services and products and necessary integrations to meet the market
requirements, including regulations, language, currency, and local terminology, of each country or state in which our customers operate. This market-segment specific functionality must be updated
regularly in order to stay current with regulatory changes in each market. We rely on a multi-national engineering team, which has grown organically and through acquisitions.
Competition
The software market that caters to the P&C insurance industry is highly competitive and fragmented. Increased spending by insurers on software solutions and the emergence of new platforms
that have broadened from core system modernization to new digital engagement and data and analytics solutions have generated significant interest among investors and entrepreneurs. Increased
capital allows market participants, or potential market participants such as insurtech companies, to adopt more aggressive go-to-market strategies, improve existing services or products, introduce
new services or products, develop innovative solutions that disrupt the market, and consolidate with other vendors. This market is also subject to changing technology preferences, shifting customer
needs, and the adoption of cloud deployed solutions. These factors create an environment of increasing competition. Our current and future competitors vary in size and in the breadth and scope of the
services or products they offer. As we expand our product portfolio, we may begin to compete with software and service providers we have not traditionally competed against. Our current competitors
include, but are not limited to, customers’ internally developed proprietary solutions; P&C insurance software vendors such as Duck Creek, EIS Group, Insurity, Majesco, Prima Solutions, RGI,
Origami Risk, and Sapiens; and horizontal software vendors such as SAP and Salesforce.
Competitive factors in our industry depend on the product being offered and the size, geographic market, and line of business of potential customers. The principal competitive factors include
product functionality, performance, customer references, total cost of ownership, solution completeness, implementation track record, security and in-depth knowledge of the P&C insurance industry.
We typically compete favorably on the basis of these factors in most geographies.
Intellectual Property
The software industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patent and other intellectual property rights. Our success
and ability to compete depend in part upon our ability to protect our proprietary technology, to establish and adequately protect our intellectual property rights, and to protect against third-party claims
and litigation related to intellectual property. To accomplish these objectives, we rely on a combination of patent, trademark, copyright, and trade secret laws in the United States and other
jurisdictions, as well as license agreements and other contractual protections. We own or have pending patents and patent applications, which generally apply to our software. Our owned patents have
expiration dates starting in 2025. We also rely on several registered and unregistered trademarks, as well as pending applications for such registrations, in order to protect our brand both in the United
States and internationally.
Our investments in services and partners are designed to ensure customer success by committing additional resources to both cloud-based and self-managed implementation projects. Our
investments in cloud operations are focused on managing the infrastructure for our cloud-based customers in a secure, efficient, and cost-effective manner.
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Information about Segment and Geographic Revenue
Information about geographic revenue is set forth in Note 2 “Revenue” and information about segment reporting is set forth in Note 13 “Segment Information” to our consolidated financial
statements included in this Annual Report on Form 10-K.
Seasonality
We have experienced seasonal variations in our license revenue and, to a lesser extent, in our subscription revenue as a result of increased customer orders in our fourth fiscal quarter. We
generally see significantly increased orders in our fourth fiscal quarter, which is the quarter ending July 31, due to efforts by our sales team to achieve annual incentives. Because we recognize
revenue upfront for new term licenses and multi-year renewals compared to over time for subscription services, changes in the mix between term license and subscription services may impact our
quarterly results. Additionally, any quarter in which a significant multi-year term license or multi-year term license renewal or non-renewal occurs could be impacted. For example, in the first quarter
of fiscal year 2021, we experienced license revenue growth due to a five-year term license renewal under which revenue was recognized upfront, which overshadowed the comparison with our
second fiscal quarter of 2021 and created a challenging comparable period for the first quarter of fiscal year 2022. Additionally, as subscriptions increase as a percentage of total sales, the revenue we
can recognize in the initial fiscal quarter and fiscal year of an order is reduced, deferred revenue increases, and our reported revenue growth will be adversely affected in the near term due to the
ratable nature of these arrangements. The concentration of our sales in our fiscal fourth quarter increases this impact as the revenue impact of most fiscal fourth quarter subscription sales will not be
realized until the following fiscal year.
Our services revenue is also subject to seasonal fluctuations, though to a lesser degree than our license revenue and subscription revenue. Our services revenue is impacted by the number of
billable days in a given fiscal quarter. The fiscal quarter ending January 31 usually has fewer billable days due to the impact of the Thanksgiving, Christmas, and New Year’s holidays. The fiscal
quarter ending July 31 usually has fewer billable days due to the impact of vacations taken by our services professionals. Because we pay our services professionals the same amount throughout the
year, our gross margins on our services revenue are usually lower in these quarters. This seasonal pattern, however, may be absent in any given year.
WHERE YOU CAN FIND MORE INFORMATION
The following filings are available to view and download free of charge on our investor relations website as soon as reasonably practicable after we file them with the 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 of stockholders. Our website is located at www.guidewire.com, and our
investor relations website is located at ir.guidewire.com. We also provide a link to the section of the SEC’s website at www.sec.gov that has all of our public filings, including periodic reports, proxy
statements, and other information.
We provide access to a recording of our earnings calls and certain events we participate in or host with members of the investment community on our investor relations website. Additionally,
we also provide notifications on our investor relations website of news or announcements regarding our financial performance, including SEC filings, investor events, press releases, and earnings
releases. Investors and others can receive notifications of new information posted on our investor relations website in real time by signing up for email alerts and RSS feeds. Corporate governance
information, including our governance guidelines and code of business conduct and ethics, is also available on our investor relations website under the heading “Corporate Governance.” Corporate
sustainability information, including our approach and progress in respect of environmentally and socially responsible business practices, is available on our website and is located at
www.guidewire.com/corporate-sustainability. The contents of our websites, including any information contained in reports or other resources found on such websites, are not intended to be
incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC. Any references to our websites are intended to be inactive, textual
references only.
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Item 1A.
Risk Factors
A 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 Annual Report on Form 10-K, and in our other public filings. If any of such risks and uncertainties actually occurs, our business, financial condition or results of operations could
differ materially from the plans, projections and other forward-looking statements included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and elsewhere in this Annual Report on Form 10-K and in our other public filings. In addition, if any of the following risks and uncertainties, or if any other risks and uncertainties,
actually occurs, our business, financial condition 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.
Risks Related to our Business and Industry
Our quarterly and annual results of operations may fluctuate significantly due to a variety of factors, many of which are outside of our control. This variability may lead to volatility in our stock
price as investors and research analysts respond to quarterly fluctuations. In addition, comparing our results of operations 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 an indication of our future performance.
Factors that may affect our results of operations include:
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the impact of economic downturns and related market volatility caused by economic volatility, inflation, or other national and worldwide events on our business and the businesses of
our customers, partners, and vendors;
our ability to attract new domestic and international customers and renew existing customers;
seasonal buying patterns of our potential customers and our ability to sell additional software and services to existing customers;
the proportion and timing of subscription sales as opposed to term or perpetual software licenses, and the variations in revenue recognition between these contract types;
changes in contract durations of term software licenses and renewals;
increases in costs related to cloud operations, product development, and services;
our ability to develop and achieve market adoption of cloud-based services, including the impact of our customers transitioning from term software licenses to subscription services;
erosion in services margins or significant fluctuations in services revenue caused by changing customer demand, negotiated professional services billing rates, investments in customer
implementation and migration projects, or fixed fee contracts;
our ability to enter into contracts on favorable terms, including terms related to price, payment timing, service levels, acceptance, and product delivery, especially with customers and
prospects that possess substantial negotiating leverage and procurement expertise;
the incurrence of penalties or having to renegotiate contract terms for failing to meet certain contractual obligations, including service levels, product development cycles and
functionality, and implementation times and objectives;
security and privacy concerns related to employee data, customer data, and systems that are accessed or otherwise used by our hybrid workforce and customers;
future accounting pronouncements or changes in accounting rules and our related accounting policies, interpretations, and controls;
our ability to realize expected benefits from our acquisitions and other strategic business transactions;
reductions in our customers’ budgets for information technology purchases and delays in their purchasing decisions;
employee retention, the ability to hire appropriate personnel, and the timing of hiring personnel and employee related expenses;
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the impact of a recession or any other adverse global economic condition on our business, including pandemics, geographic and political conflicts, trade tariffs, trade agreements, and
other uncertainties that may cause a delay in entering into or a failure to enter into significant customer agreements or the fulfillment of professional service arrangements;
adverse litigation judgments, dispute-related settlement payments, or litigation-related costs;
fluctuations in foreign currency exchange rates; and
the effects of inflation or deflation in the economies in which we operate and its impact on our revenues given the multi-year term of most customer agreements.
The foregoing factors are difficult to forecast, and these, as well as other factors, could materially adversely affect our quarterly and annual results of operations. Further, due to multi-year term
licenses and multi-year term license renewals, increased cloud-based subscription services, timing of and billing rates for professional services engagements, and other ongoing changes to our
business, it is challenging to forecast our quarterly and annual results.
We believe our ability to adjust spending quickly enough to compensate for a potential revenue shortfall is very limited and our inability to do so could magnify the adverse impact of a
potential revenue shortfall on our results of operations. If we fail to achieve our quarterly forecasts, if our forecasts fall below the expectations of investors or research analysts, or if our actual results
fail to meet the expectations of investors or research analysts, our stock price may decline.
Seasonal sales patterns may cause significant fluctuations in our results of operations and cash flows and may prevent us from achieving our quarterly or annual forecasts, which may
cause our stock price to decline.
We generally see increased new orders in our fourth fiscal quarter, which is the quarter ended July 31, due to efforts by our sales team to achieve annual incentives. As a result, a significantly
higher percentage of our annual license revenue has historically been recognized in our fourth fiscal quarter. Since a substantial majority of our license revenue has annual renewals after the initial
term of the contract, we expect to continue to experience this seasonality effect in subsequent years. Generally, accounting under ASC 606 has and may continue to heighten or change the seasonal
impact due to license revenue for the entire committed term of our new term licenses and multi-year term license renewals being recognized at the beginning of the agreement. Because of the upfront
nature of revenue recognition for new multi-year term licenses and multi-year term license renewals, any quarter in which a significant agreement of this nature is signed, renewed, cancelled, or not
renewed when scheduled to do so may be impacted.
We currently anticipate that sales of, and revenue from, subscription services will continue to increase in the future. Subscriptions are recognized ratably over the term of the agreement after
provisioning of the service. Over time, this may reduce the impact of our historic revenue seasonality, but in the near term the introduction of proportionally more subscription services into our
revenue stream, together with their delayed and ratable recognition, will likely impact quarter-over-quarter and year-over-year revenue growth comparisons. Cash flow expectations and comparisons
could also be impacted because of the ramped nature of the annual installments of these multi-year subscription services arrangements. Additionally, ARR, which reflects the annualized recurring
value of active customer contracts at the end of a reporting period, will be impacted by the seasonality of new sales orders, even if the revenue is recognized ratably.
Our quarterly growth in revenue or ARR also may not coincide with new orders or cash flows in a given quarter, which could mask the impact of seasonal variations. This mismatch is primarily
due to the following reasons:
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our subscription arrangements are recognized ratably and only a portion, if any, of the revenue from an order is recognized in the same fiscal period of the order;
subscription arrangements generally have ramped invoicing schedules over the initial term, which affects ARR, but revenue is recognized ratably over the initial term;
our term license agreements and multi-year term license renewals generally have annual billing arrangements even though revenue is recognized upfront for the entire committed term;
as customers enter into a subscription agreement to migrate from an existing term license agreement or as we invest in certain cloud implementations to assist our customers with their
migration to our cloud services, the timing of revenue recognition may be impacted by the allocation of revenue between different performance obligations;
• we may enter into agreements with future product delivery requirements, specified terms for product upgrades or functionality, acceptance terms, early termination rights, or
unconditional return rights, which may require us to delay revenue recognition for a period of time; and
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revenue recognition may not occur in the period when the order is placed due to certain revenue recognition criteria not being met, such as delivery of the software or providing access
to the subscription services.
Additionally, seasonal patterns may be affected by the timing of particularly large transactions and the large number of renewals that occur in the first fiscal quarter. For example, in the first
quarter of fiscal year 2021, we achieved higher revenue growth due to a five-year renewal of a single license agreement, which resulted in the first quarter of fiscal year 2021 lacking comparability to
the prior year and creating a challenging comparable for the first quarter of fiscal year 2022.
Seasonal and other variations may cause significant fluctuations in our revenues, ARR, results of operations and cash flows, may make it challenging for an investor to predict our performance
on a quarterly basis and may prevent us from achieving our quarterly or annual forecasts or meeting or exceeding the expectations of research analysts or investors, which in turn may cause our stock
price to decline.
If we fail to successfully manage our transition to a business model focused on delivering cloud-based offerings on a subscription basis or fail to meet stipulated service levels with our
subscription services, our results of operations could be harmed.
To address demand trends in the P&C insurance industry, we now offer customers the use of our software products through a cloud-based offering sold on a subscription basis in addition to our
self-managed offering. This change to our business model requires a considerable investment of technical, operational, financial, legal, and sales resources. Our software and cloud services involve
the storage and transmission of customer data, including in some cases, personal data, and security breaches could result in the loss of this information, which in turn could result in litigation, breach
of contract claims, indemnity obligations, harm to our reputation, and other liabilities for us. Our transition to cloud offerings will continue to be the focus of existing resources, require us to hire
additional resources, and increase costs, especially in cost of subscription and support revenue, cost of services revenue, and research and development, in any given period. We may not be able to
efficiently scale such investments to meet customer demand and expectations, which may impact our long-term growth and results of operations. Further, the increase in some costs associated with
our cloud services, such as the cost of third-party infrastructure in which we rely to host our subscription services, may be difficult to predict over time, especially in light of our limited experience
with the costs of delivering cloud-based versions of our applications. Furthermore, we may assume greater responsibilities for implementation of subscription services due to our operating and
maintaining the cloud environment for our customers. As a result, we may face risks associated with new and complex implementations, the cost of which may differ from original estimates. Our
subscription contracts also contain penalty clauses, for matters such as failing to meet stipulated service levels or other contractual provisions, which represent new risks we are not accustomed to
managing. Should these penalties be triggered, our results of operations may be adversely affected. These penalties and costs could take the form of monetary credits for current or future service
engagements, reduced fees for additional services or products or upon renewal of existing agreements, and a customer’s renegotiation or refusal to pay its contractually-obligated subscription or
service fees.
Revenue under our cloud-based subscription model will generally be recognized ratably over the term of the contract. The transition to ratable revenue recognition will result in lower revenue
than we otherwise would have recognized in the initial period of the customer agreement under term license agreements. This effect on recognized revenue may be magnified in any fiscal year due to
the concentration of our orders in the fourth fiscal quarter. A combination of increased costs and delayed recognition of revenue would adversely impact our gross and operating margins compared to
prior periods. Additionally, the change in our business model and the timing of our customers’ decision to transition from self-managed licenses to cloud-based subscription services could negatively
affect our ability to forecast the timing and amount of our revenues in any period.
In addition, market acceptance of our cloud-based offerings may be affected by a variety of factors, including, but not limited to, price, security, reliability, performance, customer preference,
public concerns regarding privacy, and the enactment of restrictive laws or regulations. We are in the early stages of re-architecting our existing services and products and developing new services and
products in an effort to offer customers greater choices on how they utilize our software. As our business practices in this area develop and evolve over time, we may be required to revise our current
subscription agreements, which may result in revised terms and conditions that impact how we recognize revenue and the costs and risks associated with these offerings. Whether our product
development efforts or business model transition will prove successful and accomplish our business objectives is subject to numerous uncertainties and risks, including, but not limited to, customer
demand, our ability to further develop, manage, and scale infrastructure, our ability to include functionality and usability in such offerings that address customer requirements, our customers’ ability
to successfully migrate to and implement our subscription services, tax and accounting implications, and our costs.
In addition, the metrics we and our investors use to gauge the status of our business model transition may evolve over the course of the transition as significant trends emerge. It may be
difficult, therefore, to accurately determine the impact of this transition on our business on a contemporaneous basis, or to clearly communicate the appropriate metrics to our investors. If we
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are unable to successfully establish these new cloud offerings and navigate our business model transition in light of the foregoing risks and uncertainties, our reputation could suffer and our results of
operations could be harmed, which may 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 substantial portion of our revenue and ARR, and
the loss of any of these customers would significantly harm our business, results of operations, and financial condition.
Our revenue and ARR are dependent on orders from customers in the P&C insurance industry, which may be adversely affected by worldwide economic, environmental, public health, and
political conditions. A relatively small number of customers have historically accounted for a significant portion of our revenue. The composition of our individual top customers has and will vary
from year to year. In fiscal year 2020, our ten largest customers accounted for 27% of our revenue, in fiscal year 2021 they accounted for 28%, and in fiscal year 2022 they accounted for 23%.
Additionally, our ten largest customers based on ARR accounted for 26% of total ARR at July 31, 2022. Customers for these metrics are calculated at the parent corporation level, while our total
customer count is based on entities that have placed orders for our services or products. While we expect this reliance to decrease over time as our revenue, customer base and subscription services as
a percentage of revenue grows, we expect that we will continue to depend upon a relatively small number of customers for a significant portion of our revenue for the foreseeable future. As a result, if
we fail to successfully sell our services and products to one or more of these anticipated customers in any particular period or fail to identify additional potential customers or such customers purchase
fewer of our services or products, defer or cancel orders, fail to renew their license or subscription agreements or otherwise terminate or reduce their relationship with us, our business, results of
operations, and financial condition would be harmed. Additionally, if one or more of these anticipated customers enters into or transitions to a subscription agreement in any particular period, or if we
fail to achieve the required performance or acceptance criteria for one or more of this relatively small number of customers, our quarterly and annual results of operations may fluctuate significantly.
Failure of any of our established services or products to satisfy customer demands or to maintain market acceptance could harm our business, results of operations, financial condition,
and growth prospects.
We derive a significant majority of our revenue and cash flows from our established product offerings, including Guidewire InsuranceSuite Cloud, Guidewire InsuranceNow, Guidewire
InsuranceSuite for self-managed installations, and our digital and data services and products. We expect to continue to derive a substantial portion of our revenue from these sources. As such,
continued market acceptance of these services and products is critical to our growth and success. Demand for our services and products is affected by a number of factors, some of which are beyond
our control, including the successful implementation of our services and products, the timing of development and release of product upgrades and new products by us and our competitors, the cost
and effort to migrate from self-managed products to subscription services, the ease of integrating our software to third-party software and services, technological advances that reduce the appeal of
our services and products, changes in the regulations that our customers must comply with in the jurisdictions in which they operate, and the growth or contraction in the worldwide market for
technological solutions for the P&C insurance industry. If we are unable to continue to meet customer demands, to achieve and maintain a technological advantage over competitors, or to maintain
market acceptance of our services and products, our business, results of operations, financial condition and growth prospects may be adversely affected.
Recent global events have adversely affected, and may continue to adversely affect, our business, results of operations, and financial condition.
Recent global events have adversely affected and are continuing to adversely affect workforces, organizations, economies, and financial markets globally, leading to economic downturns,
inflation, and increased market volatility. The continuing COVID-19 pandemic, the ongoing conflict between Russia and Ukraine, inflation higher than we have seen in decades, and supply chain
issues have added to global economic and market volatility. Our business and financial results during fiscal year 2022, including our ARR growth rates, services revenue, and margins, were adversely
impacted due to the disruptions resulting from these events. The pandemic, as well as measures undertaken to contain the spread of COVID-19 variants, have affected and could further affect our
ability to travel to customers and prospects, resulting in delays in services delivery, delays in implementations, and interruptions or modifications in our sales and marketing activities, including
Connections, our annual user conference, which has adversely affected, and may continue to adversely affect, our business, results of operations, and financial condition. These global events have
also disrupted the normal operations of our customers’ businesses and our SI partners’ businesses. The related impacts of recent global events on the global economy could decrease or delay
technology spending and adversely affect demand for our products. Further, our sales and implementation cycles have increased and could continue to increase, which has resulted in and could result
in contract terms more favorable to customers and a potentially longer delay between incurring operating expenses and the generation of corresponding revenue, if any, or difficulty in accurately
forecasting our financial results. Additionally, our customers may be unable to pay outstanding invoices or may request amended payment terms due to the economic impacts from these global events
and related implementation
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delays. In the third quarter of our fiscal year 2022, the ongoing conflict between Russia and Ukraine resulted in our ceasing operations in Russia, which resulted in our recording $3.0 million of bad
debt expense and removing $3.1 million of ARR due to our cancellation of contracts with customers in Russia. As a result of these developments and the related economic impact to our business, we
may be required to record impairment related to our operating lease assets, investments, long-lived assets, or goodwill. We may experience further operational challenges, including increased costs, as
a portion of our workforce returns to working in person and gradually shifts to assisting customers in person, difficulty in hiring necessary personnel, and higher employee attrition. Due to the
continuing and evolving nature of these global events, it is not possible for us to accurately predict the duration or magnitude of the adverse impacts and effects on our business, results of operations,
or financial condition. Further, to the extent recent global events adversely affects our business, results of operations, or financial condition, it may also have the effect of heightening many of the
other risks described in this “Risk Factors” section.
We are in the process of transitioning to a hybrid in-person and remote workforce, which will subject us to certain operational challenges and risks and potential harm to our business.
In response to the COVID-19 pandemic, our workforce shifted from in-person to remote work. We have announced our intention to transition to a hybrid work environment in which a
significant portion of our workforce will work either in-person on a part-time basis or remotely on a permanent basis. As a result, we expect to continue to be subject to the challenges and risks of
having a remote workforce, as well as new challenges and risks from operating with a hybrid workforce. For example, certain security systems in homes or other remote workplaces may be less
secure than those used in our offices, which may subject us to increased security risks, including cybersecurity-related events, and expose us to risks of data or financial loss and associated disruptions
to our business operations. Members of our workforce who work remotely may not have access to technology that is as robust as that in our offices, which could cause the networks, information
systems, applications, and other tools available to those remote workers to be more limited or less reliable than in our offices. We may also be exposed to risks associated with the locations of remote
workers, including compliance with local laws and regulations or exposure to compromised internet infrastructure. Allowing members of our workforce to work remotely may create intellectual
property risk if employees create intellectual property on our behalf while residing in a jurisdiction with unenforced or uncertain intellectual property laws. Further, if employees fail to inform us of
changes in their work location, we may be exposed to additional risks without our knowledge. The transition to hybrid in-person as well as remote working may also subject us to other operational
challenges and risks. For example, our shift to hybrid working may adversely affect our ability to recruit and retain personnel who prefer a fully remote or fully in-person work environment.
Operating our business with both remote and in-person workers, or workers who work in flexible locations and on flexible schedules, could have a negative impact on our corporate culture, decrease
the ability of our workforce to collaborate and communicate effectively, decrease innovation and productivity, or negatively affect workforce morale and retention rates. In addition, we expect to
incur costs related to the transition to a hybrid workforce to, among other things, facilitate permanent remote work for a portion of our workforce and update our offices to offer more collaborative
workspaces. If we are unable to effectively transition to a hybrid workforce, manage the cybersecurity and other risks of remote work, and maintain our corporate culture and workforce morale, our
business could be harmed or otherwise negatively impacted.
We face intense competition in our market, which could negatively impact our business, results of operations, and financial condition and cause our market share to decline.
The market for our software and services is intensely competitive. The competitors we face in any sale opportunity may change depending on, among other things, the line of business
purchasing the software, the application or service being sold, the geography in which the customer is operating, and the size of the insurance carrier to which we are selling. For example, we are
more likely to face competition from small independent firms when addressing the needs of small insurers. These competitors may compete on the basis of price, the time and cost required for
implementation, custom development, or unique product features or functions. Outside of the United States, we are more likely to compete against vendors that may differentiate themselves based on
local advantages in language, market knowledge, and pre-built content applicable to that jurisdiction. We also compete with vendors of horizontal software products that may be customized to address
needs of the P&C insurance industry.
Additionally, many of our prospective customers operate firmly entrenched legacy systems, some of which have been in operation for decades. Our implementation cycles may be lengthy,
variable, and require the investment of significant time and expense by our customers. These expenses and associated operating risks attendant on any significant process re-engineering and new
technology implementation, may cause customers to prefer maintaining legacy systems. Also, maintaining these legacy systems may be so time consuming and costly for our potential customers that
they do not have adequate resources to devote to the purchase and implementation of our services and products. We also compete against technology consulting firms that either helped create such
legacy systems or may own, in full or in part, subsidiaries that develop software and systems for the P&C insurance industry.
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As we expand our product portfolio, we may begin to compete with software and service providers we have not competed against previously. Such potential competitors offer data and analytics
tools that may, in time, become more competitive with our offerings.
We expect the intensity of competition to remain high in the future, as the amount of capital invested in current and potential competitors, including insurtech companies, has increased
significantly in recent years. As a result, our competitors or potential competitors may develop improved product or sales capabilities, or even a technology breakthrough that disrupts our market.
Continuing intense competition could result in increased pricing pressure, increased sales and marketing expenses, and greater investments in research and development, each of which could
negatively impact our profitability. In addition, the failure to increase, or the loss of, market share would harm our business, results of operations, financial condition, and/or future prospects. Our
larger current and potential competitors may be able to devote greater resources to the development, promotion, and sale of their services and products than we can devote to ours, which could allow
them to respond more quickly than we can to new technologies and changes in customer needs, thus leading to their wider market acceptance. We may not be able to compete effectively and
competitive pressures may prevent us from acquiring and maintaining the customer base necessary for us to increase our revenue and profitability.
In addition, the insurance industry is evolving rapidly, and we anticipate the market for cloud-based solutions will become increasingly competitive. If our current and potential customers move
a greater proportion of their data and computational needs to the cloud, new competitors may emerge that offer services either comparable or better suited than ours to address the demand for such
cloud-based solutions, which could reduce demand for our offerings. To compete effectively we will likely be required to increase our investment in research and development, as well as the
personnel and third-party services required to improve reliability and lower the cost of delivery of our cloud-based solutions. New competitors are able to develop cloud-based solutions without the
cost of maintaining or migrating existing solutions and satisfying existing customer requirements, which may allow them to introduce new services and products more quickly and on more efficient
technologies than us. This may increase our costs more than we anticipate and may adversely impact our results of operations.
Our current and potential competitors may also establish cooperative relationships among themselves or with third parties to further enhance their resources and offerings. Current or potential
competitors may be acquired by other vendors or third parties with greater available resources. As a result of such acquisitions, our current or potential competitors might be more able than we are to
adapt quickly to new technologies and customer needs, to devote greater resources to the promotion or sale of their services and products, to initiate or withstand substantial price competition, or to
take advantage of emerging opportunities by developing and expanding their product and service offerings more quickly than we can. Additionally, they may hold larger portfolios of patents and
other intellectual property rights as a result of such relationships or acquisitions. If we are unable to compete effectively with these evolving competitors for market share, our business, results of
operations, and financial condition could be materially and adversely affected.
Our sales and implementation cycles are lengthy and variable, depend upon factors outside our control, and could cause us to expend significant time and resources prior to generating
revenue.
The typical sales cycle for our services and products is lengthy and unpredictable, requires pre-purchase evaluation by a significant number of employees in our customers’ organizations, often
involves a significant operational decision by our customers, and could be affected by factors outside of our control. Our sales efforts involve educating our customers about the use and benefits of
our services and products, including the technical capabilities of our services and products and the potential cost savings achievable by organizations deploying our services and products. Customers
typically undertake a significant evaluation process, which frequently involves not only our services and products, but also those of our competitors. We spend substantial time, effort, and money in
our sales efforts without any assurance that our efforts will produce sales, and our customers have significant negotiating power during the sales process which may result in a lengthy sales cycle and
significant contractual complexity. Additionally, we may be unable to predict the size and terms of the initial contract until very late in the sales cycle, which affects our ability to accurately forecast
revenue and ARR. In addition, we sometimes commit to include specific functions in our base service and product offering at the request of a customer or group of customers and are unable to
recognize revenue until the specific functions have been added to our services and products. Providing this additional functionality may be time consuming and may involve factors that are outside of
our control. Customers may also insist that we commit to certain time frames in which systems built around our services and products will be operational or that once implemented our services and
products will be able to meet certain operational requirements. Our ability to meet such timeframes and requirements may involve factors that are outside of our control, and failure to meet such
timeframes and requirements could result in us incurring penalties and costs and/or making additional resource commitments, which would adversely affect our business and results of operations.
The implementation and testing of our services and products by our customers typically lasts six to 24 months or longer and unexpected implementation delays and difficulties can occur.
Implementing our services and products typically involves
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integration with our customers’ and third parties’ systems, as well as adding customer and third-party data to our platform. This process can be complex, time consuming, and expensive for our
customers and can result in delays in the implementation and deployment of our services and products. Failing to meet the expectations of our customers during the implementation of our services
and products could result in a loss of customers and negative publicity about us and our services and products. Such failure could result from deficiencies in our product capabilities, performance
issues, or inadequate service engagements by us, our SI partners, or our customers’ employees, the latter two of which are beyond our direct control. The consequences of such failure could include,
and have included, monetary credits for current or future service engagements, reduced fees for additional services or products sales or upon renewals of existing licenses and services, potential
reversals of previously recognized revenue, renegotiating existing customer’s contractual terms, and a customer’s refusal to pay their contractually-obligated license, support, or service fees. In
addition, time-consuming and delayed implementations may also increase the amount of services personnel we must allocate to the implementation for it to be successful, thereby increasing our costs
and adversely affecting our business, results of operations, and financial condition.
Furthermore, our sales and implementation cycles could be interrupted or affected by other factors outside of our control. For example, the COVID-19 pandemic caused sales and
implementation cycles to lengthen, along with other impacts on our business. We have had, and may in the future have, restrictions on travel, which are in accordance with recommendations by the
U.S. government, The Centers for Disease Control and Prevention, and other equivalent agencies in the locations in which we operate, and our customers, SI partners, and prospects have likewise
enacted their own preventative policies and travel restrictions. Widespread restrictions on travel and in-person meetings have affected and could continue to affect services delivery, delay
implementations, and interrupt sales activity. We cannot predict the duration or the extent of adverse impacts from the COVID-19 pandemic and other global events on our business, results of
operations, and financial condition.
Failure to manage our expanding operations effectively could harm our business.
We have experienced consistent growth and expect to continue to expand our operations, including the number of employees and the locations and scope of our international operations.
Additionally, we have announced our intention to transition to a hybrid work environment in which a large portion of our workforce will work either in-person on a part-time basis or remotely on a
permanent basis, which brings new challenges to managing our business and workforce. This expansion and changing work environment has placed, and will continue to place, a significant strain on
our operational and financial resources and our personnel. To manage our anticipated future operational expansion effectively, we must continue to maintain and may need to enhance our information
technology and cybersecurity infrastructure and financial and accounting systems and controls, and manage expanded operations and employees in geographically distributed locations. Our growth
could require significant capital expenditures and may divert financial resources from other projects, such as the development of new or enhanced services and products or investments in cloud
operations. If we increase the size of our organization without experiencing an increase in sales of our services and products, we will experience reductions in our gross and operating margins and net
income. If we are unable to effectively manage our expanding operations or hybrid work environment, our expenses may increase more than expected, our revenue could decline or grow more slowly
than expected, and we may be unable to implement our business strategy.
Revenue mix, as well as declines in our subscription and support gross margin or our services gross margin, could adversely affect our overall gross margin and profitability.
Our subscription and support revenue was 42%, 34%, and 27% of total revenue for fiscal years 2022, 2021, and 2020, respectively. Our subscription and support revenue produces lower gross
margins than our license revenue. The gross margin of our subscription and support revenue was 38%, 35%, and 42% for fiscal years 2022, 2021, and 2020, respectively, while the gross margin for
license revenue was 97%, 97%, and 97% for fiscal years 2022, 2021, and 2020, respectively. As our cloud transition continues, we expect that subscription revenue will continue to increase as a
percentage of total revenue as we contract with new cloud customers and existing customers migrate from term licenses to subscription services. Additionally, we are incurring significant expenses to
develop our cloud services and scale our cloud operations which may result in further erosion of our subscription and support gross margin. These trends, along with other factors, some of which may
be beyond our control, may adversely affect our overall gross and operating margins. These other factors include the percentage of new customers that enter into subscription services agreements as
compared to term license agreements, the revenue impact of allocating total contract consideration between license revenue and subscription and support revenue when existing customers transition
from term license to subscription services agreements, investments in certain cloud implementations to assist our customers with their migration to our cloud services, continued growth and efficiency
of our cloud operations and technical support teams, and the impact on the global economy as a result of the COVID-19 pandemic, inflation, or other global events and disasters.
Further, our services revenue was 26%, 25%, and 28% of total revenue for fiscal years 2022, 2021, and 2020, respectively. Our services revenue produces lower gross margin than either our
license revenue or our subscription and support
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revenue. The gross margin of our services revenue was negative for fiscal years 2022, 2021, and 2020. If we experience an increase in the percentage of total revenue represented by services revenue,
like we did in fiscal year 2018 due to acquisitions and other factors, such increase could reduce our overall gross and operating margins. Fluctuation in our services revenue can result from several
factors, some of which may be beyond our control, including the pace of our customers’ migration from term license to subscription services as we continue our cloud transition, change in customer
demand for our services team’s involvement in the implementation of new services and products, the rates we charge or discounts we offer for our services, our ability to bill our customers for all
time incurred to complete a project, the extent and quality of implementations and migrations provided by our SI partners, and the impact on the global economy as a result of economic volatility,
inflation, or other global events and disasters. Additionally, the failure to improve, or the erosion of, our services margin, whether due to discounts related to encouraging clients to accelerate their
cloud transition or otherwise, particularly in combination with any increase in services revenue, could adversely affect our overall gross and operating margins. Our services margin may erode if we
hire and train additional services personnel to support cloud-based services or markets prior to having customer engagements, if we make investments in customer migrations from self-managed term
licenses to subscription services, if we enter into fixed fee services arrangements, if our services personnel are underutilized, or if we require additional personnel on unexpectedly difficult projects to
ensure customer success, perhaps without receiving commensurate compensation.
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 revenue, and lower
average selling prices and gross margins, all of which could harm our results of operations.
Some of our customers include the world’s largest P&C insurers. These customers have significant bargaining power when negotiating new licenses or subscriptions or renewals of existing
agreements, and have the ability to buy similar services and products from other vendors or develop such systems internally. These customers have and may continue to seek advantageous pricing and
other commercial and performance terms that may require us to develop additional features in the services and products we sell to them or add complexity to our customer agreements. We have been
required to, and may continue to be required to, reduce the average selling price of our services and products in response to these pressures. If we are unable to avoid reducing our average selling
prices, our results of operations could be harmed.
Our business depends on customers renewing and expanding their license, support, and subscription contracts for our services and products. A decline in our customer renewals and
expansions could harm our future results of operations.
Our customers have no obligation to renew their term licenses or subscriptions after their contract period expires, and these licenses and subscriptions, if renewed, may be done so on less
favorable terms. Moreover, under certain circumstances, our customers have the right to cancel their licenses or subscriptions before they expire. We may not accurately predict future trends in
customer renewals. In addition, our perpetual license customers have no obligation to renew their support arrangements after the expiration of the initial contractual period. Our customers’ renewal
rates may fluctuate or decline because of several factors, including their satisfaction or dissatisfaction with our services and products, the prices of our services and products, the prices of services and
products offered by our competitors, reduction in our customers’ business including their DWP, 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.
Also, 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, which if exercised would eliminate future term license
revenue. If our customers do not renew their term licenses or subscriptions for our solutions or renew on less favorable terms, our revenue may decline or grow more slowly than expected and our
profitability may be harmed.
If we are unable to develop, introduce, and market new and enhanced versions of our services and 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 services and products to meet evolving customer requirements. Because some
of our services and products are complex and require rigorous testing, new features, new functionality, and updates to our existing products and services can take significant time and resources to
develop and bring to market. As we expand internationally, our services and products must be modified and adapted to comply with regulations and other requirements of the countries in which our
customers do business. Additionally, market conditions may dictate that we change the delivery method of our services and products or the technology platform underlying our existing services and
products or that new services and products be developed on different technology platforms, potentially adding material time and expense to our development cycles. The nature of these development
cycles may cause us to experience delays between the time we incur expenses associated with research and development and the time we generate revenue, if any, from such expenses.
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If we fail to develop new services and products, enhance our existing services and products, or migrate our products to the cloud, our business could be adversely affected, especially if our
competitors are able to introduce services and products with enhanced functionality in the cloud. It is critical to our success for us to anticipate changes in technology, industry standards, and
customer requirements and to successfully introduce new, enhanced, and competitive services and products to meet our customers’ and prospective customers’ needs on a timely basis. We have
invested and intend to increase investments in research and development and cloud operations to meet these challenges. Revenue may not be sufficient to support the future product development that
is required for us to remain competitive. If we fail to develop services and products in a timely manner that are competitive in technology and price or develop services and products that fail to meet
customer demands, our market share will decline and our business and results of operations could be harmed. If our development efforts do not develop services, products or features that our
customers find valuable, then we might incur impairment charges related to our capitalized software development costs.
Real or perceived errors or failures in our services and products, including implementation services, may affect our reputation, cause us to lose customers, and reduce sales and renewal
rates, which may harm our business and results of operations and subject us to liability for breach of warranty claims.
Because we offer complex services and products, undetected errors or failures may exist or occur, especially when services and products are first introduced or when new versions or updates
are released. Our services and products are often installed and used in large-scale computing environments with different operating systems, system management software, and equipment and
networking configurations, which may cause errors or failures in our services and products or may expose undetected errors, failures, or bugs in our services and products. Despite testing by us, we
may not identify all errors, failures, or bugs in new services and products or releases until after commencement of commercial sales or installation. In the past, we have discovered software errors,
failures, and bugs in some of our offerings after their introduction. Additionally, our Guidewire Cloud offerings rely on third-party hosting services, primarily AWS. Any material disruption or
slowdown in these services or the systems of third parties who we depend upon could cause outages or delays in our services, which could harm our reputation and adversely affect our results of
operations.
We provide our customers with upfront estimates regarding the duration, resources, and costs associated with the migration and implementation of our services and products. Failure to meet
these upfront estimates and the expectations of our customers could result from our product capabilities or service engagements performed by us, our SI partners, or our customers’ employees, the
latter two of which are beyond our direct control. The consequences could include, and have included, monetary credits for current or future service engagements, reduced fees for additional services
or product sales or upon renewals of existing licenses or services, renegotiation or modification of existing contracts that could potentially result in reversals of previously recognized revenue, or a
customer’s refusal to pay its contractually-obligated fees. In addition, time-consuming or difficult migrations and implementations may also increase the amount of services personnel we must
allocate to the project, potentially without commensurate compensation, thereby increasing our costs, lowering our services margin, and adversely affecting our business, results of operations, and
financial condition.
The license, subscription, and support of our services and products creates the risk of significant liability claims against us. Our license and subscription agreements with our customers contain
provisions designed to limit our exposure to potential liability claims. It is possible, however, that the limitation of liability provisions contained in such agreements may not be enforced as a result of
international, federal, state, and local laws or ordinances or unfavorable judicial decisions. Breach of warranty or damage liability, or injunctive relief resulting from such claims, could harm our
results of operations and financial condition.
Our ability to sell our services and products is highly dependent on the quality of our professional services and technical support services and the support of our SI partners, and the
failure of us or our SI partners to offer high-quality professional services or technical support services could damage our reputation and adversely affect our ability to sell our services and
products to new customers and renew agreements with our existing customers.
If we or our SI partners do not effectively assist our customers in deploying our services and products, successfully help our customers quickly resolve post-deployment issues, assist our
customers in migrating from self-managed licenses to subscription services, and provide effective ongoing support, our ability to renew existing agreements and sell additional services and products
to existing customers would be adversely affected and our reputation with potential customers could be damaged. Once our services and products are deployed and integrated with our customers’
existing information technology environment, our customers may depend on our technical support services and/or the support of SI partners or internal resources to resolve any issues relating to our
services and products. High-quality support is critical for the continued successful marketing and sale of our services and products. In addition, as we continue to expand our operations
internationally, our support organization will face additional challenges, including those associated with delivering support, training, and
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documentation in multiple languages. Many enterprise customers require higher levels of support than smaller customers. If we fail to meet the requirements of our larger customers, it may be more
difficult to sell additional services and products to these customers or to transition existing license customers to subscription services, a key strategy for the growth of our revenue and profitability. In
addition, as we further expand our cloud-based services and products, our professional services, cloud operations and support organizations will face new challenges, including hiring, training, and
integrating a large number of new personnel with experience in delivering high-quality services and support for cloud-based offerings. Further, as we continue to rely on SIs to provide deployment,
migration, and on-going services, our ability to ensure a high level of quality in addressing customer issues and providing a maintainable and efficient cloud environment could be diminished as we
may be unable to control the quality or timeliness of the implementation of our services and products by our SI partners. Our failure to maintain high-quality implementation and support services, or
to ensure that SIs provide the same, could have a material adverse effect on our business, results of operations, financial condition, and growth prospects.
We may expand through acquisitions or partnerships with other companies, which may divert our management’s attention and result in unexpected operating and technology integration
difficulties, increased costs, and dilution to our stockholders.
Our business strategy includes the potential acquisition of shares or assets of companies with software, cloud-based services, technologies, or businesses complementary to ours. Our strategy
also includes alliances with such companies. For example, we have made several acquisitions in the past, including most recently in August 2021, we acquired HazardHub, Inc., a leading insurtech
provider of API-driven property risk insights. Acquisitions and alliances may result in unforeseen operating difficulties and expenditures, be dilutive to earnings, and may not result in the benefits
anticipated by such corporate activity. In particular, we may fail to assimilate or integrate the businesses, technologies, services, products, personnel, or operations of the acquired companies, retain
key personnel necessary to favorably execute the combined companies’ business plan, or retain existing customers or sell acquired services and products to new customers. Acquisitions and alliances
may also disrupt our ongoing business, divert our resources, and require significant management attention that would otherwise be available for ongoing development of our current business. In
addition, we may be required to make additional capital investments or undertake remediation efforts to ensure the success of our acquisitions, which may reduce the benefits of such acquisitions. We
also may be required to use a substantial amount 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 reserves
and/or dilute our existing stockholders. Following an acquisition or the establishment of an alliance offering new services and products, the timing of revenue from the sale of services and products
that we acquired or that result from the alliance, or from the sale of a bundle of services and products that includes such new services and products, may be different than the timing of revenue from
existing services and products. In addition, our ability to maintain favorable pricing of new services and products may be challenging if we bundle such services and products with existing services
and products. A delay in the recognition of revenue from sales of acquired or alliance services and products, or reduced pricing due to bundled sales, may cause fluctuations in our quarterly financial
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 continue to be, intense. As such, even if we are able to identify
an acquisition that we would like to pursue, the target may be acquired by another strategic buyer or 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 revenue or return on investment
assumptions, we may be exposed to unknown liabilities or impairment charges to acquired intangible assets and goodwill as a result of acquisitions we do complete.
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 services and
products will suffer and our growth could be slower than we project.
We believe that our future growth will depend on the continued recruiting, retention, and training of our global direct sales force and their ability to obtain new customers, both large and small
P&C insurers, and to manage our existing customer base. New hires require significant training 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 of productive global direct sales personnel, sales of our services and products will suffer and our growth will be impeded.
Our SI partners help us reach additional customers. We believe our future growth also will depend on the retention and expansion of successful relationships with SI partners, including with SI
partners that will focus on services and products we may acquire in the future. Our growth in revenue, particularly in international markets, will be influenced by the development and maintenance of
relationships with SI partners, including regional and local SI partners. Although we have established relationships with some of the leading SI partners, our services and products may compete
directly against services and products that such leading SI partners support or market. Additionally, we are unable to control the quantity or quality of
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resources that our SI partners commit to migrating or implementing our services and products, the quality or timeliness of such migrations and implementations, or the effects of the COVID-19
pandemic and other global events on our SI partners. If our partners do not commit sufficient or qualified resources to these activities, our customers will be less satisfied, be less supportive with
references, or may require the investment of our resources at discounted rates. These, and other failures by our partners to successfully implement our services and products, would have an adverse
effect on our business and our results of operations could fail to grow in line with our projections.
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 services and products to customers located outside the United States, and we are continuing to expand our international operations as part of our growth strategy. In fiscal years
2022, 2021, and 2020, $296.2 million, $271.1 million, and $279.8 million of our revenue, respectively, was from customers outside of the United States. Our current international operations and our
plans to expand our international operations subject us to a variety of risks, including:
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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 contracts and our services and products for international customers;
lack of familiarity with and unexpected changes in foreign regulatory requirements;
increased exposure to fluctuations in currency exchange rates, especially on revenue and ARR;
highly inflationary international economies, such as Argentina;
geographic and political conflicts, such as that between Russia and Ukraine;
the burdens and costs of complying with a wide variety of foreign laws and legal standards, including the General Data Protection Regulation in the European Union (“EU”) and the
U.K.;
compliance with the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.K. Bribery Act of 2010 and other anti-corruption regulations, particularly in emerging market
countries;
compliance by international staff with accounting practices generally accepted in the United States, including adherence to our accounting policies and internal controls;
import and export license requirements, tariffs, taxes and other trade barriers;
increased financial accounting, tax and reporting burdens and complexities;
• weaker protection of intellectual property rights in some countries;
• multiple and possibly overlapping tax regimes;
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government sanctions that may interfere with our ability to sell into particular countries, such as Russia;
disruption to our operations caused by epidemics or pandemics, such as COVID-19; 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 and other 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.
Incorrect or improper use of our services and products or our failure to properly train customers on how to utilize our services and products could result in customer dissatisfaction and
negatively affect our business, results of operations, financial condition, and growth prospects.
Our services and products are complex and are deployed in a wide variety of network environments. The proper use of our services and products requires training of the customer. If our
services and products are not used correctly or as intended, inadequate performance may result. Our services and products may also be intentionally misused or abused by customers or their
employees or third parties who are able to access or use our services and products. Because our customers rely on our services, products, and support to manage a wide range of operations, the
incorrect or improper use of our services and products, our failure to properly train customers on how to efficiently and effectively use our services and products, or our
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failure to properly provide services to our customers may result in negative publicity or legal claims against us. Also, any failure by us to properly provide training or other services to existing
customers will likely result in lost opportunities for follow-on and increased sales of our services and products.
In addition, if there is substantial turnover of customer personnel responsible, especially at the executive level, for the use and support of our services and products, or if customer personnel are
not well trained in the use and support of our services and products, customers may defer the deployment of our services and products, may deploy them in a more limited manner than originally
anticipated, or may not deploy them at all. Further, if there is substantial turnover of the customer personnel responsible for use of our services and products, our ability to renew existing licenses and
make additional sales may be substantially limited.
We may not be able to obtain capital when desired on favorable terms, if at all, and we may not be able to obtain capital or complete acquisitions through the use of equity 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 services and products, 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 existing stockholders could be significantly diluted, and newly-issued
securities may have rights, preferences, or privileges senior to those of existing stockholders. If we accumulate additional funds through debt financing, a substantial portion of our operating cash
flow may be dedicated to the payment of principal and interest on such indebtedness, thus limiting funds available for our business activities. We cannot be assured that additional financing will be
available on terms favorable to us, 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, take advantage of
unanticipated opportunities, develop or enhance our services and products, or otherwise respond to competitive pressures would be significantly limited. Any of these factors could harm our results of
operations.
Risks Related to Data Security and Privacy, Intellectual Property, and Information Technology
If our products or cloud-based services experience data security breaches or there is unauthorized access to our customers’ data, we may lose current or future 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 cloud services may be perceived as not being secure, customers may reduce the use of
or stop using our services, we may incur significant liabilities, and our reputation could be harmed. Our software and cloud services involve the storage and transmission of customer data, including
in some cases, personal data, and security breaches could result in the loss of this information, which in turn could result in litigation, breach of contract claims, indemnity obligations, and other
liabilities for our company. While we have taken, and are continually updating and enhancing, steps to protect the confidential information and customer data to which we have access, including
confidential information we may obtain through our customer support services or customer usage of our cloud-based services, our security measures or the security measures of companies we rely on,
such as AWS, could be breached. We rely on third-party technology and systems for a variety of services, including, without limitation, encryption and authentication technology, employee email,
content delivery to customers, back-office support, and other functions, and our ability to control or prevent breaches of any of these systems may be beyond our control. Because techniques used to
obtain unauthorized access or infiltrate systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to
implement adequate preventative measures despite our efforts in implementing and deploying security measures. Although we have developed systems and processes that are designed to protect
customer data 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. Any or all of these issues could negatively impact our ability to attract new customers or to increase engagement with existing customers, could cause existing customers to
elect not to renew their term licenses or subscription agreements, or could subject us to third-party lawsuits, regulatory fines or other action or liability, thereby adversely affecting our results of
operations and reputation.
Privacy concerns could result in regulatory changes and impose additional costs and liabilities on us, limit our use of information, and adversely affect our business.
As adoption of our cloud-based services occurs, the amount of customer data, including customer personal information, that we manage, hold, and/or collect continues to increase. In addition,
our services and products may collect, process, store, and use transaction-level data aggregated across insurers using our common data model. We anticipate that over time we will continue to expand
the use and collection of personal information as greater amounts of such personal information may be
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transferred from our customers to us and we recognize that privacy and data security has become a significant issue in the United States, Europe, the U.K., and many other jurisdictions where we
operate.
Many federal, state, and foreign legislatures and government agencies have imposed, are considering imposing, or are considering changing restrictions and requirements about the collection,
use, and disclosure of personal information. Changes to laws or regulations affecting privacy could impose additional costs and liabilities, including fines, on us and could limit our use of such
information to add value for customers, including for example, the California Consumer Privacy Act, the California Privacy Rights Act, which takes substantial effect on January 1, 2023, and the
Court of Justice of the EU’s invalidation of the Privacy Shield framework in July 2020. On July 16, 2020, the Court of Justice of the EU issued a verdict that ruled that the EU-US Privacy Shield, on
which many companies relied on to transfer their data between the EU and the U.S., was invalidated due to concerns around surveillance by U.S. state and law enforcement agencies, known as the
Schrems II decision. Schrems II now requires companies to conduct case-by-case assessments of each data transfer to a non-EU, or non-UK, country in order to ensure that such data is adequately
protected. 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 with applicable privacy and/or data security laws, regulations, standards, and other
requirements. The costs of compliance with and other burdens imposed by privacy-related laws, regulations, and standards may limit the use and adoption of our services and products and reduce
overall demand.
Furthermore, concerns regarding data privacy and/or security may cause our customers’ customers to resist providing the data and information necessary to allow our customers to use our
services and products effectively. Even the perception that the privacy and/or security of personal information is not satisfactorily managed, or does not meet applicable legal, regulatory, and other
requirements, could inhibit sales of our services or products, and could limit adoption of our solutions, resulting in a negative impact on our sales, reputation, and results from operations.
Privacy concerns in the EU and the U.K. are evolving and we may face fines and other penalties, as well as reputational harm, if we fail to comply with these current and evolving laws,
and compliance with these laws may increase our expenses and adversely affect our business and results of operations.
On April 27, 2016, the EU adopted the General Data Protection Regulation 2016/679 (“GDPR”), that took effect on May 25, 2018. The GDPR applies to any company established in the
European Economic Area (“EEA”) as well as to those outside the EEA if they carry out processing of personal data of individuals in the EEA that is related to the offering of goods or services to
them or the monitoring of their behavior. The GDPR has enhanced data protection obligations for processors and controllers of personal data, including, for example, expanded disclosures about how
personal data is to be used, limitations on retention of personal data, enhanced data subject rights, mandatory data breach notification requirements, and onerous new obligations on data processors.
Non-compliance with the GDPR can trigger fines of up to €20 million, or 4% of total worldwide annual revenues, whichever is higher. Given the breadth and depth of changes in data protection
obligations, complying with GDPR requirements has caused us to expend significant resources and such expenditures are likely to continue into the near future as we respond to new interpretations,
regulatory guidance, and enforcement decisions and as we continue to negotiate data processing agreements with our customers and business partners.
In addition, the GDPR restricts transfers of personal data outside of the EEA to countries deemed to lack adequate privacy protections, including the U.S., unless an appropriate safeguard
specified by the GDPR is implemented, such as the Standard Contractual Clauses (“SCCs”) approved by the European Commission and, until July 16, 2020, the Privacy Shield for EU–U.S. data
transfers. On July 16, 2020, the European Court of Justice (“ECJ”) invalidated the EU-U.S. Privacy Shield, but it deemed that SCCs are valid, provided additional safeguards are in place. However,
the ECJ ruled that transfers made pursuant to SCCs and other alternative transfer mechanisms need to be analyzed on a case-by-case basis to ensure EU standards of data protection are met in the
jurisdiction where the data importer is based, and there continue to be concerns about whether SCCs will face additional challenges. Moreover, on September 8, 2020, the Swiss Federal Data
Protection and Information Commissioner announced that it no longer considers the Swiss-U.S. Privacy Shield to provide adequate protections for transfers of Swiss personal data to the U.S.,
following the invalidation of the EU-U.S. Privacy Shield by the ECJ. Further, on June 4, 2021, the European Commission published revised standard contractual clauses for data transfers from the
EEA. The revised clauses must be used for relevant new data transfers from September 27, 2021, while existing standard contractual clauses arrangements must be migrated to the revised clauses by
December 27, 2022. We will be required to implement the revised standard contractual clauses in relation to our customer arrangements within the relevant time frames, which could increase our
compliance costs and adversely affect our business. We (and many other companies) may be required to adopt additional measures to accomplish and maintain legitimate means for the transfer and
receipt of personal data from the EU to the United States and other countries. As data protection authorities continue to issue further guidance and orders on personal data export mechanisms and/or
continue taking enforcement action, we could suffer additional costs, complaints and/or regulatory
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investigations or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our
services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our financial results.
We may experience hesitancy, reluctance, or refusal by European or multi-national customers to continue to use our services due to the potential risk exposure to such customers as a result of
such developments and the data protection obligations imposed on them by various data protection authorities. Such customers may also view any alternative approaches to the transfer of any
personal data as being too costly, too burdensome, or otherwise objectionable, and therefore may decide not to do business with us.
Given our current transition to more cloud-based services and the current data protection landscape in the EU, we may be subject to greater risk of potential inquiries and/or enforcement actions
from regulators. We may find it necessary to establish alternative systems to maintain EEA personal data within the EEA, which may involve substantial expense and may cause us to need to divert
resources from other aspects of our business, all of which may adversely affect our results from operations. Further, any inability to adequately address privacy concerns in connection with our cloud-
based services, or comply with applicable privacy or data protection laws, regulations, and policies, could result in additional cost and liability to us, including fines and harm to our reputation, and
adversely affect our ability to offer cloud-based services.
Starting on January 1, 2021, as a result of Brexit, the U.K. has brought the GDPR into domestic U.K. law with the Data Protection Act 2018 (“U.K. GDPR”), which will remain in force. The
U.K. GDPR mirrors the data protection obligations and fines under the GDPR, but there may be further developments about the regulation of particular issues such as U.K. data exports. The United
Kingdom’s Information Commissioner’s Office has published new data transfer standard contracts for transfers from the U.K. under the U.K. GDPR. This new documentation will be mandatory for
relevant data transfers from September 21, 2022; existing standard contractual clauses arrangements must be migrated to the new documentation by March 21, 2024. We will be required to implement
the latest U.K. data transfer documentation for data transfers subject to the U.K. GDPR, in relation to relevant existing contracts and certain additional contracts and customer arrangements, within
the relevant time frames. On June 28, 2021, the European Commission adopted an adequacy decision in favor of the U.K., enabling data transfers from EEA member states to the U.K. without
additional safeguards. However, the U.K. adequacy decision will automatically expire in June 2025 unless the European Commission re-assesses and renews/extends that decision, and it remains
under review by the Commission during this period. In September 2021, the U.K. government launched a consultation on its proposals for wide-ranging reform of U.K. data protection laws following
Brexit. There is a risk that any material changes which are made to the U.K. data protection regime could result in the Commission reviewing the U.K. adequacy decision, and the U.K. losing its
adequacy decision if the Commission deems the U.K. to no longer provide adequate protection for personal data. These changes may lead to additional costs and increase our overall risk exposure.
Anticipated further evolution of EU and U.K. regulations on data privacy and security and any related changes to the regulatory framework in these or other countries may increase substantially
our risk exposure to the penalties to which we could be subject in the event of any non-compliance. We may incur substantial expense in complying with the new obligations to be imposed by new
regulations and interpretations of existing regulations and we may be required to make significant changes to our software applications and expanding business operations, all of which may adversely
affect our results of operations.
Assertions by third parties of infringement or other violation by us of their intellectual property rights could result in significant costs and substantially harm 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 and other intellectual property rights. In
particular, leading companies in the software industry own large numbers of patents, copyrights, trademarks, and trade secrets, which they may use to assert claims against us. From time to time, third
parties holding such intellectual property rights, including leading companies, competitors, patent holding companies, and/or non-practicing entities, may assert patent, copyright, trademark, or other
intellectual property claims against us, our customers and partners, and those from whom we license technology and intellectual property.
Although we believe that our services and products do not infringe upon the intellectual property rights of third parties, we cannot assure that we are not infringing or otherwise violating any
third-party intellectual property rights or that third parties will not assert infringement or misappropriation claims against us with respect to current or future services or products, or that any such
assertions will not require us to enter into royalty arrangements, result in costly litigation, or result in us being unable to use certain intellectual property. Infringement assertions from third parties
may involve patent holding companies or other patent owners who have no relevant product revenue, and therefore our own issued and pending patents may provide little or no deterrence to these
patent owners in bringing intellectual property rights claims against us.
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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 are determined in our favor, we may be
required to expend significant time and financial resources on the defense of such claims. Furthermore, an adverse outcome of a dispute may require us to pay damages, potentially including treble
damages and attorneys’ fees, if we are found to have willfully infringed a party’s intellectual property; cease making, licensing, or using our services or products that are alleged to infringe or
misappropriate the intellectual property of others; expend additional development resources to redesign our services or products; enter into potentially unfavorable royalty or license agreements in
order to obtain the right to use necessary technologies or works; and to indemnify our partners, customers, and other third parties. Any of these events could seriously harm our business, results of
operations, and financial condition.
Failure to protect our intellectual property could substantially harm our business and results of operations.
Our success depends in part on our ability to enforce and defend our intellectual property rights. We rely upon a combination of trademark, trade secret, copyright, patent, and unfair
competition laws, as well as license agreements and other contractual provisions, to do so.
We have filed, and may in the future file, patent applications related to certain of our innovations. We do not know whether those patent applications will 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 competitive advantages from the rights granted under our patents and other intellectual property.
Our existing patents and any patents granted to us or that we otherwise acquire 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 obtaining patent
protection, including the requirement to ultimately disclose the invention to the public, we may choose not to seek patent protection for certain innovations; 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 build brand identity and possibly leading to confusion in the marketplace. In
addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our trademarks. Any
claims or customer confusion related to our trademarks 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 to enter into confidentiality agreements and
assignment of inventions agreements and third parties to enter into nondisclosure agreements, all of which offer only limited protection. These agreements may not effectively prevent unauthorized
use or disclosure of our confidential information, intellectual property or technology and 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 our
confidential proprietary information, develop and market services or products similar to ours, or use trademarks similar to ours, any of which could materially harm 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
United States federal, state, and international intellectual property laws offer only limited protection. 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 many foreign countries do not enforce these laws as diligently as governmental agencies and private parties in the United States. Moreover, policing our
intellectual property rights is difficult, costly, and may not always be effective.
From time to time, legal action by us may be necessary to enforce our patents and other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the
intellectual property rights of others, or to defend against claims of infringement or invalidity. Such litigation could result in substantial costs and diversion of resources and could negatively affect
our business, reputation, results of operations, and financial condition. If we are unable to protect our technology and to adequately maintain and protect our intellectual property rights, we may find
ourselves at a competitive disadvantage to others who need not incur the additional expense, time, and effort required to create the innovative services and products that have enabled us to be
successful to date.
We and our customers rely on technology and intellectual property of third parties, the loss of which could limit the functionality of our services and products and disrupt our business.
We use technology and intellectual property licensed from unaffiliated third parties in certain of our services and products, and we may license additional third-party technology and intellectual
property in the future. Any errors or defects in
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this third-party technology and intellectual property or the integration of third-party technology and intellectual property with our services and products could result in errors that could harm our
brand and business. In addition, licensed technology and intellectual property may not continue to be available on commercially reasonable terms, or at all. The loss of the right to license and
distribute this third-party technology could limit the functionality of our services and products and might require us to redesign our services and products.
In addition, our Guidewire Cloud offerings rely on third-party hosting and infrastructure services provided by AWS, for the continuous, reliable, and secure operation of servers, related
hardware and software, and network infrastructure. A prolonged AWS service disruption or slowdown for any reason could damage our reputation with current and potential customers, expose us to
liability, cause us to lose customers, or otherwise harm our business.
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 release the source code of certain
services and 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 license requirements, usage of open source
software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on origin of the software. Additionally, some
open source licenses require that source code subject to the license be made available to the public and that any modifications or derivative works to open source software continue to be licensed
under open source licenses. These open source licenses typically mandate that proprietary software, when combined in specific ways with open source software, become subject to the open source
license. If we combine our proprietary software in such ways with open source software, we could be required to release the source code of our proprietary software.
We take steps to ensure that our proprietary software is not combined with, and does not incorporate, open source software in ways that would require our proprietary software to be subject to
many of the restrictions in an open source license. However, few courts have interpreted open source licenses, and the manner in which these licenses may be interpreted and enforced is therefore
subject to some uncertainty. Additionally, we rely on hundreds of software programmers to design our proprietary technologies, and although we take steps to prevent our programmers from
including objectionable open source software in the technologies and software code that they design, write and modify, we do not exercise complete control over the development efforts of our
programmers and we cannot be certain that our programmers have not incorporated such open source software into our proprietary services and products and technologies or 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, we could 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 the licensing of our technologies, each of which could reduce or eliminate the value of our services and technologies
and materially and adversely affect our business, results of operations, and prospects.
We may be obligated to disclose our proprietary source code to our customers, which may limit our ability to protect our intellectual property and could reduce the renewals of our support
services.
Our software license agreements typically contain provisions permitting the customer to become a party to, or a beneficiary of, a source code escrow agreement under which we place the
proprietary source code for our applicable services and products in escrow with a third party. Under these escrow agreements, the source code to the applicable product may be released to the
customer, typically for its use to maintain, modify, and enhance the product, upon the occurrence of specified events, such as our filing for bankruptcy, discontinuance of our support services, and
breaching our representations, warranties, or covenants of our agreements with our customers. Additionally, in some cases, customers have the right to request access to our source code upon demand.
Some of our customers have obtained the source code for certain of our services and 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 services and products containing that source code
and may facilitate intellectual property infringement claims against us. It also could permit a customer to which a product’s source code is disclosed to support and maintain that software product
without being required to purchase our support services. Each of these could harm our business, results of operations, and financial condition.
The nature of our business requires the application of accounting guidance that requires management to make estimates and assumptions. Reported results under GAAP may vary from
key metrics used to measure our business. Additionally, changes in accounting guidance may cause us to experience greater volatility in our quarterly and annual
Risks Related to Legal, Regulatory, Accounting, and Tax Matters
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results. If we are unsuccessful in adapting to and interpreting the requirements of new guidance, or in clearly explaining to stockholders how new guidance affects reporting of our results of
operations, our stock price may decline.
We prepare our consolidated financial statements to conform to United States Generally Accepted Accounting Principles (“GAAP”). These accounting principles are subject to interpretation by
the SEC, Financial Accounting Standards Board (“FASB”), and various bodies formed to interpret and create accounting rules and regulations. Accounting standards, such as ASC 606 - Revenue
from Contracts with Customers or ASC 842 - Leases, or the guidance relating to interpretation and adoption of standards could have a significant effect on our financial results and could affect our
business. Additionally, the FASB and the SEC are focused on the integrity of financial reporting, and our accounting policies are subject to scrutiny by regulators and the public.
We cannot predict the impact of future changes to accounting principles or our related accounting policies on our financial statements going forward. In addition, were we to change our
accounting estimates, including those related to the timing of revenue recognition and those used to allocate revenue between various performance obligations, our reported revenue and results of
operations could be significantly impacted. If we are unsuccessful in adapting to the requirements of any new standard, or if changes to our go-to-market strategy create new risks, then we may
experience greater volatility in our quarterly and annual results, which may cause our stock price to decline.
In addition, GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets,
liabilities, equity, revenue, and expenses that are not readily apparent from other sources.
Further, revenue recognition standards require significant judgment and estimates that impact our reported revenue and results of operations. Additionally, reported revenue has and will vary
from the ARR and cash flow associated with each customer agreement. For example, for some arrangements with multiple performance obligations, a portion of recurring license and support or
subscription contract value is allocated to services revenue for revenue recognition purposes, but does not get allocated for purposes of calculating ARR. This revenue allocation only impacts the
initial term of the contract. This means that as we increase arrangements with multiple performance obligations that include services at discounted rates, more of the total contract value will be
recognized as services revenue, but our reported ARR amount will not be impacted. This potential difference and variability in the trends of reported amounts may cause volatility in our stock price.
If we fail to maintain effective internal control over financial reporting or identify a material weakness in our internal control over financial reporting, our ability to report our financial
condition and results of operations in a timely and accurate manner could be adversely affected, investor confidence in our company could diminish, and the value of our common stock may
decline.
Preparing our consolidated financial statements involves a number of complex manual and automated processes, which are dependent upon individual data input or review and require
significant management judgment. One or more of these processes may result in errors that may not be detected and could result in a material misstatement of our consolidated financial statements.
The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires, among other things, that as a publicly-traded company we disclose whether our internal control over financial reporting and
disclosure controls and procedures are effective.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our
annual or interim financial statements will not be prevented or detected on a timely basis.
While we continually undertake steps to improve our internal control over financial reporting as our business changes, we may not be successful in making the improvements and changes
necessary to be able to identify and remediate control deficiencies or material weaknesses on a timely basis. If we are unable to successfully remediate any future material weaknesses in our internal
control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected; our liquidity, access to capital markets and perceptions of our creditworthiness may be
adversely affected; we may be unable to maintain compliance with securities laws, stock exchange listing requirements and debt instruments covenants regarding the timely filing of periodic reports;
we may be subject to regulatory investigations and penalties; investors may lose confidence in our financial reporting; we may suffer defaults under our debt instruments; and our stock price may
decline.
If tax laws change or we experience adverse outcomes resulting from examination of our income tax returns, it could adversely affect our results of operations.
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 of our deferred tax assets could be adversely
affected by changes in, interpretations of, and
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guidance regarding tax laws, including impacts of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), the Coronavirus Aid, Relief, Economic Security Act of 2020, and the Inflation Reduction Act of
2022.
In addition, we are subject to the examination of our income tax returns by the IRS and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from such
examinations to determine the adequacy of our provision for income taxes. Significant judgment is required in determining our worldwide provision for income taxes. Although we believe we have
made appropriate provisions for taxes in the jurisdictions in which we operate, changes in the tax laws or challenges from tax authorities under existing tax laws could adversely affect our business,
financial condition and results of operations.
Our stock price may be volatile, which could result in securities class action litigation against us.
Risks Related to Ownership of Our Common Stock
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, the timing and amount of any share
repurchases by us, and other factors beyond our control, such as fluctuations in the valuation of companies perceived by investors to be comparable to us and research analyst coverage about our
business.
Furthermore, the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These
fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political, and
market conditions, such as recessions, interest rate changes, inflation or deflation, armed conflict, or international currency fluctuations, have and may continue to affect the market price of our
common stock.
In the past, we and many companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation and we may become the target of
complaints of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from our business, which could seriously harm
our business, results of operations, and financial condition.
We currently do not intend to pay dividends on our common stock and, consequently, the only opportunity to achieve a return on investment is if the price 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 achieve a return on investment in our company
will be if the market price of our common stock appreciates and shares are sold at a profit.
Certain provisions of our certificate of incorporation and bylaws and of Delaware law could prevent a takeover that stockholders consider favorable and could 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 a premium for their shares. These provisions may also prevent or delay attempts by
stockholders to replace or remove our current management or members of our board of directors. These provisions include:
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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 could be 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 our stockholders;
limiting the persons who may call special meetings of stockholders, which could delay the ability of our stockholders to force consideration of a proposal 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 a solicitation 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 a majority of our shares of capital stock entitled to vote is generally necessary to amend or repeal the above provisions that are contained in our
amended and restated certificate of incorporation.
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Also, absent approval of our board of directors, our amended and restated 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 large stockholders, in particular those owning 15% or
more of our outstanding common stock, from engaging in certain business combinations without approval of substantially 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 could discourage 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 the market price of our shares being lower than it would be without these provisions.
Our amended and restated bylaws designate certain state or federal courts as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit
stockholders’ ability to obtain a favorable judicial forum for disputes with us.
Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the Court of Chancery of the State of
Delaware will be the sole and exclusive forum for any state law claim for:
•
•
•
•
any derivative action or proceeding brought on our behalf;
any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees to us or our stockholders;
any action asserting a claim arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws; or
any action asserting a claim that is governed by the internal affairs doctrine (the “Delaware Forum Provision”).
The Delaware Forum Provision will not apply to any causes of action arising under the Securities Act or the Exchange Act. Further, our amended and restated bylaws provide that, unless we
consent in writing to the selection of an alternative forum, the United States District Court for the Northern District of California will be the sole and exclusive forum for resolving any complaint
asserting a cause of action arising under the Securities Act (the “Federal Forum Provision”), as we are based in the State of California. In addition, our amended and restated bylaws provide that any
person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the Delaware Forum Provision and the Federal Forum
Provision; provided, however, that stockholders cannot and will not be deemed to have waived our compliance with the U.S. federal securities laws and the rules and regulations thereunder.
The Delaware Forum Provision and the Federal Forum Provision in our amended and restated bylaws may impose additional litigation costs on stockholders in pursuing any such claims.
Additionally, these forum selection clauses may limit our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers or employees,
which may discourage the filing of lawsuits against us and our directors, officers and employees, even though an action, if successful, might benefit our stockholders. In addition, while the Delaware
Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court are “facially valid” under Delaware law,
there is uncertainty as to whether other courts will enforce our Federal Forum Provision. If the Federal Forum Provision is found to be unenforceable, we may incur additional costs associated with
resolving such matters. The Federal Forum Provision may also impose additional litigation costs on stockholders who assert that the provision is not enforceable or invalid. The Court of Chancery of
the State of Delaware and the United States District Court for the Northern District of California may also reach different judgments or results than would other courts, including courts where a
stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders.
We cannot guarantee that any share repurchase program will be fully consummated or it will enhance stockholder value, and share repurchases could affect the price of our common
stock.
In October 2020, our board of directors authorized and approved a share repurchase program of up to $200 million of our outstanding common stock. The share repurchase program was
completed in the second quarter of fiscal year 2022. However, our board of directors may authorize a new share repurchase program in the future. If approved in the future, share repurchases may be
made from time to time, in the open market, in privately negotiated transactions and otherwise, at the discretion of management and in accordance with applicable federal securities laws, including
Rule 10b-18 of the Exchange Act, and other applicable legal requirements. Such repurchases may also be made in compliance with Rule 10b5-1 trading plans entered into
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by us. The timing, pricing, and sizes of repurchases will depend on a number of factors, including the market price of our common stock and general market and economic conditions. A share
repurchase program does not obligate us to repurchase any dollar amount or number of shares, and the program may be suspended or discontinued at any time, which may result in a decrease in the
price of our common stock. A share repurchase program could affect the price of our common stock, increase volatility, and diminish our cash reserves.
Risks Related to Our Indebtedness
Servicing our indebtedness requires a significant amount of cash. We may not have sufficient cash flow from our business to pay our substantial indebtedness, and we may not have the
ability to raise the funds necessary to settle for cash conversions of the Convertible Senior Notes or to repurchase the Convertible Senior Notes upon a fundamental change, which could
adversely affect our business and results of operations.
As of July 31, 2022, we had outstanding an aggregate principal amount of $400.0 million of our 1.25% Convertible Senior Notes due 2025 (the “Convertible Senior Notes”). Our indebtedness
may increase our vulnerability to any generally adverse economic and industry conditions, and we and our subsidiaries may, subject to the limitations in the terms of our existing and future
indebtedness, incur additional debt, secure existing or future debt, or recapitalize our debt. If we incur additional indebtedness, the risks related to our business would increase and our ability to
service or repay our indebtedness may be adversely impacted.
Pursuant to their terms, holders may convert their Convertible Senior Notes at their option prior to the scheduled maturities of their Convertible Senior Notes under certain circumstances. Upon
conversion of the Convertible Senior Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share),
we will be obligated to make cash payments. In addition, holders of our Convertible Senior Notes will have the right to require us to repurchase their Convertible Senior Notes upon the occurrence of
a fundamental change (as defined in the Indenture, dated as of March 13, 2018, between the Company and U.S. Bank National Association, as trustee (the “Trustee”) (the “Base Indenture”), as
amended and supplemented by the First Supplemental Indenture, dated as of March 13, 2018, between the Company and the Trustee (together with the Base Indenture, the “Indenture”)) at a
repurchase price equal to 100% of the principal amount of the Convertible Senior Notes to be repurchased, plus accrued and unpaid interest, if any, to, but not including, the fundamental change
purchase date. Although it is our intention and we currently expect to have the ability to settle the Convertible Senior Notes in cash, there is a risk that we may not have enough available cash or be
able to obtain financing at the time we are required to make repurchases of Convertible Senior Notes surrendered therefor or Convertible Senior Notes being converted. In addition, our ability to
make payments may be limited by law, by regulatory authority, or by agreements governing our future indebtedness. Our failure to repurchase Convertible Senior Notes at a time when the repurchase
is required by the Indenture or to pay any cash payable on future conversions of the Convertible Senior Notes as required by such Indenture would constitute a default under such Indenture. A default
under the Indenture or the fundamental change itself could also lead to a default under agreements governing our future indebtedness. If the repayment of the related indebtedness were to be
accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Convertible Senior Notes or make cash payments upon
conversions thereof.
Our ability to make scheduled payments of the principal and interest on our indebtedness when due or to make payments upon conversion or repurchase demands with respect to our
Convertible Senior Notes, or to refinance our indebtedness as we may need or desire, depends on our future performance, which is subject to economic, financial, competitive, and other factors
beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to satisfy our obligations under our existing indebtedness, and any future
indebtedness we may incur, and to make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as reducing or
delaying investments or capital expenditures, selling assets, refinancing, or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance existing or
future indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms,
which could result in a default on our existing or future indebtedness and have a material adverse effect on our business, results of operations, and financial condition.
The conditional conversion feature of the Convertible Senior Notes, if triggered, may adversely affect our financial condition and results of operations.
In the event the conditional conversion feature of the notes is triggered, holders of our Convertible Senior Notes will be entitled to convert the Convertible Senior Notes at any time during
specified periods at their option. If one or more holders elect to convert their Convertible Senior Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common
stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could
adversely affect our liquidity. In addition, even if
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holders do not elect to convert their Convertible Senior Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the notes as a current
rather than long-term liability, which would result in a material reduction of our net working capital.
Transactions relating to our Convertible Senior Notes may affect the value of our common stock.
The conversion of some or all of the Convertible Senior Notes would dilute the ownership interests of existing stockholders to the extent we satisfy our conversion obligation by delivering
shares of our common stock upon any conversion of such Convertible Senior Notes. Our Convertible Senior Notes may become in the future convertible at the option of their holders under certain
circumstances. If holders of our Convertible Senior Notes elect to convert their notes, we may settle our conversion obligation by delivering to them a significant number of shares of our common
stock, which would cause dilution to our existing stockholders.
In connection with the issuance of the Convertible Senior Notes, we entered into capped call transactions with certain financial institutions (the “option counterparties”). The capped call
transactions are expected generally to reduce the potential dilution to our common stock upon any conversion of the notes and/or offset any cash payments we are required to make in excess of the
principal amount of converted notes, as the case may be, with such reduction and/or offset subject to a cap.
From time to time, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivative transactions with respect to our
common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the Convertible Senior Notes. This activity could
cause a decrease in the market price of our common stock.
The accounting method for convertible debt securities that may be settled in cash, such as the Convertible Senior Notes, could have a material effect on our reported financial results.
Under FASB Accounting Standards Codification 470-20 (“ASC 470-20”), Debt with Conversion and Other Options, an entity must separately account for the liability and equity components of
convertible debt instruments (such as the Convertible Senior Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. ASC
470-20 requires the value of the conversion option of the Convertible Senior Notes, representing the equity component, to be recorded as additional paid-in capital within stockholders’ equity in our
consolidated balance sheets as an original issue discount to the Convertible Senior Notes, which reduces their initial carrying value. The carrying value of the Convertible Senior Notes, net of the
discount recorded, will be accreted up to the principal amount of the notes from the issuance date until maturity, which will result in non-cash charges to interest expense in our consolidated statement
of operations. Accordingly, we will report lower net income or higher net loss in our financial results because ASC 470-20 requires interest to include both the current period’s accretion of the debt
discount and the instrument’s coupon interest, which could adversely affect our reported or future financial results, the trading price of our common stock, and the trading price of the Convertible
Senior Notes.
In addition, under certain circumstances, convertible debt instruments (such as the Convertible Senior Notes) that may be settled entirely or partly in cash are currently accounted for utilizing
the treasury stock method, the effect of which is that the shares issuable upon conversion of the Convertible Senior Notes are not included in the calculation of diluted earnings per share except to the
extent that the conversion value of the Convertible Senior Notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted
for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued.
However, recently issued accounting guidance that will be effective for us on August 1, 2022 will no longer permit the use of the treasury stock method. In August 2020, the FASB issued
Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-
40), which simplifies the accounting for convertible instruments. Among other things, the guidance eliminates the treasury stock method to calculate diluted earnings per share for convertible
instruments and requires the use of the if-converted method. We are currently evaluating the impact of the new guidance on our consolidated financial statements, however, we believe the
requirement to use the if-converted method instead of the treasury stock method of accounting for the shares issuable upon conversion of the Convertible Senior Notes will most likely adversely
affect our diluted earnings per share and that we will no longer be required to accrete the debt discount which will result in lower interest expense.
We are subject to counterparty risk with respect to the capped call transactions.
The option counterparties are financial institutions, and we will be subject to the risk that any or all of them might default under the capped call transactions. Our exposure to the credit risk of
the option counterparties will not be secured by any collateral. Past global economic conditions have resulted in the actual or perceived failure or financial difficulties of many
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financial institutions. If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time
under the capped call transactions with such option counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market
price and in the volatility of our common stock. In addition, upon a default by an option counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with
respect to our common stock. We can provide no assurances as to the financial stability or viability of the option counterparties.
General Risks
Our customers may defer or forego purchases of our services or products in the event of weakened global economic conditions, political transitions, and industry consolidation.
General worldwide economic conditions remain unstable, and prolonged economic uncertainties or downturns could harm our business, results of operations, or financial condition. In
particular, pursuant to a decision by referendum in June 2016, the U.K. voted to withdraw from the EU. A trade and cooperation agreement, which addresses trade, economic arrangements, law
enforcement, judicial cooperation and a governance framework including procedures for dispute resolution, among other things, was recently ratified by the European Parliament and the Council of
the EU to govern the U.K.’s future relationship with the EU. Because the agreement merely sets forth a framework in many respects and will require complex additional bilateral negotiations between
the U.K. and the EU as both parties continue to work on the rules for implementation, significant political and economic uncertainty remains about how the precise terms of the relationship between
the parties will differ from the terms before withdrawal. Brexit has caused significant volatility in global stock markets and fluctuations in currency exchange rates. Brexit has also caused, and may
continue to cause, delays in purchasing decisions by our potential and current customers affected by this transition due to the considerable political and economic uncertainty created by Brexit and
uncertainty as to the nature of the U.K.’s long-term relationship with the EU. Brexit may further result in new regulatory and cost challenges to our U.K. and global operations, particularly with
respect to data protection. Depending on the market and regulatory effects of Brexit, it is possible that there may be adverse practical or operational implications on our business, and prolonged
economic uncertainties or downturns caused by Brexit could harm our business and results of operations.
Further, other global events such as global inflation concerns and the ongoing conflict between Russia and Ukraine, have created and may continue to create global economic uncertainty in
regions in which we have significant operations. These conditions may make it difficult for our customers and us to forecast and plan future business activities accurately, and could cause our
customers to reevaluate their decision to purchase our services and products, which could delay and lengthen our sales cycles or result in cancellations of planned purchases. Moreover, during
challenging economic times our customers may face issues in gaining timely access to sufficient credit, which could result in an impairment of their ability to make timely payments to us. If that were
to occur, we may not receive amounts owed to us and may be required to record an accounts receivable allowance, which would adversely affect our financial results. A substantial downturn in the
P&C insurance industry may cause firms to react to worsening conditions by reducing their capital expenditures, reducing their spending on information technology, delaying or canceling information
technology projects, or seeking to lower their costs by renegotiating vendor contracts. Negative or worsening conditions in the general economy both in the United States and abroad, including
conditions resulting from financial and credit market fluctuations and inflation, could cause a decrease in corporate spending on enterprise software in general, and in the insurance industry
specifically, and negatively affect the rate of growth of our business.
Furthermore, the increased pace of consolidation in the P&C insurance industry may result in reduced overall spending on our services and products. Acquisitions of customers or potential
customers can delay or cancel sales cycles or result in existing arrangements not being renewed and because we cannot predict the timing or duration of such acquisitions, our results of operations
could be materially impacted.
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 will suffer.
Our future success depends upon our ability to continue to attract, train, integrate, and retain highly skilled employees, particularly our executive officers, sales and marketing personnel,
professional services personnel, cloud operations personnel, and software engineers, especially as we transition to a business model focused on delivering cloud-based offerings. Additionally, our
stakeholders increasingly expect us to have a culture that embraces diversity and inclusion. Our inability to attract and retain diverse and qualified personnel, or delays in hiring required personnel,
may seriously harm our business, results of operations, and financial condition. If U.S. immigration policy related to skilled foreign workers were materially adjusted, such a change could hamper our
efforts to hire highly skilled foreign employees, including highly specialized engineers, which would adversely impact our business.
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Any one of our executive officers and other key employees could terminate his or her relationship with us at any time. The loss of one or more of our executive officers or key employees, and
any failure to have in place and execute an effective succession plan for key executive officers, could significantly delay or prevent us from achieving our business and/or development objectives and
could disrupt or materially harm our business. Although we strive to reduce the challenges of any transition, failure to ensure effective transfer of knowledge and a smooth transition could disrupt or
adversely affect our business, results of operations, financial condition, and prospects.
We face competition for qualified individuals from numerous software and other technology companies. Competition for qualified personnel is particularly intense in the San Francisco Bay
Area, where our headquarters are located, though we also face significant competition in all of our domestic and foreign development centers. Further, significant amounts of time and resources are
required to train technical, sales, services, operations, and other personnel. We may incur significant costs to attract, train, and retain such personnel, and we may lose new employees to our
competitors or other technology companies before we realize the benefit of our investment after recruiting and training them.
Also, to the extent that we hire personnel from competitors, we may be subject to allegations that such personnel have been improperly solicited or have divulged proprietary or other
confidential information. In addition, 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 our sales efforts.
Additionally, the COVID-19 pandemic, current global events, and recent economic conditions have increased attrition and decreased the number of available candidates for open positions, which has
increased the time to identify and hire new employees. We may be unable to attract and retain suitably qualified individuals who are capable of meeting our growing technical, operational, and
managerial requirements, including managing employees and contractors remotely or in a hybrid environment, which has increased in connection with the COVID-19 pandemic and its associated
workplace-related ramifications, or we may be required to pay increased compensation in order to do so.
Further, our ability to expand geographically depends, in large part, on our ability to attract, retain, and integrate managers with the appropriate skills to lead the local business and employees.
Similarly, our profitability depends on our ability to effectively utilize personnel with the right mix of skills and experience to perform services for our clients, including our ability to transition
employees to new assignments on a timely basis. If we are unable to effectively deploy our employees 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 services and products and the dynamic market in which we compete, any failure to attract, integrate, and retain qualified direct sales, professional
services, cloud operations, and product development personnel, as well as our contract workers, could harm our ability to generate sales, deliver consulting services, manage our customers’ cloud
environments, or successfully develop new services and products and enhancements of existing services and products.
Factors outside of our control, including, but not limited to, natural catastrophes, the geopolitical landscape, and terrorism may adversely impact the P&C insurance industry, preventing
us from expanding or maintaining our existing customer base and increasing our revenue. Our business is subject to the risks of earthquakes, fire, floods, and other natural catastrophic events,
and to interruption by man-made problems such as computer viruses.
Our customers are P&C insurers that have experienced, and will likely experience in the future, losses from catastrophes or terrorism that may adversely impact their businesses. Catastrophes
can be caused by various events, including, without limitation, hurricanes, tsunamis, floods, windstorms, earthquakes, hail, tornadoes, explosions, severe weather, epidemics, pandemics, and fires.
Climate change and other environmental factors are contributing to an increase in erratic weather patterns globally and intensifying the impact of certain types of catastrophes. Moreover, acts of
terrorism or armed conflict or uncertainty in the geopolitical landscape, including as a result of escalation in the ongoing conflict between Russia and Ukraine, could cause disruptions to our business
or our customers’ businesses or the economy as a whole. The risks associated with natural catastrophes, the geopolitical landscape, and terrorism are inherently unpredictable, and it is difficult to
forecast the timing of such events or estimate the amount of losses they will generate. Recently, for example, various parts of the United States have suffered extensive damage due to hurricanes,
droughts, floods, severe heat and cold events, fires, and other natural disasters, Germany and other parts of Europe have experienced flooding, and Australia has experienced extensive damage due to
fires and flooding. The combined and expected effect of those losses on P&C insurers is significant. Such losses and losses due to future events may adversely impact our current or potential
customers, which may prevent us from maintaining or expanding our customer base and increasing our revenue, as such events may cause customers to postpone purchases and professional service
engagements or to discontinue existing projects.
Our corporate headquarters and the majority of our operations are located in the San Francisco Bay Area, a region known for seismic activity and near an area subject to severe fire damage. A
significant natural disaster, such as an earthquake,
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tsunami, fire, flood, epidemic, or pandemic, such as the COVID-19 pandemic, could have a material adverse impact on our business, results of operations, and financial condition.
In addition, our information technology systems are vulnerable to computer viruses, break-ins, and similar disruptions from unauthorized tampering, such as the Log4j vulnerability. To the
extent that such disruptions result in delays or cancellations of customer orders or collections, or the deployment or availability of our services and products, our business, results of operations, and
financial condition would be adversely affected.
Our revenue, results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Australian Dollar, British
Pound, Canadian Dollar, Euro, Indian Rupee, and Polish Zloty.
The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. Although we believe our operating activities act as a natural hedge for a substantial
portion of our foreign currency exposure at the cash flow or operating income level because we typically collect revenue and incur costs in the currency of the location in which we provide our
software and services, our relationships with our customers are long-term in nature so it is difficult to predict if our operating activities will provide a natural hedge in the future. In addition, because
our contracts are characterized by large annual payments, significant fluctuations in foreign currency exchange rates that coincide with annual payments may affect our cash flows, revenue or
financial results in such quarter. Our results of operations may also be impacted by transaction gains or losses related to revaluing certain current asset and liability balances that are denominated in
currencies other than the functional currency of the entity in which they are recorded. Moreover, significant and unforeseen changes in foreign currency exchange rates may cause us to fail to achieve
our stated projections for revenue, ARR, and operating income, which could have an adverse effect on our stock price. While we have limited currency exchange exposure to the Russian Ruble, we
expect global exchange rates for various currencies may be more volatile than normal as a result of the ongoing conflict between Russia and Ukraine and related events. We will continue to
experience fluctuations in foreign currency exchange rates, which, if material, may harm our revenue or results of operations.
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Item 1B.
Unresolved Staff Comments
Not applicable.
Item 2.
Properties
Our corporate headquarters in San Mateo, California consists of approximately 189,000 square feet of space leased through December 2029. Our European headquarters in Dublin, Ireland
consists of approximately 85,000 square feet of space leased through March 2032. As of July 31, 2022, we also lease facilities for our sales, services, development, operations and administrative
activities in various locations in the United States and around the world, including in the Americas, Europe, and Asia-Pacific.
We believe that our facilities are suitable to meet our current needs. We are evaluating our real estate strategy as it relates to the impact of the COVID-19 pandemic and anticipated needs of a
hybrid workforce. In the future, we may expand our facilities or add new facilities as we add employees and enter new geographic markets, and we believe that suitable additional or alternative space
will be available as needed to accommodate any such growth. We expect to incur additional expenses in connection with such new or expanded facilities.
Item 3.
Legal Proceedings
From time to time we are involved in legal proceedings that arise in the ordinary course of our business. Any such proceedings, whether meritorious or not, could be time consuming, costly,
and result in the diversion of significant operational resources and/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 the outcome, in our judgment based on
information currently available, is likely to have a material adverse effect on our business or financial position.
As described in Note 9 “Commitments and Contingencies” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, which are incorporated by
reference herein, we are not party to any material pending legal proceedings.
Item 4.
Mine Safety Disclosures
Not applicable.
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Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the New York Stock Exchange under the symbol “GWRE”.
PART II
On July 29, 2022, the last reported sale price of our common stock on the New York Stock Exchange for fiscal year 2022 was $77.72 per share. As of July 31, 2022, we had 38 holders of record
of our common stock. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name
by brokers and other nominees. This number of holders of record also does not include stockholders 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 common stock. Any future determination as to the declaration and payment of dividends, if
any, will be at the discretion of our board of directors and will depend on then existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements,
business prospects, and other factors our board of directors may deem relevant.
Performance Graph
This performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission for purposes of Section 18 of the Exchange Act, or otherwise
subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933 or the Exchange Act.
The following graph shows a comparison of the cumulative total return for our common stock, the NASDAQ Composite-Total Return Index and S&P Software & Services Select Industry
Index for the period from July 31, 2017 through July 31, 2022. Such returns are based on historical results and are not intended to suggest future performance. Data for the NASDAQ Composite Total
Return Index and S&P Software & Services Select Industry Index assume reinvestment of dividends.
Guidewire Software, Inc.
NASDAQ Composite-Total Return Index
S&P Software & Services Select Industry Index
$
$
$
7/31/2017
100.00 $
100.00 $
100.00 $
7/31/2018
119.46 $
122.13 $
129.31 $
7/31/2019
141.46 $
131.59 $
156.77 $
7/31/2020
163.05 $
174.72 $
185.57 $
7/31/2021
159.65 $
240.30 $
274.61 $
7/31/2022
107.71
204.37
193.87
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Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities
None.
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Item 6.
[Reserved]
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes thereto included in Item 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 fiscal calendar. Unless otherwise stated, references in this Annual Report on Form 10-K to
particular years or quarters refer to our fiscal years ended in July and the associated quarters of those fiscal years. We assume no obligation to revise or update any forward-looking statements for
any reason, except as required by law.
We have elected to omit discussion on the earliest of the three years covered by the consolidated financial statements presented. Refer to Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations located in our Form 10-K for the fiscal year ended July 31, 2021, filed on September 24, 2021, for reference to discussion of the fiscal year ended
July 31, 2020, the earliest of the three fiscal years presented.
Overview
Guidewire delivers a leading platform that property and casualty (“P&C”) insurers trust to engage, innovate, and grow efficiently. Guidewire’s platform combines core operations, digital
engagement, analytics, and artificial intelligence (“AI”) applications delivered as a cloud service or self-managed software. As a partner to our customers, we continually evolve to enable their
success and assist them in navigating a rapidly changing insurance market.
Our core operational services and products are InsuranceSuite Cloud, InsuranceNow, and InsuranceSuite for self-managed installations. These services and products are transactional systems of
record that support the entire insurance lifecycle, including insurance product definition, distribution, underwriting, policyholder services, and claims management. Our digital engagement
applications enable digital sales, omni-channel service, and enhanced claims experiences for policyholders, agents, vendor partners, and field personnel. Our Analytics and AI offerings enable
insurers to manage data more effectively, gain insights into their business, drive operational efficiencies, and underwrite new and evolving risks. To support P&C insurers globally, we have localized,
and will continue to localize, our platform for use in a variety of international regulatory, language, and currency environments.
InsuranceSuite Cloud is a highly configurable and scalable product, delivered as a service and primarily comprised of three core applications (PolicyCenter Cloud, BillingCenter Cloud, and
ClaimCenter Cloud) that can be subscribed to separately or together. These applications are built on and optimized for our Guidewire Cloud Platform (“GWCP”) architecture and leverage our in-
house Guidewire cloud operations team. InsuranceSuite Cloud is designed to support multiple releases each year to ensure that cloud customers remain on the latest version and gain fast access to our
innovation efforts. Additionally, InsuranceSuite Cloud embeds digital and analytics capabilities natively into our platform. Most new sales and implementations are for InsuranceSuite Cloud.
InsuranceNow is a complete, cloud-based application that offers policy, billing, and claims management functionality to insurers.
InsuranceSuite for self-managed installations is comprised of three core applications (PolicyCenter, BillingCenter, and ClaimCenter) that can be licensed separately or together and can be
deployed and updated by our customers and their implementation partners.
Our customers range from some of the largest global insurance companies or their subsidiaries to predominantly national or local insurers that serve specific states and/or regions. Our customer
engagement is led by our direct sales team and supported by our system integrator (“SI”) partners. We maintain and continue to grow our sales and marketing efforts globally, and maintain regional
sales centers throughout the world.
Because our platform is critical to our new and existing customers’ businesses, their decision-making and product evaluation process is thorough, which often results in an extended sales cycle.
These evaluation periods can extend further if a customer purchases multiple services and products or is considering a move to a cloud-based subscription for the first time. Sales to new customers
also involve extensive customer due diligence and reference checks. The success of our sales efforts relies on continued improvements and enhancements to our current services and products, the
introduction of new services and products, efficient operation of our cloud infrastructure, continued development of relevant local content and automated tools for updating content, and successful
implementations.
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We sell our cloud-delivered offerings through subscription services and our self-managed products through term licenses. We generally price our services and products based on the amount of
DWP that will be managed by our platform. Our subscription, term license, and support fees are typically invoiced annually in advance. Subscription services are generally sold with an initial term of
between three and five years with optional annual renewals commencing after the initial term. Subscription revenue is recognized on a ratable basis over the committed term, once all revenue
recognition criteria are met including providing access to the service. Term licenses are primarily sold with an initial two-year committed term with optional annual renewals commencing after the
initial term. We may enter into term license arrangements with our customers that have an initial term of more than two years or may renew license arrangements for longer than one year. A small
portion of our revenue is derived from perpetual licenses. Term and perpetual license revenue are typically recognized when software is made available to the customer, provided that all other revenue
recognition criteria have been met. Our support revenue is generally recognized ratably over the committed support term of the licensed software. Our support fees are typically priced as a fixed
percentage of the associated license fees. We also offer professional services, both directly and through SI partners, to help our customers deploy, migrate, and utilize our platform, services, and
products. A majority of our services revenue is billed monthly on a time and materials basis.
Over the past few years, we have primarily been entering into cloud-based subscription arrangements with our new and existing customers, and we anticipate that subscription arrangements
will be a majority of annual new sales going forward. As this sales model matures, we may decide to change certain contract terms in new arrangements to remain competitive or otherwise meet
market demands.
To extend our technology leadership in the global market and to drive operating efficiency, we continue to invest in product development and cloud operations to enhance and improve our
current services and products, introduce new services and products, and advance our ability to securely and cost-effectively deliver our services in the cloud. Continued investment is critical as we
seek to assist our customers in achieving their technology goals, maintain our competitive advantage, grow our revenue, expand internationally, and meet evolving customer demands. In certain cases,
we may also acquire skills and technologies to manage our cloud infrastructure and accelerate our time to market for new products, solutions, and upgrades.
Our track record of success with customers and their implementations is central to maintaining our strong competitive position. We rely on our global services team and SI partners to ensure
that teams with the right combination of product, business, and language skills are used in the most efficient way to meet our customers’ implementation and migration needs. We have extensive
relationships with SI, consulting, technology, and other industry partners. Our network of partners has expanded as interest in and adoption of our platform 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 resources on continued innovation
and further enhancement of our solutions.
We work closely with our network of third-party SI partners to facilitate new sales and implementations of both our subscription services and self-managed products. Our partnership with
leading SI partners allows us to increase efficiency and scale while reducing customer implementation and migration costs. We continue to invest time and resources to increase the number of
qualified consultants employed by our SI partners, develop relationships with new partners in existing and new markets, and ensure that all SI partners are qualified to assist with implementing our
services and products. We believe this model will continue to serve us well, and we intend to continue to expand our network of partners and the number of certified consultants with whom we work
so we can leverage our SI partners more effectively, especially for future subscription migrations and implementations.
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 services and products successfully, migrating our business towards a subscription model with
ratable revenue recognition, increasing the overall adoption of our services and products, and cost-effectively and securely managing the infrastructure of our cloud-based customers. In response to
these and other risks we might face, we continue to invest in many areas of our business, including product development, cloud operations, cybersecurity, implementation services, and sales and
marketing.
COVID-19 Impact
In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, which has continued to spread throughout the United States and the world and has resulted in
authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. While we are
unable to accurately predict the full impact that COVID-19 will have on our results of operations, financial condition, liquidity, and cash flows due to numerous uncertainties, including the duration
and severity of the pandemic, and containment measures and if there are any periods of increases in the number of COVID-19 cases or future variants of the virus
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in areas in which we operate, our compliance with containment measures has impacted our day-to-day operations and could continue to disrupt our business and operations, as well as that of our key
customers, SI partners, vendors, and other counterparties, for an indefinite period of time. To support the health and well-being of our employees, customers, SI partners and communities, a vast
majority of our employees are working remotely. In addition, many of our existing and potential customers are working remotely, which may continue to extend our sales cycle, to delay the timing of
new orders, and increase the time to complete professional services engagements in the future.
Our business and financial results since the third quarter of fiscal year 2020 have been impacted due to these disruptions, which has effected our annual recurring revenue (“ARR”) growth rates,
services revenue and margins, operating cash flow and expenses, potentially higher employee attrition, challenges in hiring necessary personnel, and the change in fair value of strategic investments.
ARR growth rates and revenue, especially services revenue, continued to be impacted in fiscal year 2022 as a result of these challenges. Additionally, in recent quarters, inflation has reached levels
that have not been seen for decades, which is impacting the global economy and magnifying the impact of these and other disruptions.
Although vaccines have made progress against the COVID-19 pandemic in the United States and certain other parts of the world where vaccinations are widely available, the economic impact
of the pandemic on our business and the businesses of our customers, SI partners, and vendors may continue. We believe that new sales activities are being delayed, not cancelled, and implementation
engagements are being rescheduled to later periods or being completed over a longer period of time. Certain marketing events have been cancelled or postponed, while others are being hosted both in-
person and virtually, like our customer conference, Connections. Our customers may be unable to pay or may request amended payment terms for their outstanding invoices due to the economic
impacts from COVID-19 and inflation, and we may need to increase our accounts receivable allowances. A decrease in orders in a given period could negatively affect our revenues and ARR in
future periods, particularly if experienced on a sustained basis, because a substantial proportion of our new software subscription services orders is recognized as revenue over time. Also, the
pandemic’s global economic impact could affect our customers’ DWP, which could ultimately impact our revenue as we generally price our services and products based on the amount of DWP that
will be managed by our platform. Additionally, we may be required to record impairment related to our operating lease assets, investments, long-lived assets, or goodwill.
We will continue to evaluate the nature and extent of the impact of COVID-19 on our business.
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Key Business Metrics
We use certain key metrics and financial measures not prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) to evaluate and manage our business,
including ARR and Free Cash Flow. For a further discussion of how we use key metrics and certain non-GAAP financial measures, see “Non-GAAP Financial Measures” in this Annual Report on
Form 10-K.
Annual Recurring Revenue (“ARR”)
We use ARR to quantify the annualized recurring value outlined in active customer contracts at the end of a reporting period. ARR includes the annualized recurring value of term licenses,
subscription agreements, support contracts, and hosting agreements based on customer contracts, which may not be the same as the timing and amount of revenue recognized. All components of the
licensing and other arrangements that are not expected to recur (primarily perpetual licenses and professional services) are excluded. In some arrangements with multiple performance obligations, a
portion of recurring license and support or subscription contract value is allocated to services revenue for revenue recognition purposes, but does not get allocated for purposes of calculating ARR.
This revenue allocation only impacts the initial term of the contract. This means that as we increase arrangements with multiple performance obligations that include services at discounted rates, more
of the total contract value will be recognized as services revenue, but our reported ARR amount will not be impacted. In fiscal year 2022, the recurring license and support or subscription contract
value recognized as services revenue was $28.9 million.
If a customer contract contains invoicing amounts that increase over the contract term, then ARR reflects the annualized invoicing amount outlined in the contract for the current reporting
period. For example, given a contract with annual invoicing of $1.0 million at the beginning of year one, $2.0 million at the beginning of year two, and $3.0 million at the beginning of year three, and
the reporting period is subsequent to year two invoicing and prior to year three invoicing, the reported ARR for that contract would be $2.0 million.
As of July 31, 2022, ARR was $664 million, or $683 million based on currency exchange rates as of July 31, 2021. In March 2022, we announced that we will stop doing business and
terminated all customer contracts in Russia. The impact of this decision resulted in the removal of $3.1 million in ARR. We measure ARR on a constant currency basis during the fiscal year and
revalue ARR at year end to current currency rates. ARR grew in fiscal year 2022 by 14%, or 17% on a constant currency basis.
Free Cash Flow
We monitor our free cash flow, as a key measure of our overall business performance, which enables us to analyze our financial performance without the effects of certain non-cash items such
as depreciation, amortization, and stock-based compensation expenses. Additionally, free cash flow takes into account the impact of changes in deferred revenue, which reflects the receipt of cash
payment for services and products before they are recognized as revenue, and unbilled accounts receivable, which reflects revenue that has been recognized that has yet to be invoiced to our
customers. Our net cash provided by (used in) operating activities is significantly impacted by the timing of invoicing and collections of accounts receivable, the timing and amount of annual bonus
payments, as well as payroll and tax payments. Our capital expenditures consist of purchases of property and equipment, primarily computer hardware, software, and leasehold improvements, and
capitalized software development costs. Free cash flow in fiscal year 2022 was impacted by payments of $69.1 million related to our fiscal year 2021 corporate bonus and accrued vacation balances
in countries in which we adopted a non-accrual vacation policy, which was $47.8 million higher than the bonus payment during fiscal year 2021. A portion of the fiscal year 2020 bonus in the amount
of $9.9 million, which would have been paid in the first quarter of fiscal year 2021, was accelerated due to the COVID-19 pandemic and paid in fiscal year 2020, which correspondingly resulted in
lower bonus payments in fiscal year 2021. This partial early bonus payout was approved by our board of directors in order to support our employees and, in turn, their local economies during the
extraordinary situation created by the COVID-19 pandemic. The build out and furnishing of our new offices in Mississauga, Canada and Dublin, Ireland impacted free cash flow by a total of $15.6
million for the fiscal year 2021. For a further discussion of our operating cash flows, see “Liquidity and Capital Resources – Cash Flows.”
Net cash provided by (used in) operating activities
Purchases of property and equipment
Capitalized software development costs
Free cash flow
Fiscal years ended July 31,
2022
2021
(in thousands)
(37,940) $
(9,510)
(12,266)
(59,716) $
111,587
(19,008)
(9,846)
82,733
$
$
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Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP. Accounting policies, methods, and estimates are an integral part of the preparation of our consolidated financial
statements in accordance with GAAP and, in part, are based upon management’s current judgments. Those judgments are normally based on knowledge and experience with regard to past and current
events and assumptions about future events. Certain accounting policies, methods, and estimates are particularly sensitive because of their significance to our consolidated financial statements and
because of the possibility that future events affecting them may differ markedly from management’s current judgments. While there are a number of significant accounting policies, methods, and
estimates affecting our consolidated financial statements, which are described in Note 1 “The Company and a Summary of Significant Accounting Policies and Estimates” to our consolidated
financial statements included in this Annual Report on Form 10-K, our revenue recognition policies are critical to the periods presented.
Revenue Recognition
Revenue recognition requires judgment and the use of estimates, especially in identifying and evaluating the various non-standard terms and conditions in our contracts with customers as to
their effect on reported revenue.
Our revenue is derived from contracts with customers. The majority of our revenue is derived from subscriptions to our cloud services, licensing arrangements for our software, and
implementation and other professional services arrangements. We account for revenue in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC
606”). The core principle of ASC 606 is to recognize revenue upon the transfer of services or products to customers in an amount that reflects the consideration we expect to be entitled to in exchange
for those services or products. We apply a five-step framework to recognize revenue as described in our Revenue Recognition policy included in Note 1 of our consolidated financial statements
included in this Annual Report on Form 10-K.
Our customers have significant negotiating power during the sales process, which can and does result in terms and conditions that are different from our standard terms and conditions. When
terms and conditions of our customer contracts are not standard, certain negotiated terms may require significant judgment in order to determine the appropriate revenue recognition in accordance
with ASC 606.
The estimates and assumptions requiring significant judgment under our revenue policy in accordance with ASC 606 are as follows:
Allocation of the transaction price to the performance obligations in the contract
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations
require an allocation of the transaction price to each performance obligation based on its standalone selling price (“SSP”) in relation to the total fair value of all performance obligations in the
arrangement. Some of our performance obligations, such as support, implementation services, and training services, have observable inputs that are used to determine the SSP of those distinct
performance obligations. Where SSP is not directly observable, we determine the SSP using information that may include market conditions and other observable inputs. In the circumstances when
available information to determine SSP is highly variable or uncertain, such as for our term licenses, we will use the residual method.
The majority of our contracts contain multiple performance obligations, such as when licenses are sold with support, implementation services or training services. As customers enter into a
subscription agreement to migrate from an existing term license agreement, customers may be under contract for self-managed licenses and support, in addition to subscription services, for a period
of time, which may require an allocation of the transaction price to each performance obligation. New and migration subscription agreements also typically include implementation, configuration, and
training services, which may require an allocation of the transaction price to each performance obligation.
Additionally, contract modifications for services and products that are distinct but are not priced commensurate with their SSP or are not distinct from the existing contract may affect the initial
transaction price or the allocation of the transaction price to the performance obligations in the contract. In such cases, revenue recognized may be adjusted.
Modernization of Regulation S-K Items 101, 103, and 105
The SEC issued Release No. 33-10825, “Modernization of Regulation S-K Items 101, 103, and 105,” effective for annual periods beginning subsequent to November 2020. This release was
adopted to modernize the description of business, legal proceedings, and risk factor disclosures that registrants are required to make pursuant to Regulation S-K. Specifically, this release requires
registrants to provide disclosures relating to their human capital resources and to restructure their risk factor
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disclosures. Additionally, the release increases the threshold for disclosure of environmental proceedings to which the government is a party.
Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information
The SEC issued Release No. 33-10890 “Management’s Discussion and Analysis, Selected Financial Data, Supplementary Financial Information” which became fully effective on August 9,
2021. This release was adopted to modernize, simplify, and enhance certain financial disclosure requirements in Regulation S-K. Specifically, the SEC eliminated the requirement for selected
financial data, only requiring quarterly disclosure when there are retrospective changes affecting comprehensive income, and amending the matters required to be presented under Management’s
Discussion and Analysis (“MD&A”) to, among other things, eliminate the requirement of the contractual obligations table.
With our adoption of this release, we have eliminated from this document the items discussed above that are no longer required. Information on our contractual obligations is still disclosed in
narrative form within the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of this Annual Report on Form 10-K.
Recent Accounting Pronouncements
See Note 1 “The Company and Summary of Significant Accounting Policies and Estimates” to our consolidated financial statements included in this Annual Report on Form 10-K for a full
description of recent accounting pronouncements adopted, including the dates of adoption, and recent accounting pronouncements not yet adopted.
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Results of Operations
The following table sets forth our results of operations for the years presented. The data has been derived from the consolidated financial statements contained in this Annual Report on Form
10-K. The results for any period should not be considered indicative of results for any future period.
Revenue:
Subscription and support
License
Services
Total revenue
Cost of revenue:
Subscription and support
License
Services
Total cost of revenue
Gross profit:
Subscription and support
License
Services
Total gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Income (loss) from operations
Interest income
Interest expense
Other income (expense), net
Income (loss) before provision for (benefit from) income taxes
Provision for (benefit from) income taxes
Net income (loss)
Comparison of the Fiscal Years Ended July 31, 2022 and 2021
Revenue
2022
As a % of Total Revenue
2021
As a % of Total Revenue
(in thousands except percentages)
Fiscal years ended July 31,
$
$
343,708
258,631
210,275
812,614
213,275
8,754
238,365
460,394
130,433
249,877
(28,090)
352,220
249,665
194,611
107,391
551,667
(199,447)
6,277
(19,446)
(17,099)
(229,715)
(49,284)
(180,431)
42 % $
32
26
100
26
1
29
56
16
31
(3)
44
31
24
13
68
(24)
1
(2)
(2)
(27)
(6)
(21)% $
252,358
303,792
187,117
743,267
164,983
10,569
199,502
375,054
87,375
293,223
(12,385)
368,213
219,494
160,544
93,759
473,797
(105,584)
7,395
(18,711)
12,619
(104,281)
(37,774)
(66,507)
34 %
41
25
100
22
1
27
50
12
39
(2)
49
30
22
13
65
(16)
1
(3)
2
(16)
(7)
(9)%
We derive our revenue primarily from delivering cloud-based services, licensing our software applications, providing support, and delivering professional services.
Subscription and Support
A growing portion of our revenue consists of fees for our subscription services, which are generally priced based on the amount of DWP that is managed by our subscription services.
Subscription revenue is recognized ratably over the term of the arrangement,
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beginning at the point in time our provisioning process has been completed and access has been made available to the customer. The initial term of such arrangements is generally from three to five
years. Subscription agreements contain optional annual renewals commencing upon the expiration of the initial contract term. A majority of our subscription customers are billed annually in advance.
In some arrangements with multiple performance obligations, a portion of recurring subscription contract value may be allocated to license revenue or services revenue for revenue recognition
purposes. For example, in arrangements with multiple performance obligations that include services at discounted rates, a portion of the total contract value related to subscription services will be
allocated and recognized as services revenue. Additionally, agreements to migrate an existing term license customer to subscription services contain multiple performance obligations, including a
provision to continue using the term license during the subscription service implementation period. Under these migration agreements, a portion of the total contract value related to subscription
services could be allocated and recognized as term license and support revenue in the period renewed or delivered.
Our support revenue is generally recognized ratably over the committed support term of the licensed software. Our support fees are typically priced as a fixed percentage of the associated term
license fees. We generally invoice support annually in advance.
License
A substantial majority of our license revenue consists of term license fees. Our term license revenue is primarily generated through license fees that are billed annually in advance during the
term of the contract, including any renewals. Our term license fees are generally priced based on the amount of DWP that will be managed by our licensed software. Our term licenses have generally
been sold under a two-year initial term with optional annual renewals after the initial term. However, we do enter into license arrangements that have an initial term of more than two years and
renewal terms of more than one year. Term license revenue for the committed term of the customer agreement is generally fully recognized upon delivery of the software or at the beginning of the
renewal term.
In a limited number of cases, we license our software on a perpetual basis. Perpetual license revenue is generally recognized upon delivery. We invoice our perpetual license customers either in
full at contract signing or on an installment basis.
Services
Our services revenue is primarily derived from implementation and migration services performed for our customers, reimbursable travel expenses, and training fees. A majority of our services
engagements are billed and revenue is recognized on a time and materials basis upon providing our services.
Revenue:
Subscription and support:
Subscription
Support
License:
Term license
Perpetual license
Services
Total revenue
Subscription and Support
Fiscal years ended July 31,
2022
2021
Change
Amount
% of total
revenue
Amount
% of total
revenue
($)
(%)
(in thousands, except percentages)
$
$
259,232
84,476
258,441
190
210,275
812,614
32 % $
10
32
—
26
100 % $
168,649
83,709
303,309
483
187,117
743,267
23 % $
11
41
—
25
100 % $
90,583
767
(44,868)
(293)
23,158
69,347
54 %
1
(15)
(61)
12
9 %
We anticipate subscriptions will continue to represent a majority of new arrangements, including customers migrating from existing term license arrangements to subscription services, in future
periods. Due to the ratable recognition of subscription revenue, growth in subscription revenue will lag behind the growth of subscription orders and will impact the comparative growth of our
reported revenue on a year-over-year basis. If we complete a higher percentage of subscription arrangements in a given period, our short-term growth rates will be negatively impacted. Due to the
seasonal nature of our business, the impact of new subscription orders in the fourth fiscal quarter, our historically largest quarter for new orders, is not fully reflected in revenues until the following
fiscal year.
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Subscription revenue increased by $90.6 million, compared to the prior year, primarily due to the impact of cloud transition and new subscription agreements for InsuranceSuite Cloud entered
into and provisioned since July 31, 2021.
Support revenue was relatively flat compared to the prior year. Support related to subscription arrangements is included in subscription revenue, as support is not quoted or priced separately
from the subscription services. As customers enter into a subscription agreement to migrate from an existing term license agreement, the timing and amount of revenue recognized will be impacted by
allocations of the total contract value between the license, subscription, and support performance obligations. As a result, we expect the increase in subscription orders as a percentage of total new
sales and customers migrating from term licenses to subscription services will continue to reduce the growth in, or result in lower, support revenue in the future.
License
Revenue related to new term licenses and multi-year term license renewals is generally recognized upfront and, as a result, no additional license revenue is recognized until after the committed
term expires. As a customer enters into a subscription agreement to migrate from an existing term license agreement, the timing and amount of revenue recognition will be impacted by allocations of
total contract value between license, subscription, and support performance obligations. License revenue growth has and will be negatively impacted as subscription sales increase as a percentage of
total new sales and as customers migrate from term licenses to subscription services instead of renewing their term licenses.
Term license revenue decreased by $44.9 million, compared to the prior year, primarily due to the impact of multi-year term license renewals and new deals in the same period a year ago, and,
to a lesser extent, term license customers migrating to subscription services. The impact on term license revenue from contracts with an initial term of greater than two years or a renewal term of
greater than one year was $2.5 million during fiscal year 2022 compared with $24.4 million in the prior year.
Perpetual license revenue decreased by $0.3 million, compared to the prior year, and accounted for less than 1% of total revenue in fiscal year 2022. We expect perpetual license revenue to
continue to represent a small percentage of our total revenue. Perpetual license revenue may potentially be volatile across periods due to the large amount of perpetual revenue that may be generated
from a single customer order.
Services Revenue
Services revenue increased $23.2 million, compared to the prior year. The increase is primarily driven by an increase in the number and size of subscription implementation and migration
projects, but services revenue overall continues to be impacted by contracts with lower average services billing rates and increased investments in customer implementations, including fixed fee or
capped arrangements, to accelerate customer transition to the cloud. In these arrangements when a project extends longer than originally anticipated, the average billing rate we recognize may
decrease, which can result in revenue adjustments and lower gross profit.
We expect some level of variability in our services revenue in future periods. As we successfully leverage our SI partners to lead more implementations, our services revenue could decrease.
We expect challenges related to COVID-19, inflation, and our ability to hire additional services professionals will also continue to negatively impact services revenue. As we continue to expand into
new markets and develop new services and products, we have, and may continue to, enter into contracts with lower average billing rates, make investments in customer implementation and migration
engagements, and enter into fixed price contracts, which may impact services revenue and services margins.
Cost of Revenue and Gross Profit
Our cost of subscription and support revenue primarily consists of personnel costs for our cloud operations and technical support teams, cloud infrastructure costs, development of online
training curriculum, amortization of intangible assets, and royalty fees paid to third parties. Our cost of license revenue primarily consists of development of online training curriculum, royalty fees
paid to third parties, and amortization of intangible assets. Our cost of services revenue primarily consists of personnel costs for our professional service employees, third-party subcontractors or
consultants, and travel costs. In instances where we have primary responsibility for the delivery of services, subcontractor fees are expensed as cost of services revenue. In each case, personnel costs
include salaries, bonuses, benefits, and stock-based compensation.
We allocate overhead such as information technology support, information security, facilities, and other administrative costs to all functional departments based on headcount. As such, these
general overhead expenses are reflected in cost of revenue and each functional operating expense.
Effective as of the beginning of fiscal year 2023, we are revising our allocation methodology to more closely reflect the way our business is managed and to be more comparable to other
companies in our industry. The change will result in facilities expenses, information technology infrastructure and software expenses, and information security infrastructure and software expenses
being
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allocated to all functional departments based on headcount, while the remaining expenses will be recorded within general and administrative expenses. The expected impact is an increase in general
and administrative expenses and a decrease in cost of revenue and other operating expense categories. Prior period amounts will be re-classified to reflect the revised methodology in our future
consolidated financial statements and accompanying notes.
Cost of Revenue:
Cost of revenue:
Subscription and support
License
Services
Total cost of revenue
Includes stock-based compensation of:
Cost of subscription and support revenue
Cost of license revenue
Cost of services revenue
Total
Fiscal years ended July 31,
2022
2021
Change
Amount
% of total revenue
Amount
% of total revenue
($)
(%)
(In thousands, except percentages)
$
$
$
$
213,275
8,754
238,365
460,394
14,614
692
22,951
38,257
26 % $
1
29
56 % $
$
$
164,983
10,569
199,502
375,054
11,231
770
21,809
33,810
22 % $
1
27
50 % $
$
$
48,292
(1,815)
38,863
85,340
3,383
(78)
1,142
4,447
29 %
(17)
19
23 %
Cost of subscription and support revenue increased by $48.3 million primarily due to increases in personnel costs of $27.9 million as a result of our continued investment in our cloud
operations to increase operational efficiency and scale, cloud infrastructure expense of $21.3 million for our growing cloud customer base, higher amortization of previously capitalized software
development costs of $2.5 million, and higher royalties of $1.2 million. These increases were partially offset by a decrease in amortization of acquired intangible assets of $4.1 million and a decrease
in professional services of $0.6 million.
Due to our continued investment in cloud-based operations, increase in new cloud-based customers, and increased usage from existing cloud-based customers, the costs to provide our
subscription and support services increased. We expect our cost of subscription and support revenue to increase as we continue to invest in our cloud operations to improve efficiencies and to
continuously improve and maintain secure environments, more customers migrate from term licenses to subscription services, and we incur higher cloud infrastructure costs as our cloud customer
base and their usage grows. However, we believe that the cost of subscription and support revenue will grow at a slower rate than subscription and support revenue in future years as we achieve
economies of scale and other efficiencies. The short-term impact of these trends along with mix within subscription and support revenue may result in a decline in subscription and support gross
margin even though subscription and support gross profit increases in absolute dollars.
The $1.8 million decrease in our cost of license revenue was primarily due to a decrease in amortization of acquired intangible assets of $1.5 million due to certain acquired intangible assets
being fully amortized and lower personnel costs associated with the development of online training curriculum included with the latest releases of InsuranceSuite of $0.8 million. These decreases
were partially offset by an increase in royalties of $0.5 million.
We continue to anticipate lower cost of license revenue over time as our term license customers transition to cloud subscription agreements.
The $38.9 million increase in cost of services revenue was primarily due to an increase of $37.9 million in subcontractor and personnel expenses for InsuranceSuite Cloud implementations and,
to a lesser extent, increases of $0.6 million in software subscriptions and $0.3 million in web hosting services.
We had 696 cloud operations and technical support employees and 755 professional service employees at July 31, 2022 compared to 600 cloud operations and technical support employees and
657 professional services employees at July 31, 2021.
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Gross Profit
Gross profit:
Subscription and support
License
Services
Total gross profit
Fiscal years ended July 31,
2022
2021
Change
Amount
margin %
Amount
margin %
($)
(%)
(In thousands, except percentages)
$
$
130,433
249,877
(28,090)
352,220
38 % $
97
(13)
43 % $
87,375
293,223
(12,385)
368,213
35 % $
97
(7)
50 % $
43,058
(43,346)
(15,705)
(15,993)
49 %
(15)
127
(4)%
Our gross profit decreased $16.0 million compared to the prior year. Gross profit was impacted by a decrease in term license revenue due to the impact of multi-year term license arrangements
entered into in fiscal year 2022 being significantly lower than the impact of multi-year term license arrangements in the same period a year ago and, to a lesser extent, a decrease in services gross
profit due to the investments that we are making in our customers' transition to subscription services. These decreases were partially offset by an increase in subscription and support gross profit due
to the increase in subscription revenue, which has a lower gross margin compared to license revenue.
Our gross margin decreased to 43% in fiscal year 2022, as compared to 50% in fiscal year 2021. Gross margin was primarily impacted by the increase as a percentage of total revenue of
subscription and support revenue, which has a lower gross margin compared to license revenue.
We expect subscription and support gross margins will fluctuate as our subscription revenue increases and we continue to invest in our cloud operations. However, as we gain efficiencies and
increase the number of cloud customers, we expect subscription gross margins to improve over the next several years. In addition, the impact of our investment in customer migrations and
implementations, challenges related to COVID-19, and inflation may continue to negatively impact services gross margin going forward. We expect license gross margin will fluctuate based on
changes in revenue due to the timing of delivery of new multi-year term licenses and the execution of multi-year term license renewals, as cost of license revenue is expected to be relatively
consistent from period to period in the future. Overall, we expect gross margins to decline in the short-term primarily due to the mix between license revenue and subscription and support revenue.
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Operating Expenses
Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. The largest components of our operating expenses are personnel
costs for our employees and, to a lesser extent, professional services. In each case, personnel costs include salaries, bonuses, commissions, benefits, and stock-based compensation.
We allocate overhead such as information technology support, information security, facilities, and other administrative costs to all functional departments based on headcount. As a result,
general overhead expenses are reflected in cost of revenue and each functional operating expense.
Effective as of the beginning of fiscal year 2023, we are revising our allocation methodology to more closely reflect the way our business is managed and to be more comparable to other
companies in our industry. The change will result in facilities expenses, information technology infrastructure and software expenses, and information security infrastructure and software expenses
being allocated to all functional departments based on headcount, while the remaining expenses will be recorded within general and administrative expenses. The expected impact is an increase
general and administrative expenses and a decrease in cost of revenue and other operating expense categories. Prior period amounts will be re-classified to reflect the revised methodology in our
future consolidated financial statements and accompanying notes.
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Includes stock-based compensation of:
Research and development
Sales and marketing
General and administrative
Total
Research and Development
Fiscal years ended July 31,
2022
2021
Change
Amount
% of total
revenue
Amount
% of total
revenue
($)
(%)
(In thousands, except percentages)
$
$
$
$
249,665
194,611
107,391
551,667
36,134
32,960
29,660
98,754
31 % $
24
13
68 % $
$
$
219,494
160,544
93,759
473,797
29,524
25,820
25,855
81,199
30 % $
22
13
65 % $
$
$
30,171
34,067
13,632
77,870
6,610
7,140
3,805
17,555
14 %
21
15
16 %
Our research and development expenses primarily consist of personnel costs for our technical staff and consultants providing professional services.
The $30.2 million increase in research and development expenses was primarily due to increases of $21.7 million in personnel costs associated with higher headcount, $4.3 million in cloud
infrastructure costs for our development environments, $3.1 million in acquisition consideration holdback costs recognized over a service period relating to the HazardHub acquisition, and $1.2
million in software subscription costs.
Our research and development headcount was 972 as of July 31, 2022 compared with 853 as of July 31, 2021.
We expect our research and development expenses to increase in absolute dollars as we continue to hire and dedicate internal resources to develop, improve, and expand the functionality of our
solutions and migrate our solutions to the cloud. Research and development expenses may also increase if we pursue additional acquisitions.
Sales and Marketing
Our sales and marketing expenses primarily consist of personnel costs for our sales and marketing employees. Included in our personnel costs are commissions, which are considered contract
acquisition costs and are capitalized when earned and expensed over the anticipated period of time that goods and services are expected to be provided to a customer, which we estimate to be
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approximately five years. Sales and marketing expenses also include travel expenses, professional services for marketing activities, and amortization of certain acquired intangibles.
The $34.1 million increase in sales and marketing expenses was primarily due to increases of $26.9 million in personnel costs due to higher headcount to sell and market our services and
products; $5.3 million in travel expenses as in-person prospect and client interactions have resumed; $1.6 million in marketing and advertising expense associated with Connections Reimagined, our
annual sales conference which was a hybrid event held in November 2021, compared to two fully virtual events in fiscal year 2021; $0.3 million in professional services; and $0.2 million in web
hosting costs. These increases were partially offset by a decrease of $0.4 million due to certain acquired intangible assets being fully amortized.
Our sales and marketing headcount was 475 as of July 31, 2022 compared with 426 as of July 31, 2021.
We expect our sales and marketing expenses to continue to increase in absolute dollars as we continue to invest in sales and marketing activities and resume business travel to support our
growth and objectives.
General and Administrative
Our general and administrative expenses include executive, finance, human resources, legal, and corporate development and strategy functions, and primarily consist of personnel costs, as well
as professional services.
The $13.6 million increase in our general and administrative expenses was primarily due to increases of $9.6 million in personnel costs due to higher headcount, $4.8 million in software
subscription and web hosting costs, and $3.0 million of bad debt expense related to a contract termination as a result of United States government sanctions on Russia. These increases were partially
offset by a decrease of $3.7 million in professional services.
Our general and administrative headcount was 478 as of July 31, 2022 compared with 406 as of July 31, 2021. General and administrative headcount includes personnel in information
technology, information security, facilities, and recruiting whose expenses are allocated across all functional departments.
In addition to the impact of revising our allocation methodology mentioned above, we expect that our general and administrative expenses will increase in absolute dollars as we continue to
invest in personnel, corporate infrastructure, and systems required to support our strategic initiatives, grow our business, and meet our compliance and reporting obligations.
Other Income (Expense)
Interest income
Interest expense
Other income (expense), net
Interest Income
Fiscal years ended July 31,
2022
Amount
2021
Amount
Change
($)
(%)
$
$
$
6,277 $
(19,446) $
(17,099) $
(In thousands, except percentages)
7,395 $
(18,711) $
12,619 $
(1,118)
(735)
(29,718)
(15)%
4 %
(236)%
Interest income represents interest earned on our cash, cash equivalents, and investments.
Interest income decreased by $1.1 million in fiscal year 2022, primarily due to lower yields on invested funds and lower funds available for investment. This decrease was partially offset by
imputed interest income realized upon the conversion of a strategic investment from convertible debt to preferred equity.
Interest Expense
Interest expense includes both stated interest and the amortization of debt discount and issuance costs associated with our Convertible Senior Notes. The amortization of debt discount and
issuance costs are recognized on an effective interest basis. Stated interest expense is consistent in the comparative periods as the outstanding principal and stated interest rate have not changed.
Interest expense for fiscal years 2022 and 2021 consist of non-cash interest expense related to the amortization of debt discount and issuance costs of $14.4 million and $13.6 million,
respectively, and stated interest of $5.0 million in both periods.
Effective at the beginning of fiscal year 2023, we are adopting the FASB ASU No. 2020-06 (see Note 1 “The Company and Summary of Significant Accounting Policies and Estimates” to our
consolidated financial statements included in this Annual Report
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on Form 10-K) which will eliminate the equity component of our Convertible Senior Notes. This will lower interest expense in future periods due to the elimination of the amortization of debt
discount.
Other Income (Expense), Net
Other income (expense), net includes foreign exchange gains and losses resulting from fluctuations in foreign exchange rates on monetary asset and monetary liability balances that are
denominated in currencies other than the functional currency of the entity in which they are recorded. Our monetary assets and liabilities denominated in currencies other than the functional currency
of the entity in which they are recorded consist primarily of trade accounts receivable, unbilled accounts receivable, trade accounts payable, and intercompany receivables and payables. We currently
are entering into transactions in the following currencies: the Argentine Peso, Australian Dollar, Brazilian Real, British Pound, Canadian Dollar, Chinese Yuan, Danish Krone, Euro, Hong Kong
Dollar, Indian Rupee, Japanese Yen, Malaysian Ringgit, Mexican Peso, New Zealand Dollar, Polish Zloty, Russian Ruble, South African Rand, and Swiss Franc.
Other income (expense), net in fiscal year 2022 was expense of $17.1 million, compared to income of $12.6 million in fiscal year 2021, primarily due to fluctuations in foreign currency
exchange rates in those periods, partially offset by a realized gain upon the sale of a strategic equity investment.
Provision for (benefit from) Income Taxes
We are subject to taxes in the United States as well as other tax jurisdictions and countries in which we conduct business. Earnings from our non-U.S. activities are subject to local country
income tax and may also be subject to U.S. income tax.
Provision for (benefit from) income taxes
Effective tax rate
$
(49,284)
$
21 %
(37,774)
$
36 %
(11,510)
30 %
Fiscal years ended July 31,
2022
Amount
2021
Amount
Change
($)
(%)
(In thousands, except percentages)
We recognized an income tax benefit of $49.3 million for fiscal year 2022 compared to an income tax benefit of $37.8 million for fiscal year 2021. The increase in our income tax benefit for
fiscal year 2022 was primarily due to an increase in pre-tax net loss, an increase in research and development credits, and a decrease in valuation allowance, partially offset by decreases in tax
benefits such as tax deductions from stock-based compensation, the tax impact from the tax status change of certain foreign subsidiaries from prior year, and the release of uncertain tax positions
from the prior year.
As of July 31, 2022, we had unrecognized tax benefits of $11.8 million that, if recognized, would affect our effective tax rate, as certain unrecognized tax benefits have a valuation allowance.
The effective tax rate could differ from the statutory U.S. Federal income tax rate of 21% mainly due to state taxes, tax deficiencies related to stock-based compensation, research and
development credits, foreign earnings taxed in the U.S., change in valuation allowance and certain non-deductible expenses, including, but not limited to, executive compensation limitation.
Comparison of the Fiscal Years Ended July 31, 2021 and 2020
Refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations located in our 10-K for the fiscal year ended July 31, 2021, filed on September 24,
2021, for the discussion of the comparison of the fiscal year ended July 31, 2021 to the fiscal year ended July 31, 2020, the earliest of the three fiscal years presented in the consolidated financial
statements.
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Non-GAAP Financial Measures
In addition to the key business metrics presented above, we believe that the following non-GAAP financial measures provide useful information to management and investors regarding certain
financial and business trends relating to our financial condition and results of operations. Management uses these non-GAAP measures to compare our performance to that of prior periods for trend
analysis, for purposes of determining executive and senior management incentive compensation, and for budgeting and planning purposes. We believe that the use of these non-GAAP financial
measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial results with other software companies because it provides
consistency and comparability with past financial performance and assists in comparisons with other companies, many of which present similar non-GAAP financial measures to investors. However,
our management does not consider these non-GAAP measures in isolation or as an alternative to financial measures determined in accordance with GAAP.
The non-GAAP financial information is presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with
GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. The principal limitation of these non-GAAP financial measures is that they exclude significant
expenses and income that are required by GAAP to be recorded in our financial statements. In addition, they are subject to inherent limitations as they reflect the exercise of judgment by management
about which expenses and income are excluded or included in determining these non-GAAP financial measures. We urge investors to review the reconciliation of non-GAAP financial measures to the
comparable GAAP financial measures included herein and not to rely on any single financial measure to evaluate the Company’s business.
The following table reconciles the specific items excluded from GAAP in the calculation of non-GAAP financial measures for the periods indicated below (in thousands, except share and per
share data):
Gross profit reconciliation:
GAAP gross profit
Non-GAAP adjustments:
Stock-based compensation
Amortization of intangibles
COVID-19 Canada Emergency Wage Subsidy benefit
(1)
Non-GAAP gross profit
Income (loss) from operations reconciliation:
GAAP income (loss) from operations
Non-GAAP adjustments:
Stock-based compensation
Amortization of intangibles
COVID-19 Canada Emergency Wage Subsidy benefit
(1)
Acquisition consideration holdback
(2)
Non-GAAP income (loss) from operations
Net income (loss) reconciliation:
GAAP net income (loss)
Non-GAAP adjustments:
Stock-based compensation
Amortization of intangibles
COVID-19 Canada Emergency Wage Subsidy benefit
Acquisition consideration holdback
Amortization of debt discount and issuance costs
Changes in fair value of strategic investments
Tax impact of non-GAAP adjustments
(2)
(1)
Non-GAAP net income (loss)
Tax provision (benefit) reconciliation:
GAAP tax provision (benefit)
Non-GAAP adjustments:
Fiscal years ended July 31,
2022
2021
352,220 $
38,257
7,659
—
398,136 $
(199,447) $
137,011
14,081
—
3,067
(45,288) $
(180,431) $
137,011
14,081
—
3,067
14,391
(1,538)
(29,105)
(42,524) $
(49,284) $
368,213
33,810
13,175
(1,975)
413,223
(105,584)
115,009
19,965
(3,396)
—
25,994
(66,507)
115,009
19,965
(3,396)
—
13,617
—
(37,379)
41,309
(37,774)
$
$
$
$
$
$
$
$
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Stock-based compensation
Amortization of intangibles
COVID-19 Canada Emergency Wage Subsidy benefit
Acquisition consideration holdback
Amortization of debt discount and issuance costs
Changes in fair value of strategic investments
Tax impact of non-GAAP adjustments
(2)
(1)
Non-GAAP tax provision (benefit)
Net income (loss) per share reconciliation:
GAAP net income (loss) per share – diluted
Non-GAAP adjustments:
Stock-based compensation
Amortization of intangibles
COVID-19 Canada Emergency Wage Subsidy benefit
Acquisition consideration holdback
Amortization of debt discount and issuance costs
Changes in fair value of strategic investments
Tax impact of non-GAAP adjustments
Non-GAAP dilutive shares excluded from GAAP net income (loss) per share calculation
(2)
(1)
Non-GAAP net income (loss) per share – diluted
Shares used in computing Non-GAAP income (loss) per share amounts:
GAAP weighted average shares – diluted
Non-GAAP dilutive shares excluded from GAAP income (loss) per share calculation
Pro forma weighted average shares – diluted
$
$
$
37,826
3,936
—
847
4,049
(471)
(17,082)
(20,179) $
(2.16) $
1.63
0.16
—
0.03
0.17
0.01
(0.35)
—
(0.51) $
(20,979)
(4,220)
(135)
—
(2,555)
—
65,268
(395)
(0.79)
1.39
0.25
(0.04)
—
0.16
—
(0.45)
(0.03)
0.49
83,569,517
—
83,569,517
83,577,375
805,747
84,383,122
(1)
Effective the second quarter of fiscal year 2021, the COVID-19 Canada Emergency Wage Subsidy benefit has been included as a non-GAAP adjustment. Prior to the second quarter of fiscal year 2021, this program was unavailable. Beginning
with the first quarter of fiscal year 2022, we have not and do not expect to receive a subsidy under the COVID-19 Canada Emergency Wage Subsidy.
(2)
Effective the first quarter of fiscal year 2022, acquisition consideration holdback that is earned and recognized as expense over a post-acquisition service period has been included as a non-GAAP adjustment. Prior to the first quarter of fiscal year
2022, there was no acquisition consideration holdback in any periods presented.
Liquidity and Capital Resources
Our principal sources of liquidity are as follows (in thousands):
Cash, cash equivalents, and investments
Working capital
Cash, Cash Equivalents, and Investments
July 31, 2022
July 31, 2021
$
$
1,163,675 $
915,185 $
1,346,591
1,054,971
Our cash and cash equivalents are comprised of cash and liquid investments with remaining maturities of 90 days or less from the date of purchase, primarily commercial paper and money
market funds. Our investments primarily consist of corporate debt securities, U.S. government and agency debt securities, commercial paper, asset-backed securities, and non-U.S. government
securities, which include state, municipal and foreign government securities.
As of July 31, 2022, approximately $44.9 million of our cash and cash equivalents were domiciled in foreign jurisdictions. We may repatriate foreign earnings to the United States in the future
to the extent that the repatriation is not restricted by local laws or there are no substantial incremental costs associated with such repatriation.
Share Repurchase Program
In October 2020, our board of directors authorized and approved a share repurchase program of up to $200.0 million of our outstanding common stock. The share repurchase program was
completed in the second quarter of fiscal year 2022. During the fiscal year ended July 31, 2022, we repurchased 322,545 shares of common stock at an average price of $116.11 per share for an
aggregate
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purchase price of $37.5 million. During the fiscal year ended July 31, 2021, we repurchased 1,488,991 shares of common stock at an average price of $109.17 per share for an aggregate purchase
price of $162.5 million.
Cash Flows
Our cash flows from operations are significantly impacted by timing of invoicing and collections of accounts receivable, annual bonus payments, as well as payments of payroll, commissions,
payroll taxes, and other taxes. We expect that we will generate positive cash flows from operations on an annual basis in the future, although this may fluctuate significantly on a quarterly basis. In
particular, we typically use more cash during the first fiscal quarter, which ends October 31, as we generally pay cash bonuses to our employees for the prior fiscal year and seasonally higher sales
commissions from increased customer orders booked in our fourth fiscal quarter of the prior year. Additionally, our capital expenditures may fluctuate depending on future office build outs and
development activities subject to capitalization.
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 12 months. Our future cash requirements will depend
on many factors, including our rate of revenue growth, the expansion of our sales and marketing activities, the timing and extent of our spending to support our research and development efforts,
investments in cloud infrastructure, cybersecurity, and operating costs, and expansion into other markets. We also may invest in or acquire complementary businesses, applications or technologies, or
may execute on a board-authorized share repurchase program, which may require the use of significant cash resources and/or additional financing.
The following summary of cash flows for the periods indicated has been derived from our consolidated financial statements included elsewhere in this Annual Report on Form 10-K (in
thousands):
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Cash Flows from Operating Activities
Fiscal years ended July 31,
2022
2021
$
$
$
(37,940) $
312,212 $
(37,335) $
111,587
64,191
(159,387)
Net cash used in operating activities increased by $149.5 million in fiscal year 2022 as compared to fiscal year 2021. The increase in operating cash used was primarily attributable to a $110.9
million increase in net loss after excluding the impact of non-cash charges such as deferred taxes, stock-based compensation expense, depreciation and amortization expense, and other non-cash items
along with an increase of $38.6 million in cash used by working capital activities. Changes in working capital include payments of $69.1 million related to our fiscal year 2021 corporate bonus and
accrued vacation balances in countries in which we adopted a non-accrual vacation policy in the first quarter of fiscal year 2022, which was $47.8 million higher than the bonus payment during the
same period a year ago. A portion of the fiscal year 2020 bonus, which would have been paid in the first quarter of fiscal year 2021, was accelerated due to the COVID-19 pandemic and paid in fiscal
year 2020.
Cash Flows from Investing Activities
Net cash provided by investing activities increased by $248.0 million in fiscal year 2022 as compared to fiscal year 2021. The increase in cash provided by investing activities was primarily due
to decreased net purchases of available-for-sale securities of $293.9 million and lower capital expenditures and capitalized software development costs of $7.1 million. These were offset by $43.8
million paid as purchase consideration for the acquisition of HazardHub and a $9.2 million net increase in amounts paid for strategic investments.
Cash Flows from Financing Activities
Net cash used in financing activities decreased by $122.1 million in fiscal year 2022 as compared to fiscal year 2021. The decrease in cash used was primarily because our authorized share
repurchase program was completed in the second quarter of fiscal year 2022, which resulted in our repurchase of $123.9 million less of our common stock during fiscal year 2022 compared to the
same period a year ago, and a decrease in proceeds from option exercises of $1.8 million.
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Commitments and Contractual Obligations
Our estimated future obligations consist of leases, royalties, purchase obligations, debt, and taxes as of July 31, 2022. Refer to Note 9 “Commitments and Contingencies” and Note 11 “Income
Taxes” to our consolidated financial statements included in this Annual Report on Form 10-K for more information.
Off-Balance Sheet Arrangements
Through July 31, 2022, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities,
which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We 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 due to adverse changes in financial market
prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates and foreign currency exchange rates. We do not hold or issue financial instruments for trading purposes.
Interest Rate Sensitivity
Our exposure to market risk for changes in interest rates relates primarily to our cash, cash equivalents, and investments. Our cash, cash equivalents, and investments as of July 31, 2022 and
2021 were $1,163.7 million and $1,346.6 million, respectively, primarily consisting of cash, money market funds, corporate debt securities, U.S. government and agency debt securities, commercial
paper, asset-backed securities and non-U.S. government securities, which include state, municipal, and foreign government securities. Changes in interest rates, primarily in the United States, affect
the interest earned on our cash, cash equivalents, and investments, and their market value. A hypothetical 100 basis point increase in interest rates is estimated to result in a decrease of $3.6 million
and $5.2 million in the market value of our available-for-sale securities as of July 31, 2022 and 2021, respectively. Any realized gains or losses resulting from such interest rate changes would only
occur if we sold the investments prior to maturity.
Foreign Currency Exchange Risk
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Australian Dollar, British Pound, Canadian
Dollar, Euro, Indian Rupee, and Polish Zloty, the currency of the locations within which we have significant operations. The volatility of exchange rates depends on many factors that we cannot
forecast with reliable accuracy. We believe our operating activities act as a natural hedge for a substantial portion of our foreign currency exposure because we typically collect revenue and incur
costs in the currency of the location in which we provide our services. However, our relationships with our customers 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 in foreign currency exchange rates can affect our financial results due to transaction gains or losses related to revaluing certain monetary
asset and monetary liability balances that are denominated in currencies other than the functional currency of the entity in which they are recorded. Our monetary assets and liabilities denominated in
currencies other than the functional currency of the entity in which they are recorded consist primarily of trade accounts receivable, unbilled accounts receivable, trade accounts payable, and
intercompany receivables and payables. For the periods ended July 31, 2022 and 2021, we recorded a foreign currency loss of $17.2 million and a foreign currency gain of $9.0 million, respectively,
in other income (expense) in our consolidated statements of operations. We will continue to experience fluctuations in foreign currency exchange rates. If a hypothetical ten percent change in foreign
exchange rates were to occur in the future, the resulting transaction gain or loss is estimated to be approximately $27.4 million. As our international operations grow, we will continue to assess our
approach to managing our risk relating to fluctuations in currency rates.
Fair Value of Financial Instruments
We do not have material exposure to market risk with respect to investments in financial instruments, as our investments primarily consist of high quality liquid investments purchased with a
remaining maturity of three years or less. We do not use derivative financial instruments for speculative or trading purposes. However, this current position does not preclude our adoption of specific
hedging strategies in the future.
Our strategic investments in privately held securities are in various classes of equity and convertible debt. The particular securities we hold, and their rights and preferences relative to those of
other securities within the capital structure, may impact the magnitude by which our investment value moves in relation to movements in the total enterprise value of the company in
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which we are invested. As a result, our investment in a specific company may move by more or less than any change in value of that overall company. In addition, the financial success of our
investment in any company is typically dependent on a liquidity event, such as a public offering, acquisition, or other favorable market event reflecting appreciation to the value of our investment. All
of our investments, particularly those in privately held companies, are therefore subject to a risk of partial or total loss of invested capital.
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Item 8.
Financial Statements and Supplemental Data
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID: 185)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
61
63
64
65
66
67
68
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To the Stockholders and Board of Directors
Guidewire Software, Inc.:
Report of Independent Registered Public Accounting Firm
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Guidewire Software, Inc. and subsidiaries (the Company) as of July 31, 2022 and 2021, the related consolidated statements of
operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended July 31, 2022, and the related notes (collectively, the consolidated
financial statements). We also have audited the Company’s internal control over financial reporting as of July 31, 2022, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of July 31, 2022 and 2021, and the results of its
operations and its cash flows for each of the years in the three-year period ended July 31, 2022, 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, 2022 based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the
Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in
the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,
or disposition of the company’s assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the
audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.
The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit
matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of revenue related to software licensing arrangements and subscriptions to cloud services with non-standard terms
As discussed in Notes 1 and 2 to the consolidated financial statements, revenue was derived principally from software licensing arrangements, subscriptions to cloud services, and implementation
and other professional services. The Company recognized total revenue of $812.6 million for the year ended July 31, 2022. The Company’s software licensing arrangements generally have a two-
year initial term and subscriptions to cloud services generally have a three- to five-year term, with a customer option to renew on an annual basis after the initial term. Consideration for software
licensing arrangements and subscriptions to cloud services is typically billed in advance on an annual basis over the term.
We identified the evaluation of revenue from software licensing arrangements and subscriptions to cloud services with non-standard terms and conditions as a critical audit matter. Significant
auditor judgment was required to evaluate the Company’s assessment of the impact on revenue recognition of non-standard terms and conditions, including, the identification and evaluation of
the accounting impact of contract modifications related to software licensing term extensions, and arrangements that provide a customer with the ability to transition from a software licensing
arrangement to a subscription to cloud services during the contractual term.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of an internal control related to the
critical audit matter. This control is related to the identification and evaluation of software licensing arrangements and subscriptions to cloud services with non-standard terms and conditions. We
tested certain software licensing arrangements and subscriptions to cloud services by reading the underlying customer agreements and evaluating the Company’s assessment of the contractual
terms and conditions in accordance with revenue recognition requirements. Specifically, this included an evaluation of the Company’s identification and assessment of non-standard terms and
conditions that could give rise to special accounting consideration.
/s/ KPMG LLP
We have served as the Company’s auditor since 2006.
Santa Clara, California
September 26, 2022
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GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
July 31,
2022
July 31,
2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowances of $359 and $1,057, respectively
Unbilled accounts receivable, net
Prepaid expenses and other current assets
Total current assets
Long-term investments
Unbilled accounts receivable, net
Property and equipment, net
Operating lease assets
Intangible assets, net
Goodwill
Deferred tax assets, net
Other assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable
Accrued employee compensation
Deferred revenue, net
Other current liabilities
Total current liabilities
Lease liabilities
Convertible senior notes, net
Deferred revenue, net
Other liabilities
Total liabilities
Commitments and contingencies (Note 9)
STOCKHOLDERS’ EQUITY:
Common stock, par value $0.0001 per share—500,000,000 shares authorized as of July 31, 2022 and 2021; 84,084,209
and 83,194,157 shares issued and outstanding as of July 31, 2022 and 2021, respectively
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings (accumulated deficit)
Total stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
$
$
$
606,303 $
369,865
143,797
71,515
61,223
1,252,703
187,507
13,914
80,740
90,287
21,361
372,192
191,461
56,732
2,266,897 $
40,440 $
90,962
170,776
35,340
337,518
105,123
358,216
7,500
6,883
815,240
8
1,755,476
(19,845)
(283,982)
1,451,657
2,266,897 $
384,910
734,517
104,068
79,061
52,729
1,355,285
227,164
24,361
80,061
97,447
19,743
340,877
138,428
38,479
2,321,845
27,830
102,137
138,699
31,648
300,314
115,374
343,825
7,237
10,201
776,951
8
1,617,204
(6,218)
(66,100)
1,544,894
2,321,845
See accompanying Notes to Consolidated Financial Statements.
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Revenue:
Subscription and support
License
Services
Total revenue
Cost of revenue:
Subscription and support
License
Services
Total cost of revenue
Gross profit:
Subscription and support
License
Services
Total gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Income (loss) from operations
Interest income
Interest expense
Other income (expense), net
Income (loss) before provision for (benefit from) income taxes
Provision for (benefit from) income taxes
Net income (loss)
Net income (loss) per share:
Basic and diluted
Shares used in computing net income (loss) per share:
Basic and diluted
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
2022
Fiscal years ended July 31,
2021
2020
$
$
$
343,708 $
258,631
210,275
812,614
213,275
8,754
238,365
460,394
130,433
249,877
(28,090)
352,220
249,665
194,611
107,391
551,667
(199,447)
6,277
(19,446)
(17,099)
(229,715)
(49,284)
(180,431) $
252,358 $
303,792
187,117
743,267
164,983
10,569
199,502
375,054
87,375
293,223
(12,385)
368,213
219,494
160,544
93,759
473,797
(105,584)
7,395
(18,711)
12,619
(104,281)
(37,774)
(66,507) $
(2.16) $
(0.79) $
203,473
331,554
207,280
742,307
117,158
11,566
209,291
338,015
86,315
319,988
(2,011)
404,292
200,575
142,420
85,183
428,178
(23,886)
24,705
(17,945)
(7,205)
(24,331)
2,867
(27,198)
(0.33)
83,569,517
83,577,375
82,855,392
See accompanying Notes to Consolidated Financial Statements.
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GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Net income (loss)
Other comprehensive income (loss):
Foreign currency translation adjustments
Unrealized gains (losses) on available-for-sale securities
Tax benefit (expense) on unrealized gains (losses) on available-for-sale securities
Reclassification adjustment for realized gains (losses) included in net income (loss)
Total other comprehensive income (loss)
Comprehensive income (loss)
2022
Fiscal years ended July 31,
2021
(180,431) $
(66,507) $
2020
(7,201)
(8,342)
2,009
(93)
(13,627)
(194,058) $
1,779
(4,746)
872
1,123
(972)
(67,479) $
(27,198)
518
2,138
(669)
632
2,619
(24,579)
$
$
See accompanying Notes to Consolidated Financial Statements.
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GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except for share data)
Balance as of July 31, 2019
Net income (loss)
Issuance of common stock upon exercise of stock options
Issuance of common stock upon vesting of RSUs
Stock-based compensation
Foreign currency translation adjustment
Unrealized gain (loss) on available-for-sale securities, net of tax
Reclassification adjustment for realized gain (loss) on available-for-sale securities, included in
net income (loss)
Adoption of FASB Accounting Standards Update (“ASU”) 2018-02
Balance as of July 31, 2020
Net income (loss)
Issuance of common stock upon exercise of stock options
Issuance of common stock upon vesting of RSUs
Stock-based compensation
Repurchase and retirement of common stock
Foreign currency translation adjustment
Unrealized gain (loss) on available-for-sale securities, net of tax
Reclassification adjustment for realized gain (loss) on available-for-sale securities, included in
net income (loss)
Balance as of July 31, 2021
Net income (loss)
Issuance of common stock upon exercise of stock options
Issuance of common stock upon vesting of RSUs
Stock-based compensation
Repurchase and retirement of common stock
Foreign currency translation adjustment
Unrealized gain (loss) on available-for-sale securities, net of tax
Reclassification adjustment for realized gain (loss) on available-for-sale securities, included in
net income (loss)
Balance as of July 31, 2022
Common stock
Shares
Amount
82,140,883 $
—
132,573
1,188,469
—
—
—
—
—
83,461,925 $
—
53,932
1,167,291
—
(1,488,991)
—
—
—
83,194,157 $
—
10,472
1,202,125
(322,545)
—
—
—
84,084,209
Additional
paid-in
capital
1,391,904 $
—
4,955
—
102,191
—
—
—
—
1,499,050 $
—
1,932
—
116,222
—
—
—
—
1,617,204 $
—
116
—
138,156
—
—
—
—
1,755,476
8 $
—
—
—
—
—
—
—
—
8 $
—
—
—
—
—
—
—
—
8 $
—
—
—
—
—
—
—
—
8
Accumulated
other
comprehensive
income (loss)
Retained earnings
(accumulated deficit)
Total
stockholders’
equity
(7,758) $
—
—
—
—
518
1,469
632
(107)
(5,246) $
—
—
—
—
—
1,779
(3,874)
1,123
(6,218) $
—
—
—
—
—
(7,201)
(6,333)
(93)
(19,845)
190,047 $
(27,198)
—
—
—
—
—
—
107
162,956 $
(66,507)
—
—
—
(162,549)
—
—
—
(66,100) $
(180,431)
—
—
—
(37,451)
—
—
—
(283,982)
1,574,201
(27,198)
4,955
—
102,191
518
1,469
632
—
1,656,768
(66,507)
1,932
—
116,222
(162,549)
1,779
(3,874)
1,123
1,544,894
(180,431)
116
—
138,156
(37,451)
(7,201)
(6,333)
(93)
1,451,657
See accompanying Notes to Consolidated Financial Statements.
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GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization
Amortization of debt discount and issuance costs
Amortization of contract costs
Stock-based compensation
Changes to allowance for credit losses and revenue reserves
Deferred income tax
Amortization of premium (accretion of discount) on available-for-sale securities, net
Changes in fair value of strategic investments
Other non-cash items affecting net income (loss)
Changes in operating assets and liabilities:
Accounts receivable
Unbilled accounts receivable
Prepaid expenses and other assets
Operating lease assets
Accounts payable
Accrued employee compensation
Deferred revenue
Lease liabilities
Other liabilities
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities
Sales of available-for-sale securities
Maturities of available-for-sale securities
Purchases of property and equipment
Capitalized software development costs
Acquisition of strategic investments
Acquisition of business, net of acquired cash
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon exercise of stock options
Repurchase and retirement of common stock
Net cash provided by (used in) financing activities
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—Beginning of period
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—End of period
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest
Cash paid for income taxes, net of tax refunds
Accruals for purchase of property and equipment
Accruals for capitalized cloud software development costs
Accrual for shares repurchased
2022
2021
2020
Fiscal years ended July 31,
$
(180,431) $
(66,507) $
33,540
14,391
14,456
137,011
2,597
(54,115)
5,498
(1,545)
63
(42,545)
18,106
(23,390)
7,160
13,580
(8,942)
31,564
(9,637)
4,699
(37,940)
(519,536)
74,552
834,362
(9,510)
(12,266)
(11,560)
(43,830)
312,212
116
(37,451)
(37,335)
(7,161)
229,776
384,910
36,955
13,617
11,442
115,009
226
(35,789)
6,567
—
863
10,820
(19,194)
(16,764)
6,350
3,627
41,526
12,940
(3,346)
(6,755)
111,587
(1,033,095)
123,234
1,005,290
(19,008)
(9,846)
(2,384)
—
64,191
1,932
(161,319)
(159,387)
1,550
17,941
366,969
$
$
$
$
$
$
614,686 $
384,910 $
5,000 $
4,323 $
1,114 $
1,250 $
— $
5,000 $
4,155 $
1,676 $
845 $
1,230 $
(27,198)
42,641
12,886
9,892
101,817
367
(11,859)
(1,882)
10,672
739
23,878
(38,125)
(18,564)
(10,784)
(1,209)
(15,624)
1,165
18,678
15,576
113,066
(1,280,755)
134,050
1,168,720
(21,377)
(4,283)
(2,156)
—
(5,801)
4,955
—
4,955
648
112,868
254,101
366,969
5,000
4,888
343
406
—
See accompanying Notes to Consolidated Financial Statements.
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GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
1. The Company and Summary of Significant Accounting Policies and Estimates
Company
Guidewire 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 combines core operations, digital engagement, analytics, and artificial intelligence (“AI”) applications. The Company’s technology platform supports core insurance operations,
including underwriting, policy administration, claim management, and billing; insights into data that can improve business decision making; and digital sales, service, and claims experiences for
policyholders, agents, and other key stakeholders. The Company’s customers are primarily property and casualty insurance carriers.
Basis of Presentation and Consolidation
The Company’s consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The consolidated
financial statements and notes include the Company and its wholly-owned subsidiaries and reflect all adjustments (all of which are normal and recurring in nature) that, in the opinion of management,
are necessary for a fair presentation of the periods presented. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the
amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenue and expenses. Significant items subject to such estimates include, but are
not limited to, revenue recognition, the useful lives of property and equipment and intangible assets, accounts receivable and unbilled accounts receivable allowances, valuation allowance for deferred
tax assets, stock-based compensation, annual bonus attainment, income tax uncertainties, fair value of convertible senior notes and investments, valuation of goodwill and intangible assets, fair value
of acquired assets and assumed liabilities, software development costs to be capitalized, leases, and contingencies. These estimates and assumptions are based on management’s best estimates and
judgment. Management regularly evaluates its estimates and assumptions using historical experience and other factors; however, actual results could differ from these estimates.
Foreign Currency
The functional currency of the Company’s foreign subsidiaries is their respective local currency. The Company translates all assets and liabilities of foreign subsidiaries to U.S. dollars at the
current exchange rate as of the applicable balance sheet date. Revenue and expenses are translated at the average exchange rate prevailing during the period in which the transactions occur. The
effects of foreign currency translations are recorded in accumulated other comprehensive income (loss) as a separate component of stockholders’ equity in the accompanying consolidated balance
sheets. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency of the recording entity are included in
other income (expense) in the consolidated statements of operations.
Cash and Cash Equivalents
Cash 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 primarily 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 such investments. All investments in the periods
presented have been classified as available-for-sale.
The Company classifies investments as short-term when they have remaining contractual maturities of one year or less from the balance sheet date, and as long-term when the investments have
remaining contractual maturities of more than one year from the balance sheet date. Investments are recorded at fair value with unrealized holding gains and losses, net of taxes, generally included in
accumulated other comprehensive income (loss). Unrealized losses related to the credit worthiness of an investment, if any, are recorded in other income (expense), net on the consolidated statements
of operations.
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Property, Equipment, and Software Development Costs
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets.
Maintenance and repairs that do not extend the life or improve an asset are expensed in the period incurred.
The estimated useful lives of property and equipment are as follows:
Computer hardware
Purchased software
Software development
Equipment and machinery
Furniture and fixtures
Leasehold improvements
3 years
3 years
3 to 5 years
3 to 5 years
5 years
Shorter of 10 years or remaining lease term
Certain development costs related to software delivered to customers (“self-managed software”) incurred subsequent to the establishment of technological feasibility are subject to capitalization
and amortized over the estimated lives of the related products. Technological feasibility is established upon completion of a working model. Costs incurred subsequent to the establishment of
technological feasibility have not been material and, therefore, all software development costs related to self-managed software have been charged to research and development expense in the
accompanying consolidated statements of operations as incurred.
The Company capitalizes software development costs for technology applications that provide new or significantly enhanced functionality that the Company will offer solely as a cloud-based
subscription. Capitalized costs are primarily comprised of compensation for employees who are directly associated with cloud software development projects. The Company begins to capitalize costs
when preliminary development efforts are successfully completed, management has authorized and committed project funding, it is probable that the project will be completed, and the software will
be used as intended. If any of these criteria cease being met before the software reaches its intended use, any capitalized costs related to the project will be impaired. When the software reaches its
intended use which is typically once the technology applications are available for general release, capitalized costs are amortized to cost of revenue over the estimated useful lives of the related assets,
generally estimated to be three to five years. Costs incurred prior to meeting these capitalization criteria and costs incurred for training and maintenance are recorded as research and development
expense in the Company’s consolidated statements of operations. Capitalized software development costs are recorded in property and equipment in the Company’s consolidated balance sheets.
Leases
The Company accounts for leases under Accounting Standards Codification Topic 842: Leases (“ASC 842”) issued by the Financial Accounting Standards Board. Under ASC 842, the
Company determines if an arrangement is a lease at inception of the agreement. If an arrangement is determined to be a lease, an operating lease asset, also known as a right-of-use asset, and lease
liability are recorded based on the present value of lease payments over the non-cancellable lease term. In connection with determining the present value of the lease payments, the Company
considers only payments that are fixed and determinable at the time of commencement, including non-lease components that are fixed throughout the lease term. Variable components of the lease
payments, such as utilities, maintenance, and taxes, are expensed as incurred and not included in determining the present value of the lease liability. As the Company's leases generally do not provide
an implicit rate, the Company's incremental borrowing rate, calculated based on available information at the lease commencement date, is used in determining the present value of the lease payments.
The Company's incremental borrowing rate is a hypothetical rate based on the Company's understanding of its credit rating. The lease term used to calculate the lease liability and operating lease asset
includes options to extend or terminate the lease if it is reasonably certain the Company will exercise that option. Operating lease assets also include any lease payments made prior to commencement
and are recorded net of any lease incentives received. Lease expense is recognized on a straight-line basis over the lease term and is reflected in the consolidated statements of operations in each of
the cost of revenue and operating expense categories.
The Company also enters into agreements to sublease unoccupied office space. Any sublease payments received in excess of the straight-line rent expense related to the subleased space are
recorded as an offset to operating expenses over the sublease term.
Operating leases are included in operating lease assets, other current liabilities, and lease liabilities on the consolidated balance sheets.
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Impairment of Long-Lived Assets, Intangible Assets, and Goodwill
The Company evaluates its long-lived assets, consisting of property and equipment, operating lease assets, and intangible assets, for indicators of possible impairment when events or changes in
circumstances indicate that the carrying amount of certain assets may not be recoverable. Impairment exists if the carrying amount of such assets exceed the estimates of future net undiscounted cash
flows expected to be generated by such assets. Should impairment exist, the impairment loss would be measured based on the excess carrying amount of the assets over the estimated fair value of the
assets. There have been no long-lived asset impairments during 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 in circumstances indicate that the carrying
amount may not be recoverable. The Company evaluates qualitative factors to determine whether it is more likely than not that the fair value of the Company’s single reporting unit is less than its
carrying amount as a basis for determining whether it is necessary to perform the goodwill 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 the Company’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 value of a reporting unit is greater than its carrying amount, then the goodwill impairment
test is not performed. There have been no goodwill impairments during the periods presented.
Convertible Senior Notes
In March 2018, the Company issued $400.0 million aggregate principal amount of 1.25% Convertible Senior Notes due 2025 (the “Convertible Senior Notes”). The Company accounts for the
liability and equity components of the issued Convertible Senior Notes separately. The carrying amount of the equity component, representing the conversion option, was determined by deducting the
fair value of the liability component from the par value of the Convertible Senior Notes as a whole. This difference represents a debt discount that is amortized to interest expense using the effective
interest method over the term of the Convertible Senior Notes. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an
associated convertible feature. The liability and equity components will not be remeasured as long as the conversion option continues to meet the requirements for equity classification. The equity
component is net of issuance costs and recorded in additional paid-in capital.
Business Combinations
The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. Goodwill is calculated as
the difference between the acquisition-date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. The Company’s estimates of fair value are
based upon assumptions believed to be reasonable, but which are inherently uncertain and subject to refinement, and, as a result, actual results may differ from estimates. During the measurement
period, which may be up to one year from the acquisition date, if new information is obtained about facts and circumstances that existed as of the acquisition date, the Company may record
adjustments to the fair value of these assets and liabilities, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets
acquired and liabilities assumed, whichever comes first, subsequent adjustments, if any, are recorded to the Company’s consolidated statements of operations.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents, investments, accounts receivable, and unbilled accounts receivable.
The Company maintains its cash, cash equivalents, and investments with high quality financial institutions. The Company is exposed to credit risk for cash held in financial institutions in the event of
a default to the extent that such amounts recorded in the consolidated balance sheets are in excess of amounts that are insured by the Federal Deposit Insurance Corporation.
No customer individually accounted for 10% or more of the Company’s revenue for the years ended July 31, 2022, 2021, and 2020. As of July 31, 2022 and July 31, 2021, no customer
accounted for 10% or more of the Company’s total accounts receivable.
Accounts Receivable and Allowances
Accounts receivable are recorded at invoiced amounts and do not bear interest. While the Company does not require collateral, the Company performs ongoing credit evaluations of its customers.
The Company maintains an allowance for credit losses based upon the expected collectability of its accounts receivable. The expectation of collectability is based on historical loss patterns, the
number
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of days that billings are past due, and an evaluation of the potential risk of loss associated with delinquent accounts. Credit losses are recorded in general and administrative expense while billing and
other revenue adjustments are recorded against the corresponding revenue financial statement line item in the consolidated statements of operations.
Revenue Recognition
The Company’s revenue is derived from contracts with customers. The majority of the Company’s revenue is derived from subscriptions to its cloud services, licensing arrangements for its
software, and implementation and other professional services arrangements. The Company accounts for revenue in accordance with Accounting Standards Codification 606, Revenue from Contracts
with Customers (“ASC 606”). The core principle of ASC 606 is to recognize revenue upon the transfer of services or products to customers in an amount that reflects the consideration the Company
expects to be entitled to in exchange for those services or products.
The Company applies the following framework to recognize revenue:
Identification of the contract, or contracts, with the customer
The Company considers the terms and conditions of written contracts and its customary business practices in identifying its contracts. The Company determines it has a contract with a
customer when the contract is approved, the Company can identify each party’s rights regarding the services and products to be transferred, the Company can identify the payment terms for the
services and products, the Company has determined that the customer has the ability and intent to pay, and the contract has commercial substance. In general, contract terms will be reflected in a
written document that is signed by both parties. At contract inception, the Company evaluates whether two or more contracts with the same customer should be combined and accounted for as a
single contract. The customer’s ability and intent to pay is based on a variety of factors, including the customer’s historical payment experience or, in the case of a new customer, credit and financial
information pertaining to the customer.
Contracts may be modified to account for changes in contract scope or price. The Company considers contract modifications to exist when the modification either creates new rights or
obligations or changes the existing enforceable rights and obligations of either party. Contract modifications for services and products that are distinct from the existing contract and are priced
commensurate with their standalone selling price are treated as separate contracts, and are accounted for prospectively. Contract modifications for services and products that are distinct but are not
priced commensurate with their standalone selling price or are not distinct from the existing contract may affect the initial transaction price or the allocation of the transaction price to the performance
obligations in the contract. In such cases, recognized revenue may be adjusted.
Identification of the performance obligation in the contract
Performance obligations promised in a contract are identified based on the services or products that will be transferred to the customer that are both:
i.
capable of being distinct, whereby the customer can benefit from the service or product either on its own or together with other resources that are readily available from the Company or third
parties, and
ii. distinct in the context of the contract, whereby the transfer of the services or products is separately identifiable from other promises in the contract.
To the extent a contract includes multiple promised services or products, the Company applies judgment to determine whether promised services or products are capable of being distinct and
distinct in the context of the contract. If these criteria are not met, the promised services or products are accounted for as a combined performance obligation.
The Company generates revenue from the following sources, which represent the performance obligations of the Company:
i.
Subscription services related to the Company’s Software-as-a-Service (“SaaS”) offerings, including hosting;
ii. Support activities that consist of email and phone support, bug fixes, and unspecified software updates and upgrades released when, and if, available during the support term;
iii. Self-managed software licenses related to term or perpetual agreements; and
iv. Services related to the implementation and configuration of the Company’s services and products, reimbursable travel, and training.
Subscriptions are typically sold with a three- to five-year initial term with a customer option to renew on an annual basis after the initial term. Term licenses generally have a two-year initial
term with a customer option to renew on an annual basis after the
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initial term. In certain circumstances, the Company will enter into term licenses with an initial term of more than two years or a renewal period longer than one year. Support for term licenses follows
the same contract periods. Professional services typically are time and materials contracts that last for an average period of approximately one year.
Determination of the transaction price
The transaction price is determined based on the consideration to which the Company expects to be entitled in exchange for transferring services and products to the customer. Consideration
may vary due to discounts, incentives, and potential service level credits or contractual penalties. Variable consideration is estimated and included in the transaction price if, in the Company’s
judgment, it is probable that there will not be a significant future reversal of cumulative revenue under the contract.
Self-managed software licenses and subscription services may be subject to either fixed or variable installments. Variable installments are generally subject to changes in a customer’s Direct
Written Premium (“DWP”) or a customer’s Gross Written Premium (“GWP”). When consideration is subject to variable installments, the Company estimates variable consideration using the
expected value method based on historical DWP or GWP usage to the extent that a significant revenue reversal is not probable to occur.
The Company elected the practical expedient to evaluate whether a significant financing component exists when the contract term is greater than one year and the timing of revenue recognition
occurs in advance of invoicing. This timing difference occurs when control of the software license is transferred at a point in time, usually at the contract onset, but the customer payments occur over
time. A significant financing component generally does not exist under the Company’s standard contracting and billing practices. For example, the Company’s typical time-based licenses have a two-
year initial term with the final payment due at the end of the first year and the Company’s typical subscription services are generally billed in advance of providing the services.
Allocation of the transaction price to the performance obligations in the contract
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations
require an allocation of the transaction price to each performance obligation based on its standalone selling price (“SSP”) in relation to the total fair value of all performance obligations in the
arrangement. Some of the Company’s performance obligations, such as support, implementation services, and training services, have observable inputs that are used to determine the SSP of those
distinct performance obligations. Where SSP is not directly observable, the Company determines the SSP using information that may include market conditions and other observable inputs. In the
circumstances when available information to determine SSP is highly variable or uncertain, such as for our term licenses, the Company will use the residual method.
The majority of the Company’s contracts contain multiple performance obligations, such as when licenses are sold with support, implementation services, or training services. Additionally, as
customers enter into subscription agreements to migrate from an existing term license agreement, customers may be under contract for self-managed licenses and support, in addition to subscription
services, for a period of time, which may require an allocation of the transaction price to each performance obligation. New and migration subscription agreements also typically include
implementation, configuration, and training services, which may require an allocation of the transaction price to each performance obligation.
Recognition of revenue when, or as, the Company satisfies a performance obligation
The Company recognizes revenue when control of the services or products is transferred to a customer, in an amount that reflects the consideration the Company expects to be entitled to in
exchange for those services or products. The Company is principally responsible for the satisfaction of its distinct performance obligations, which are satisfied either at a point in time or over a period
of time.
Performance obligations satisfied at a point in time
Self-managed term and perpetual software licenses comprise the majority of distinct performance obligations that are satisfied at a point in time. Revenue is recognized at the point in which the
self-managed software licenses are made available to a customer. Consideration for self-managed software licenses is typically billed in advance on an annual basis over the license term, which is
generally two years.
Performance obligations satisfied over a period of time
Subscriptions, support activities, and professional service arrangements comprise the majority of distinct performance obligations that are satisfied over a period of time.
Revenue from subscription arrangements is recognized ratably over the subscription period using a time-based measure of progress as customers receive the benefits from their subscriptions
over the contractually agreed-upon term. The Company’s
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subscription arrangements are generally three to five years in duration. Consideration for subscription arrangements is typically billed in advance on an annual basis over the contract period.
Revenue from support activities associated with self-managed licenses is a stand-ready obligation, which is generally recognized over the contractually agreed-upon term using a time-based
measure of progress as customers receive benefits from the availability of support technicians over the support period. Consideration for support activities is typically billed in advance on an annual
basis. The Company’s support activities are consistently priced as a percentage of the associated self-managed software license.
Revenue from professional service arrangements is recognized over the service period as the underlying services are performed.
In substantially all of the Company’s professional service contracts, services are separately identifiable performance obligations for which related revenue and costs are recognized according to
when each service obligation is delivered. Substantially all professional services engagements are billed and recognized on a time and materials basis. In select situations, the Company will contract
professional services on a fixed fee basis, where the Company generally recognizes services revenue over time, using an input method. The measure of progress of the professional services being
provided under these fixed fee arrangements is based on hours incurred compared to estimates of the total hours to complete the performance obligation.
When professional services are sold with a self-managed license or subscription arrangement, the Company evaluates whether the performance obligations are distinct or separately identifiable,
or whether they constitute a single performance obligation. In the limited cases where professional services are not considered to be distinct from the self-managed license or subscription services, the
Company will recognize revenue based on the nature and term of the combined performance obligation when control of the combined performance obligation is transferred to the customer.
Balance Sheet Presentation
Contracts with customers are reflected in the consolidated balance sheets as follows:
• Accounts receivable, net represents amounts billed to customers in accordance with contract terms for which payment has not yet been received. It is presented net of any allowances
as part of current assets in the consolidated balance sheets.
• Unbilled accounts receivable, net represents amounts that are unbilled due to agreed-upon contractual terms in which billing occurs subsequent to revenue recognition. This situation
typically occurs when the Company transfers control of self-managed software licenses to customers up-front, but invoices customers annually over the term of the license.
Additionally, subscription agreements with ramped billing schedules could result in unbilled accounts receivable in the early years of the committed term. Unbilled accounts receivable
is classified as either current or non-current based on the duration of remaining time between the date of the consolidated balance sheets and the anticipated due date of the underlying
receivables. Unbilled accounts receivable is evaluated for credit losses based upon the expected collectibility of future accounts receivable, customer payment history, global economic
conditions, and ongoing credit evaluations of customers. Unbilled accounts receivable is presented net of allowance for credit losses, if applicable, in the consolidated balance sheets.
This balance represents contract assets.
•
Contract costs include customer acquisition costs, which consist primarily of sales commissions and related payroll taxes paid to sales personnel and referral fees paid to third-parties,
and costs to fulfill a contract, which consist primarily of royalties payable to third-party software providers that support both the Company’s software offerings and support services.
The short-term portion is presented as prepaid and other current assets. The long-term portion is presented as other assets.
• Deferred costs represent costs related to our professional services that have been deferred to align with revenue recognition. The short-term portion is presented as prepaid and other
current assets. The long-term portion is presented as other assets.
• Deferred revenue, net represents amounts that have been invoiced and for which the Company has the right to bill, but that have not been recognized as revenue because the related
services or products have not been transferred to the customer. Deferred revenue consists primarily of subscriptions and support services that are billed annually in advance but
recognized over time. Deferred revenue that will be realized during the 12-month period following the date of the consolidated balance sheets is recorded as current. The remaining
deferred revenue is recorded as non-current. These balances represent contract liabilities.
The Company may receive consideration from its customers in advance of performance on a portion of the contract, thereby creating a contractual liability, and, on another portion of the
contract, perform in advance of receiving consideration, thereby creating a contractual asset. Contract assets and liabilities related to rights and obligations in a contract are interdependent. Therefore,
contract assets and liabilities are presented net at the contract level, as either a single contract asset or a single contract liability, in the consolidated balance sheets.
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Remaining performance obligations represent contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as
revenue in future periods. The Company excludes amounts related to professional services contracts that are on a time and materials basis from remaining performance obligations.
Contract Costs
Contract costs consist of two components: customer acquisition costs and costs to fulfill a contract.
Customer acquisition costs are capitalized only if the costs are incrementally incurred to obtain a customer contract and the expected amortization period is greater than one year. Contract costs
are classified as either current or non-current based on the duration of time remaining between the date of the consolidated balance sheets and the anticipated amortization date of the associated costs.
Capitalized customer acquisition costs related to software licenses, subscriptions, and support services are amortized over the period of which the benefit is expected to be received, which the
Company estimates to be approximately five years. The amortization of customer acquisition costs is classified as a sales and marketing expense in the consolidated statement of operations.
Costs to fulfill a contract, or fulfillment costs, are only capitalized if they relate directly to a contract with a customer, the costs generate or enhance resources that will be used to satisfy
performance obligations in the future, and the costs are expected to be recoverable. Fulfillment costs would be generally amortized over the same period of time as the customer acquisition costs. The
amortization of fulfillment costs is classified as a cost of revenue in the consolidated statement of operations.
Warranties
The Company generally provides a warranty for its software services and products to its customers for periods ranging from three to 12 months. The Company’s software products are generally
warranted to be free of defects in materials and workmanship under normal use and to substantially perform as described in published documentation. The Company’s services are generally warranted
to be performed in a professional 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 or provide a workaround or replacement product, then the
customer’s remedy is generally limited to a refund of the fees paid for the non-conforming products or services. Warranty expense has been insignificant to date.
Advertising Costs
Advertising costs are expensed as incurred and amounts incurred were not material during the years ended July 31, 2022, 2021, and 2020.
Stock-Based Compensation
The Company accounts for stock-based compensation using the fair value method, which requires the Company to measure stock-based compensation based on the grant-date fair value of the
awards and recognize the compensation expense over the requisite service period. The Company recognizes compensation expense net of actual forfeitures. The Company has granted stock options,
time-based restricted stock units (“RSUs”), performance-based restricted stock units (“PSUs”), and restricted stock units that may be earned subject to the Company’s total shareholder return ranking
relative to the software companies in the S&P Software and Services Select Industry Index (“S&P Index”) over a specified performance period or periods, service periods and, in select cases,
performance conditions (“TSR PSUs”). RSUs, PSUs, and TSR PSUs are collectively referred to as “Stock Awards.”
The fair value of the Company’s RSUs and PSUs is equal to the market value of the Company’s common stock on the date of grant. These awards are subject to time-based vesting, which
generally occurs over a period of three to four years. The Company recognizes compensation expense for awards that contain only service conditions on a straight-line basis over the requisite service
period, which is generally the vesting period of the respective awards. The Company recognizes the compensation cost for awards that contain either performance conditions, market conditions, or
both using the graded vesting method and a portion of the expense may fluctuate depending on changing estimates of the achievement of the performance conditions.
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The fair value of the Company’s stock options is estimated at the grant date using the Black-Scholes option-pricing model. Recently granted stock options are subject to time-based vesting,
which generally occurs over a period of two years. The Company recognizes compensation expense for stock options that contain only service conditions on a straight-line basis over the requisite
service period, which is generally the vesting period of the respective stock options. The inputs used in the Black-Scholes option-pricing model are subjective and generally requires significant
judgment to determine.
Expected Term — The expected term represents the period that the stock-based awards are expected to be outstanding. The simplified method calculates the expected term as the average of the
time-to-vesting and the contractual life of the options. The Company uses the simplified method to determine its expected term because of its limited history of stock option exercise activity.
Expected Volatility — The expected volatility is derived from the historical volatility of the Company’s common stock.
Risk-Free Interest Rate — The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately
equal to the expected term of the options.
Expected Dividend — The expected dividend is zero, as the Company has never paid dividends and has no expectations to do so.
The fair value of the Company’s TSR PSUs is estimated at the grant date using a Monte Carlo simulation method. The assumptions utilized under this method requires judgments and estimates
and changes in these inputs and assumptions could affect the measurement of the estimated fair value of the related compensation expense. Compensation expense associated with TSR PSUs will be
recognized over the vesting period regardless of whether the market condition is ultimately satisfied; however, the expense will be reversed if a grantee terminates prior to satisfying the requisite
service period. For TSR PSUs containing an additional performance condition, a portion of the expense may fluctuate depending on estimates of the achievement of the performance conditions. All
TSR PSUs will vest at the end of a three-year period.
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the
financial statement carrying amounts and tax basis of existing assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. All deferred tax
assets and liabilities are classified as non-current on the Company’s consolidated balance sheets. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance against deferred tax assets is recorded when it is more likely than not that some portion or all of such deferred tax assets will not be
realized and is based on both positive and negative evidence about the future, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning
strategies, and results of recent operations.
The effective tax rate in any given financial statement period may differ materially from the statutory rate. These differences may be caused by changes in tax regulations and resulting changes
in the deferred tax valuation allowance; changes in the mix and level of income or losses; changes in the expected outcome of tax audits; permanent differences for stock-based compensation,
including excess tax benefits; research and development credits; the tax rate differences between the United States and foreign countries; foreign withholding taxes; certain non-deductible expenses,
including executive compensation; acquisition-related expenses; and provisions under the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), including a provision to tax global intangible low-taxed
income of foreign subsidiaries, a special deduction for foreign-derived intangible income, and a base erosion anti-abuse tax that may tax certain payments between a U.S. corporation and its foreign
subsidiaries.
The Company records interest and penalties related to unrecognized tax benefits as income tax expense in its consolidated statement of operations.
Recent Accounting Pronouncements Not Yet Adopted
Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible
Instruments and Contracts in an Entity’s Own Equity
In August 2020, the FASB issued ASU No. 2020-06, “Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity
(Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, which simplifies the accounting for convertible instruments by eliminating the requirement to
separate embedded conversion features from the host contract when the conversion features are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do
not result in substantial premiums accounted for as paid-in capital. By removing the separation model, a convertible debt instrument will be reported as a single liability instrument with no separate
accounting for embedded conversion features. This new standard also removes certain settlement conditions that are required for contracts to qualify for equity classification and simplifies the diluted
earnings per share calculations by requiring that an entity use the
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if-converted method and that the effect of potential share settlement be included in diluted earnings per share calculations. The new standard will be effective and the Company will adopt it beginning
August 1, 2022. The Company will adopt the standard on a modified retrospective basis and will not restate comparative periods. Upon adoption, the Company expects the requirement to use the if-
converted method instead of the treasury stock method of accounting for the shares issuable upon conversion of the Convertible Senior Notes will most likely adversely affect diluted earnings per
share. On the adoption date, the Company expects to record in the consolidated balance sheets an increase to Convertible Senior Notes, net of approximately $37 million, a decrease to accumulated
deficit of approximately $40 million, a decrease to additional paid-in capital of approximately $68 million, and a decrease to deferred tax liability of approximately $9 million. Additionally, there will
be an impact to the consolidated financial statements due to the removal of the equity component of the debt and the associated impact of such adjustment to the accretion of debt discount, which will
result in a decrease in interest expense.
Other Accounting Pronouncements
Other recent accounting pronouncements that will be applicable to the Company are not expected to have a material impact on its present or future financial statements.
2. Revenue
Disaggregation of Revenue
Revenue by license or service type is as follows (in thousands):
Subscription and support
Subscription
Support
License
Term license
Perpetual license
Services
Total revenue
Revenue by revenue type and by geography is as follows (in thousands):
United States
Canada
Other Americas
Total Americas
United Kingdom
Other EMEA
Total EMEA
Total APAC
Total revenue
2022
Fiscal years ended July 31,
2021
2020
259,232
84,476
258,440
191
210,275
812,614 $
168,649
83,709
303,309
483
187,117
743,267 $
$
Subscription and
support
License
Services
Total
Fiscal year ended July 31, 2022
$
229,177 $
55,633
4,608
289,418
9,421
22,732
32,153
22,137
343,708
151,464 $
17,145
3,094
171,703
20,740
32,508
53,248
33,680
258,631
135,783 $
27,232
2,682
165,697
4,074
28,944
33,018
11,560
210,275
119,658
83,815
328,489
3,065
207,280
742,307
516,424
100,010
10,384
626,818
34,235
84,184
118,419
67,377
812,614
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United States
Canada
Other Americas
Total Americas
United Kingdom
Other EMEA
Total EMEA
Total APAC
Total revenue
United States
Canada
Other Americas
Total Americas
United Kingdom
Other EMEA
Total EMEA
Total APAC
Total revenue
$
$
Subscription and
support
License
Services
Total
Fiscal year ended July 31, 2021
167,920 $
35,465
4,234
207,619
6,911
20,449
27,360
17,379
252,358
180,742 $
26,214
4,651
211,607
21,032
39,553
60,585
31,600
303,792
123,498 $
13,464
5,307
142,269
4,333
29,574
33,907
10,941
187,117
Subscription and
support
License
Services
Total
Fiscal year ended July 31, 2020
139,059 $
18,216
4,454
161,729
6,942
19,544
26,486
15,258
203,473
174,183 $
36,184
6,374
216,741
36,185
43,988
80,173
34,640
331,554
149,297 $
4,595
7,780
161,672
5,397
26,389
31,786
13,822
207,280
No country or region other than those listed above accounted for more than 10% of revenue during the years ended July 31, 2022, 2021, and 2020.
Customer Contract – Related Balance Sheet Amounts
Amounts related to customer contract-related arrangements are included on the consolidated balance sheets as follows (in thousands):
Unbilled accounts receivable, net
Contract costs, net
Deferred revenue, net
Unbilled accounts receivable
July 31, 2022
July 31, 2021
85,429
44,235
178,276
472,160
75,143
14,192
561,495
32,276
89,576
121,852
59,920
743,267
462,539
58,995
18,608
540,142
48,524
89,921
138,445
63,720
742,307
103,422
42,235
145,936
The unbilled accounts receivable, net decreased by $18.0 million primarily due to the impact of term license arrangements of approximately $17.1 million and, to a lesser extent, cloud
subscription orders with ramped billing schedules.
As of July 31, 2022 and 2021, there was no allowance for credit losses associated with unbilled accounts receivable. During the year ended July 31, 2022, $3.0 million of unbilled accounts
receivable, net was written off due to a contract termination as a result of United States government sanctions on Russia.
Contract costs
The current portion of contract costs of $14.8 million and $13.4 million is included in prepaid and other current assets on the Company’s consolidated balance sheets as of July 31, 2022 and
2021, respectively. The non-current portion of contract costs of $29.4 million and $28.9 million is included in other assets on the Company’s consolidated balance sheets as of July 31, 2022 and 2021,
respectively. The Company amortized $14.5 million, $11.4 million, and $9.9 million of contract costs during the fiscal years ended July 31, 2022, 2021, and 2020 respectively.
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Deferred revenue
During the fiscal year ended July 31, 2022, the Company recognized revenue of $137.7 million related to the Company’s deferred revenue balance reported as of July 31, 2021.
Remaining Performance Obligations
The aggregate amount of consideration allocated to remaining performance obligations either not satisfied or partially satisfied, was approximately $1,124.0 million as of July 31, 2022.
Subscription services are typically satisfied over three to five years, support services are generally satisfied within one year, and professional services are typically satisfied within one year.
Professional services under time and material contracts are not included in the remaining performance obligations calculation as these arrangements can be cancelled at any time.
3. Fair Value of Financial Instruments
Available-for-sale investments within cash equivalents and investments consist of the following (in thousands):
U.S. Government agency securities
Commercial paper
Corporate bonds
U.S. Government bonds
Asset-backed securities
Foreign government bonds
Municipal bonds
Certificates of deposit
Money market funds
Total
U.S. Government agency securities
Commercial paper
Corporate bonds
U.S. Government bonds
Asset-backed securities
Foreign government bonds
Municipal bonds
Certificates of deposit
Money market funds
Strategic convertible debt investment*
Total
*At original cost
Amortized Cost
Unrealized Gains
Unrealized Losses
Estimated Fair Value
July 31, 2022
37,572 $
197,998
320,474
47,014
54,782
15,109
205
43,715
349,492
1,066,361 $
(586) $
—
(4,880)
(1,312)
(611)
(361)
—
—
—
(7,750) $
36,986
197,998
315,602
45,702
54,171
14,748
205
43,715
349,492
1,058,619
— $
—
8
—
—
—
—
—
—
8 $
July 31, 2021
Amortized Cost
Unrealized Gains
Unrealized Losses
Estimated Fair Value
85,165 $
389,837
371,374
64,401
47,925
33,177
1,685
82,250
125,118
1,000
1,201,932 $
15 $
—
623
62
29
10
—
—
—
—
739 $
— $
—
(37)
(1)
(7)
(2)
—
—
—
—
(47) $
85,180
389,837
371,960
64,462
47,947
33,185
1,685
82,250
125,118
1,000
1,202,624
$
$
$
$
The Company does not consider any portion of the unrealized losses at July 31, 2022 to be credit losses. The Company has recorded the securities at fair value in its consolidated balance sheets,
with unrealized gains and losses reported as a component of accumulated other comprehensive income (loss). The amount of unrealized gains and losses reclassified into earnings are based on the
specific identification of the securities sold. The realized gains and losses from sales of securities are presented in the consolidated statements of comprehensive income (loss).
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The following table summarizes the contractual maturities of the Company’s available-for-sale investments measured at fair value (in thousands):
U.S. Government agency securities
Commercial paper
Corporate bonds
U.S. Government bonds
Asset-backed securities
Foreign government bonds
Municipal bonds
Certificates of deposit
Money market funds
Total
Fair Value Measurement
Less Than 12 Months
12 months or greater
Total
July 31, 2022
$
$
36,986 $
197,998
203,960
25,429
8,627
4,700
205
43,715
349,492
871,112 $
— $
—
111,642
20,273
45,544
10,048
—
—
—
187,507 $
36,986
197,998
315,602
45,702
54,171
14,748
205
43,715
349,492
1,058,619
Fair 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 most advantageous market for the asset or liability in
an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of
unobservable inputs.
The Company applies the three-level valuation hierarchy when measuring the fair value of certain assets and liabilities:
Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2—Inputs other than quoted prices included within Level 1 that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be
corroborated by observable market data; and
Level 3—Unobservable inputs that are supported by little or no market activity, which require the Company to develop its own assumptions.
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Available-for-sale investments
The following tables summarize the Company’s available-for-sale investments measured at fair value, by level within the fair value hierarchy (in thousands):
Level 1
Level 2
Level 3
Total
July 31, 2022
Cash equivalents:
U.S. Government agency securities
Commercial paper
Certificates of deposit
Money market funds
Total cash equivalents
Short-term investments:
U.S. Government agency securities
Commercial paper
Corporate bonds
U.S. Government bonds
Asset-backed securities
Foreign government bonds
Municipal bonds
Certificates of deposit
Total short-term investments
Long-term investments:
Corporate bonds
U.S. Government bonds
Asset-backed securities
Foreign government bonds
Total long-term investments
Total
$
$
— $
—
—
349,492
349,492
—
—
—
—
—
—
—
—
—
—
—
—
—
—
349,492 $
10,000 $
132,066
9,689
—
151,755
26,986
65,932
203,960
25,429
8,627
4,700
205
34,026
369,865
111,642
20,273
45,544
10,048
187,507
709,127 $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
10,000
132,066
9,689
349,492
501,247
26,986
65,932
203,960
25,429
8,627
4,700
205
34,026
369,865
111,642
20,273
45,544
10,048
187,507
1,058,619
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Cash equivalents:
Commercial paper
Money market funds
Total cash equivalents
Short-term investments:
U.S. Government agency securities
Commercial paper
Corporate bonds
U.S. Government bonds
Asset-backed securities
Foreign government bonds
Municipal bonds
Certificates of deposit
Strategic convertible debt investment
Total short-term investments
Long-term investments:
U.S. Government agency securities
Corporate bonds
U.S. Government bonds
Asset-backed securities
Foreign government bonds
Municipal bonds
Certificates of deposit
Total long-term investments
Total
Convertible Senior Notes
Level 1
Level 2
Level 3
Total
July 31, 2021
$
$
— $
125,118
125,118
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
125,118 $
115,825 $
—
115,825
69,183
274,012
225,384
45,320
9,036
28,353
1,480
80,750
—
733,518
15,997
146,576
19,142
38,911
4,832
205
1,500
227,163
1,076,506 $
— $
—
—
—
—
—
—
—
—
—
—
1,000
1,000
—
—
—
—
—
—
—
—
1,000 $
115,825
125,118
240,943
69,183
274,012
225,384
45,320
9,036
28,353
1,480
80,750
1,000
734,518
15,997
146,576
19,142
38,911
4,832
205
1,500
227,163
1,202,624
The fair value of the Convertible Senior Notes was $387.6 million and $452.0 million at July 31, 2022 and 2021, respectively. The Company estimates the fair value of the Convertible Senior
Notes using commonly accepted valuation methodologies and market-based risk measurements that are directly observable, such as unadjusted quoted prices in markets that are not active (Level 2).
The Company carries the Convertible Senior Notes at initial fair value less unamortized debt discount and issuance costs on its consolidated balance sheets. For further information on the Convertible
Senior Notes, see Note 7.
4. Acquisitions
On August 18, 2021, the Company completed its acquisition of HazardHub, Inc. (“HazardHub”) for net cash consideration of approximately $53 million, subject to customary transaction
adjustments, including $8.2 million of acquisition consideration holdback subject to service conditions over the next three years, which is being held in escrow and considered restricted cash. The
escrow is included in the consolidated balance sheets in the amounts of $3.2 million in prepaid expenses and other current assets and of $5.0 million in other assets. HazardHub provides API-driven
property risk insights to the property and casualty insurance industry through curation, analysis, and distillation of vast amounts of data to deliver a comprehensive, national catalog of risks that may
damage or destroy property. The acquisition was accounted for as a business combination.
In conjunction with the purchase price allocation, the Company determined that HazardHub's separately identifiable intangible assets were acquired technology, customer relationships, and
trademarks. The valuation models were based on estimates of future operating projections of HazardHub and rights to sell new products containing the acquired technology, as well as judgments on
the discount rates used and other variables. The Company developed forecasts based on a number of factors, including future revenue and operating cost projections, a discount rate that is
representative of the weighted average cost of capital, and royalty and long-term sustainable growth rates based on a market analysis. These fair value measurements were based on significant inputs
that were not
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observable in the market and thus represents a Level 3 measurement. The Company amortizes the acquired intangibles over their estimated useful lives as set forth in the table below.
The preliminary allocation of purchase price is pending the final working capital adjustment and is therefore subject to potential future measurement period adjustments. The measurement
period will end no later than August 17, 2022. The preliminary allocation of the purchase consideration is as follows:
Acquired assets, net of assumed liabilities
Acquired technology
Customer relationships
Trademarks
Goodwill
Deferred tax liability
Total preliminary purchase consideration
Preliminary Purchase Price
Allocation
(in thousands)
Estimated Useful Lives
(in years)
$
$
198
9,700
5,100
900
31,315
(2,882)
44,331
5
5
7
Goodwill of $31.3 million arising from the acquisition is primarily related to the acquired workforce, expected synergies, and the opportunity to sell into and expand the Company’s customer
base. The goodwill recorded is not expected to be deductible for income tax purposes.
Pro forma and historical financial information has not been provided as the acquisition was not material to the consolidated financial statements.
5. Balance Sheet Components
Accounts Receivables, Net
Accounts receivable, net consists of the following (in thousands):
Accounts receivable
Allowance for credit losses and revenue reserves
Accounts receivable, net
Allowance for Credit Losses and Revenue Reserves
Changes to the allowance for credit losses and revenue reserves consists of the following (in thousands):
Balance as of July 31, 2021
Net changes to credit losses
Net changes to revenue reserves
(1)
Write-offs, net
(1)
Balance as of July 31, 2022
(1)
Includes $3.0 million due to a contract termination as a result of United States government sanctions on Russia.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
July 31, 2022
July 31, 2021
$
$
144,156 $
(359)
143,797 $
$
$
105,125
(1,057)
104,068
1,057
2,957
(356)
(3,299)
359
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Prepaid expenses
Contract costs
Deferred costs
Deposits and other receivables
Prepaid expenses and other current assets
Property and Equipment, Net
Property and equipment consist of the following (in thousands):
Computer hardware
Purchased software
Capitalized software development costs
Equipment and machinery
Furniture and fixtures
Leasehold improvements
Total property and equipment
Less accumulated depreciation
Property and equipment, net
$
$
$
$
July 31, 2022
July 31, 2021
24,273 $
14,843
9,969
12,138
61,223 $
July 31, 2022
July 31, 2021
14,472 $
5,124
38,724
8,248
11,467
59,059
137,094
(56,354)
80,740 $
20,330
13,365
9,247
9,787
52,729
19,256
6,002
24,025
12,214
11,482
57,960
130,939
(50,878)
80,061
As of July 31, 2022 and 2021, no property and equipment was pledged as collateral. Depreciation expense, excluding the amortization of capitalized software development costs, was
$14.0 million, $14.0 million and $14.5 million for the fiscal years ended July 31, 2022, 2021, and 2020, respectively.
The Company recognized amortization of capitalized software development costs in cost of subscription and support revenue on the consolidated statements of operations of $6.3 million, $3.4
million and $1.4 million during the fiscal years ended July 31, 2022, 2021, and 2020 respectively.
Goodwill and Intangible Assets, Net
Changes in the carrying amount of goodwill were as follows (in thousands):
Goodwill, July 31, 2021
Addition — HazardHub acquisition
Goodwill, July 31, 2022
$
$
340,877
31,315
372,192
The Company’s intangible assets are amortized over their estimated useful lives. Intangible assets consist of the following (in thousands):
Acquired technology
Customer contracts and related relationships
Partner relationships
Trademarks
Order backlog
Total
Remaining Weighted-
Average Useful Life
(in years)
3.5
3.5
2.7
4.1
—
3.6
$
$
Cost
38,100 $
23,100
200
3,400
—
64,800 $
July 31, 2022
Accumulated
Amortization
Net Book Value
Cost
July 31, 2021
Accumulated
Amortization
Net Book Value
28,826
12,653
141
1,819
—
43,439 $
9,274 $
10,447
59
1,581
—
21,361 $
93,600 $
35,700
200
2,500
8,700
140,700 $
86,367 $
24,432
119
1,339
8,700
120,957 $
7,233
11,268
81
1,161
—
19,743
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Amortization expense was $14.1 million, $20.0 million, and $26.8 million during the years ended July 31, 2022, 2021, and 2020, respectively. The future amortization expense for existing
intangible assets as of July 31, 2022, based on their current useful lives, is as follows (in thousands):
Fiscal year ending July 31,
2023
2024
2025
2026
2027
Thereafter
Total future amortization expense
Other Assets
Other assets consist of the following (in thousands):
Prepaid expenses
Contract costs
Deferred costs
Strategic equity investments
Other
Other assets
$
$
$
July 31, 2022
July 31, 2021
3,085 $
29,392
1,256
18,023
4,976
56,732 $
6,888
5,468
5,026
3,572
272
135
21,361
3,276
28,870
2,777
3,556
—
38,479
The Company’s other assets include strategic equity investments in privately-held companies in which the Company does not have a controlling interest or the ability to exert significant
influence. The strategic investments consist of non-marketable equity securities that do not have readily determinable market values (Level 3). The Company records these strategic investments at
cost less impairment and adjusts cost for subsequent observable changes in fair value. The Company invested $12.3 million and $2.4 million in new strategic equity investments during the fiscal year
ended July 31, 2022 and 2021, respectively. An impairment charge of $10.7 million was recognized during the fiscal year ended July 31, 2020. No impairment charge was recognized during the fiscal
years ended July 31, 2022 and 2021.
During the fiscal year ended July 31, 2022, the Company’s convertible debt investment was converted into equity shares due to a qualified equity financing event. The carrying value of the
convertible debt investment was $1.1 million comprised of principal and accrued interest. An unrealized gain in the form of implied interest income of $1.6 million was recognized due to the
conversion discount on the fair value of the shares. No unrealized gain or loss was recognized during the fiscal years ended July 31, 2021 and 2020.
Accrued Employee Compensation
Accrued employee compensation consists of the following (in thousands):
Bonus
Commission
Vacation
Salaries, payroll taxes, and benefits
(1)
Accrued employee compensation
$
$
July 31, 2022
July 31, 2021
55,206 $
6,247
5,728
23,781
90,962 $
48,414
11,271
23,803
18,649
102,137
(1)
In the first quarter of fiscal year 2022, the Company paid out accrued vacation for employees in certain countries upon adopting a non-accrued vacation policy effective September 1, 2021.
Other Current Liabilities
Other current liabilities consist of the following (in thousands):
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Lease liabilities
Accrued royalties
Accrued taxes
Other
Other current liabilities
July 31, 2022
July 31, 2021
$
$
12,238 $
10,575
6,566
5,961
35,340 $
11,624
7,525
6,796
5,703
31,648
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6. Net Income (Loss) Per Share
The Company calculates basic earnings per share by dividing the net income (loss) by the weighted average number of shares of common stock outstanding for the period. The diluted earnings
per share is computed by giving effect to all potentially dilutive common stock equivalents outstanding for the period using the treasury stock method. For purposes of this calculation, options to
purchase common stock, Stock Awards, and the Convertible Senior Notes are considered to be common stock equivalents.
The following table sets forth the computation of the Company’s basic and diluted net income (loss) per share for the years ended July 31, 2022, 2021, and 2020 (in thousands, except share and
per share amounts):
Numerator:
Net income (loss)
Net income (loss) per share:
Basic and diluted
Denominator:
2022
2021
2020
Fiscal years ended July 31,
$
$
(180,431) $
(66,507) $
(2.16) $
(0.79) $
(27,198)
(0.33)
Weighted average shares used in computing net income (loss) per share:
Basic and diluted
83,569,517
83,577,375
82,855,392
The following weighted average shares of potential common stock were excluded from the computation of diluted net income (loss) per share for the periods presented because including them
would have been anti-dilutive:
Stock options
Stock awards
Convertible senior notes
2022
2021
2020
Fiscal years ended July 31,
24,206
1,836,455
33,417
37,980
2,737,597
52,430
161,410
2,559,214
—
Since the Company has the intent and ability to settle the principal amount of the Convertible Senior Notes in cash and any excess in shares of the Company’s common stock, the Company uses
the treasury stock method for calculating any potential dilutive effect of the conversion spread on net income per share, if applicable. The conversion spread will have a dilutive impact on net income
(loss) per share when the average market price of the Company’s common stock for a given period exceeds the conversion price of $113.75 per share for the Convertible Senior Notes. Except for the
first quarter in fiscal year 2022 and the second quarter in fiscal year 2021, the average market price of the Company’s common stock did not exceed the conversion price.
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7. Convertible Senior Notes
In March 2018, the Company offered and sold $400.0 million aggregate principal amount of its 1.25% Convertible Senior Notes due 2025. The Convertible Senior Notes were issued in
accordance with the Indenture, dated as of March 13, 2018, between the Company and U.S. Bank National Association, as trustee (the “Trustee”) (the “Base Indenture”), as amended and
supplemented by the First Supplemental Indenture, dated as of March 13, 2018, between the Company and the Trustee (together with the Base Indenture, the “Indenture”). The net proceeds from the
issuance of the Convertible Senior Notes were $387.2 million, after deducting issuance costs.
The Convertible Senior Notes are unsecured obligations of the Company with interest payable semi-annually in arrears at a rate of 1.25% per year, on March 15th and September 15th of each
year. The Convertible Senior Notes will mature on March 15, 2025 unless repurchased, redeemed, or converted prior to such date. Prior to the close of business on the business day immediately
preceding October 15, 2024, the Convertible Senior Notes are convertible at the option of holders during certain periods, upon satisfaction of certain conditions. On or after October 15, 2024, the
Convertible Senior Notes are convertible at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. The Convertible Senior Notes will have
an initial conversion rate of 8.7912 shares of common stock per $1,000 principal (equivalent to an initial conversion price of approximately $113.75 per share of the Company’s common stock). The
conversion rate is subject to customary adjustments upon the occurrence of certain events but will not be adjusted for any accrued and unpaid interest. Upon conversion, the Company will pay or
deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at its election.
The Company may redeem the Convertible Senior Notes, at its option, on or after March 20, 2022, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid
interest if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including
at least one of the three trading days immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the
trading day immediately preceding the date on which the Company provides notice of redemption. No sinking fund is provided for the Convertible Senior Notes. Upon the occurrence of a
fundamental change (as defined in the Indenture) prior to the maturity date, holders may require the Company to repurchase all or a portion of the Convertible Senior Notes for cash at a price equal to
100% of the principal amount of the notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The Convertible Senior Notes rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Convertible Senior Notes, and
equal in right of payment to any of its indebtedness that is not so subordinated. The Convertible Senior Notes are effectively junior in right of payment to any of the Company’s secured indebtedness
to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) and any preferred equity of its current or
future subsidiaries.
The net carrying value of the liability component, unamortized debt discount, and unamortized debt issuance costs of the Convertible Senior Notes was as follows (in thousands):
Principal
Less unamortized:
Debt discount
Debt issuance costs
Net carrying amount
July 31, 2022
July 31, 2021
$
$
400,000 $
37,253
4,531
358,216 $
400,000
50,198
5,977
343,825
The effective interest rate of the Convertible Senior Notes is 5.53%. The following table sets forth the interest expense recognized related to the Convertible Senior Notes (in thousands):
Contractual interest expense
Amortization of debt discount
Amortization of debt issuance costs
Total
2022
Fiscal years ended July 31,
2021
2020
$
$
5,000 $
12,945
1,446
19,391 $
5,000 $
12,310
1,307
18,617 $
5,000
11,705
1,181
17,886
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Capped Call
In March 2018, the Company paid $37.2 million to purchase capped calls with certain financial institutions pursuant to capped call confirmations (the “Capped Calls”). The Capped Calls have
an initial strike price of $113.75 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Convertible Senior Notes. The Capped Calls have initial cap prices of
$153.13 per share, subject to certain adjustments. The Capped Calls cover, subject to anti-dilution adjustments, 3.5 million shares of common stock. By entering into the Capped Calls, the Company
expects to reduce the potential dilution to its common stock (or, in the event the conversion is settled in cash, to reduce its cash payment obligation) in the event that at the time of conversion its stock
price exceeds the conversion price under the Convertible Senior Notes. The Capped Calls are subject to either adjustment or termination upon the occurrence of specified extraordinary events
affecting the Company, including a merger event, tender offer, and a nationalization, insolvency, or delisting involving the Company. Additionally, the Capped Calls are subject to certain specified
additional disruption events that may give rise to a termination of the Capped Calls, including change in law, insolvency filing, and hedging disruptions. The Capped Calls were recorded in the period
purchased as a reduction of the Company’s additional paid-in capital in the accompanying consolidated balance sheets.
8. Leases
The Company’s lease obligations consist of operating leases for office facilities and equipment, with lease periods expiring through fiscal year 2032. Some leases include one or more options to
renew. Lease renewals are not assumed in the determination of the lease term until the exercise of the renewal option is deemed to be reasonably certain.
Components of operating lease costs were as follows (in thousands):
(1)
Operating lease costs
Variable lease costs
Sublease income
Net operating lease costs
2022
Fiscal years ended July 31,
2021
2020
$
$
15,992 $
5,496
(1,451)
20,037 $
17,614 $
5,017
(1,587)
21,044 $
(1)
Lease expense for leases with an initial term of 12 months or less is excluded from the table above and was $0.9 million, $1.0 million, $0.9 million for the fiscal years ended July 31, 2022, 2021, and 2020, respectively.
Future operating lease payments as of July 31, 2022 were as follows (in thousands):
Fiscal year ending July 31,
2023
2024
2025
2026
2027
Thereafter
Total future lease payments
Less imputed interest
Total lease liability balance
$
$
15,275
5,821
(1,430)
19,666
16,669
17,712
17,869
17,792
17,370
49,423
136,835
(19,474)
117,361
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Supplemental information related to leases was as follows (in thousands, except for lease term and discount rate):
Operating lease assets
Current portion of lease liabilities
Non-current portion of lease liabilities
Total lease liabilities
Weighted average remaining lease term (years)
Weighted average discount rate
Supplemental cash and non-cash information related to operating leases was as follows (in thousands):
Cash payments for operating leases
Operating lease assets obtained in exchange for operating lease liabilities
9. Commitments and Contingencies
The Company’s contractual obligations and commitments as of July 31, 2022 are as follows (in thousands):
$
$
As of July 31,
2022
2021
90,287
$
12,238
105,123
117,361
$
7.65
4.00 %
97,447
11,624
115,374
126,998
8.74
4.20 %
2022
Fiscal years ended July 31,
2021
$
$
19,120 $
5,867 $
17,837 $
6,503 $
2020
9,584
23,032
Fiscal Year Ending July 31,
2023
2024
2025
2026
2027
Thereafter
Total
Lease Obligations
(1)
Royalty Obligations
(2)
Purchase
Commitments
(3)
Long Term Debt
(4)
Total
$
$
16,669 $
17,712
17,869
17,792
17,370
49,423
136,835 $
4,138 $
585
292
—
—
—
5,015 $
57,715 $
30,954
8,926
477
—
—
98,072 $
5,000 $
5,000
405,000
—
—
—
415,000 $
83,522
54,251
432,087
18,269
17,370
49,423
654,922
(1)
(2)
(3)
(4)
Lease obligations primarily represent payments required under the Company’s non-cancellable lease agreements for the Company’s corporate headquarters and worldwide offices through 2032.
Royalty obligations primarily represent the Company’s obligations under non-cancellable agreements related to software used in certain revenue-generating agreements.
Purchase commitments represent commitments to purchase goods and services, entered into in the ordinary course of business, for which a penalty could be imposed if the agreement was cancelled for any reason other than an event of default as
described by the agreement.
Long-term debt consists of principal and interest payments on the Company’s Convertible Senior Notes. The $400 million in principal will be due in March 2025.
Legal Proceedings
From time to time, the Company is involved in various legal proceedings and receives claims, arising from the normal course of business activities. The Company has not recorded any accrual
for claims as of July 31, 2022 and 2021, respectively. The Company has not accrued for estimated losses in the accompanying consolidated financial statements as the Company has determined that
no provision for liability nor disclosure is required related to any claim against the Company because: (a) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any)
may be incurred with respect to such claim; (b) a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate is immaterial. The Company expenses legal fees in the period in
which they are incurred.
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Indemnification
The Company sells software licenses and services to its customers under Software License Agreements (“SLA”) and Software Subscription Agreements (“SSA”). SLAs and SSAs contain the
terms of the contractual arrangement with the customer and generally include certain provisions for defending the customer against any claims that the Company’s software infringes upon a patent,
copyright, trademark, or other proprietary right of a third party. SLAs and SSAs also generally indemnify the customer against judgments, settlements, fines, penalties, costs, and expenses resulting
from a claim (“Losses”) against the customer in the event the Company’s software is found to infringe upon such third-party rights.
The Company has not had to reimburse any of its customers for Losses related to indemnification provisions and no material claims against the Company were outstanding as of July 31, 2022
and 2021. For several reasons, including the lack of prior indemnification claims and the lack of a monetary liability limit for certain infringement cases under various SLAs and SSAs, 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, and settlement 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 by reason 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 or officer or that person’s services provided to any other company or enterprise at the Company’s request. The Company
maintains director and officer insurance coverage that may enable the Company to recover a portion of any future amounts paid.
10. Stock-Based Compensation Expense and Shareholders’ Equity
Stock-Based Compensation Expense
Stock-based compensation expense related to stock options and Stock Awards is included in the Company’s consolidated statements of operations as follows (in thousands):
Stock-based compensation expense
Net impact of deferred stock-based compensation
Total stock-based compensation expense
Stock-based compensation expense is included in the following categories:
Cost of subscription and support revenue
Cost of license revenue
Cost of services revenue
Research and development
Sales and marketing
General and administrative
Total stock-based compensation expense
Tax benefit from stock-based compensation
Total stock-based compensation, net of tax effect
2022
2021
2020
Fiscal years ended July 31,
$
$
$
$
138,156 $
(1,145)
137,011 $
14,614 $
692
22,951
36,134
32,960
29,660
137,011
26,151
110,860 $
116,222 $
(1,213)
115,009 $
11,231 $
770
21,809
29,524
25,820
25,855
115,009
31,891
83,118 $
102,191
(374)
101,817
7,575
769
20,816
26,324
21,260
25,073
101,817
28,360
73,457
Table of Contents
Total unrecognized stock-based compensation expense related to the Company’s stock options and Stock Awards as of July 31, 2022 is as follows:
Stock Options
Stock Awards
Total unrecognized stock-based compensation expense
Unrecognized Expense
(in thousands)
Weighted Average Expected Recognition
Period
(in years)
$
$
1,557
265,475
267,032
1.9
2.5
Stock Awards
A summary of the Company’s Stock Awards activity under the Company’s equity incentive plans is as follows:
Balance as of July 31, 2019
Granted
Released
Canceled
Balance as of July 31, 2020
Granted
Released
Canceled
Balance as of July 31, 2021
Granted
Released
Canceled
Balance as of July 31, 2022
Expected to vest as of July 31, 2022
Number of Stock Awards
Weighted Average Grant Date
Fair Value
Aggregate Intrinsic Value
(in thousands)
(1)
Stock Awards Outstanding
2,384,673 $
1,587,664 $
(1,217,337) $
(309,302) $
2,445,698 $
1,429,325 $
(1,167,291) $
(312,764) $
2,394,968 $
1,942,391 $
(1,202,125) $
(349,881) $
2,785,353 $
2,785,353 $
85.20 $
106.65
82.73 $
87.25
99.34 $
111.22
96.83 $
103.22
107.15 $
112.83
107.29 $
111.80
110.47 $
110.47 $
243,427
121,915
287,761
131,188
275,900
118,669
216,478
216,478
(1)
Aggregate intrinsic value at each period end represents the total market value of Stock Awards at the Company’s closing stock price of $77.72, $115.20, and $117.66 on July 31, 2022, 2021, and 2020, respectively. Aggregate intrinsic value for
released Stock Awards represents the total market value of released Stock Awards at date of release.
Certain executives and employees of the Company received PSUs and TSR PSUs in addition to RSUs. PSUs awarded in fiscal years 2022 and 2021 will vest over three years with 50% vesting
annually over the three year period and the remaining 50% vesting at the end of the third year. The TSR PSUs are subject to total shareholder return rankings of the Company’s common stock relative
to the software companies in the S&P Index for a specified period or periods, and vest at the end of three years. The Company recognized stock-based compensation related to these performance-
based and market-based stock awards of $14.7 million, $13.9 million, and $13.1 million in fiscal years 2022, 2021, and 2020, respectively.
Table of Contents
Stock Options
A summary of stock option activity under the Company’s equity incentive plans is as follows:
Balance as of July 31, 2019
Granted
Exercised
Canceled
Balance as of July 31, 2020
Granted
Exercised
Canceled
Balance as of July 31, 2021
Granted
Exercised
Canceled
Balance as of July 31, 2022
Vested and expected to vest as of July 31, 2022
Exercisable as of July 31, 2022
Number of Stock Options
Outstanding
Weighted Average Exercise
Price
Weighted Average Remaining
Contractual Life
(in years)
Aggregate Intrinsic Value
(in thousands)
(1)
216,727 $
— $
(132,573) $
(3,822) $
80,332 $
—
(53,932) $
(1,122) $
25,278 $
60,900 $
(10,472) $
— $
75,706 $
75,706 $
14,806 $
34.10
—
37.37
10.99
29.80
36.00
11.24
17.39
71.67
11.10
—
61.93
61.93
21.85
5.2 $
$
5.2 $
$
5.0 $
$
8.7 $
8.7 $
3.6 $
14,733
8,917
7,058
3,986
2,472
1,047
1,196
1,196
827
(1)
Aggregate intrinsic value at each fiscal year end represents the difference between the Company’s closing stock price of $77.72, $115.20, and $117.66 on July 31, 2022, 2021, and 2020, respectively, and the exercise price of outstanding stock
options. Aggregate intrinsic value for exercised options represents the difference between the Company’s stock price at date of exercise and the exercise price.
Valuation of Awards
Stock Options
The fair value of the stock options is estimated at the grant date using the Black-Scholes option-pricing model, which included the following assumptions:
Expected term (in years)
Risk-free interest rate
Expected volatility
Expected dividend yield
There were no stock options granted during fiscal years 2021 and 2020.
TSR PSUs
The fair value of the TSR PSUs is estimated at the grant date using a Monte Carlo simulation model which included the following assumptions:
Fiscal year ended July 31,
2022
6.00
3.04% - 3.55%
31.75% - 31.94%
—%
Table of Contents
Expected term (in years)
Risk-free interest rate
Expected volatility of the Company
Average expected volatility of the peer companies in the S&P Index
Expected dividend yield
There were no TSR PSUs granted during fiscal years 2022 and 2021.
Fiscal year ended July 31,
2020
2.90
1.46%
28.4%
37%
—%
The number of TSR PSUs that may ultimately vest will vary based on the performance of the Company’s common stock relative to the shareholder return of the software companies in the S&P
Index for a specified period or periods. The Monte Carlo methodology incorporates into the valuation all possible outcomes, including that the Company’s relative performance may result in no
shares vesting. As a result, stock-based compensation expense is recognized regardless of the Company’s ultimate achievement of the plan’s metrics. The expense will be reversed only in the event
that a grantee is terminated prior to satisfying the requisite service period.
Common Stock Reserved for Issuance
As of July 31, 2022 and 2021, the Company was authorized to issue 500,000,000 shares of common stock with a par value of $0.0001 per share and, of these, 84,084,209 and 83,194,157 shares
of common stock were issued and outstanding, respectively. As of July 31, 2022 and 2021, the Company had reserved shares of common stock for future issuance as follows:
Exercise of stock options to purchase common stock
Vesting of stock awards
Shares available under stock plans
Total common stock reserved for issuance
Equity Incentive Plans
July 31, 2022
July 31, 2021
75,706
2,785,353
3,360,659
6,221,718
25,278
2,394,968
5,014,069
7,434,315
On December 15, 2020, the Company’s stockholders adopted the 2020 Stock Plan (“2020 Plan”) for the purpose of granting equity-based incentive awards. The Company initially reserved
5,000,000 shares of its common stock for the issuance of awards under the 2020 Plan. The shares available for issuance are subject to adjustment in the event of a stock split, stock dividend or other
defined changes in the Company’s capitalization. The 2020 Plan replaced the Company’s 2011 Stock Plan; however, awards outstanding under the 2011 Stock Plan will continue to be governed by
their existing terms.
The shares the Company issues under the 2020 Plan will be from the Company's pool of authorized but unissued shares. The shares of common stock underlying any awards under the 2011
Stock Plan that are forfeited, canceled, held back upon exercise or settlement of an award to cover the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without
any issuance of stock or are otherwise terminated (other than by exercise) are added back to the shares of stock available for issuance under the 2020 Plan.
Share Repurchase Program
In October 2020, the Company's board of directors authorized and approved a share repurchase program of up to $200.0 million of the Company's outstanding common stock. Share
repurchases under the program may be made from time to time, in the open market, in privately negotiated transactions and otherwise, at the discretion of management of the Company and in
accordance with applicable federal securities laws, including Rule 10b-18 of the Exchange Act, and other applicable legal requirements. Such repurchases may also be made in compliance with Rule
10b5-1 trading plans entered into by the Company.
The share repurchase program was completed in the second quarter of fiscal year 2022. During the fiscal year ended July 31, 2022, the Company repurchased 322,545 shares of common stock
at an average price of $116.11 per share, for an aggregate purchase price of $37.5 million. During the fiscal year ended July 31, 2021, the Company repurchased 1,488,991 shares of common stock at
an average price of $109.17 per share, for an aggregate purchase price of $162.5 million.
Table of Contents
11. Income Taxes
The Company recognized an income tax benefit of $49.3 million for fiscal year 2022 compared to an income tax benefit of $37.8 million for fiscal year 2021. The increase in the Company’s
income tax benefit for fiscal year 2022 was primarily due to an increase in pre-tax net loss, an increase in research and development credits, and a decrease in valuation allowance, partially offset by
decreases in tax benefits such as the tax deductions from stock-based compensation, the tax impact from the tax status change of certain foreign subsidiaries from the prior year, and the release of
uncertain tax positions from the prior year.
The effective tax rate could differ from the statutory U.S. Federal income tax rate of 21% mainly due to state taxes, tax deficiencies related to stock-based compensation, research and
development credits, foreign earnings taxed in the United States, change in valuation allowance and certain non-deductible expenses, including, but not limited to, executive compensation limitation.
The Company’s income (loss) before provision for (benefit from) income taxes is as follows (in thousands):
Domestic
International
Income (loss) before provision for (benefit from) income taxes
The provision for (benefit from) income taxes consisted of the following (in thousands):
Current:
U.S. Federal
State
Foreign
Total current
Deferred:
U.S. Federal
State
Foreign
Total deferred
Total provision for (benefit from) income taxes
2022
2021
2020
Fiscal years ended July 31,
(239,601) $
9,886
(229,715) $
(114,687) $
10,406
(104,281) $
(34,121)
9,790
(24,331)
2022
2021
2020
Fiscal years ended July 31,
1,937 $
43
1,852
3,832
(48,775)
(5,656)
1,315
(53,116)
(49,284) $
(5,605) $
299
3,290
(2,016)
(31,174)
(4,472)
(112)
(35,758)
(37,774) $
13,077
178
1,539
14,794
(10,125)
(1,357)
(445)
(11,927)
2,867
$
$
$
$
Differences between income taxes calculated using the statutory federal income tax rate of 21% in the fiscal years ended July 31, 2022, 2021, and 2020, and the provision for income taxes are
as follows (in thousands):
Table of Contents
Statutory federal income tax
State taxes, net of federal benefit
Stock-based compensation
Non-deductible officers' compensation
Foreign income taxed at different rates
Research tax credits
Base erosion and anti-abuse tax
Tax status change of certain foreign subsidiaries
Non-deductible acquisition costs
Permanent differences and others
Change in valuation allowance
Total provision for (benefit from) income taxes
2022
2021
2020
Fiscal years ended July 31,
$
$
(48,240) $
(5,613)
2,912
4,484
(365)
(6,820)
349
1,201
744
476
1,588
(49,284) $
(21,899) $
(4,173)
(3,247)
3,682
(854)
(5,377)
(7,702)
(1,830)
—
495
3,131
(37,774) $
The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities are as follows (in thousands):
As of July 31,
2022
2021
Accruals and reserves
Stock-based compensation
Deferred revenue
Capitalized R&D
Lease liabilities
Net operating loss carryforwards
Tax credits
Total deferred tax assets
Less valuation allowance
Net deferred tax assets
Less deferred tax liabilities:
Intangible assets
Operating lease assets
Property and equipment
Convertible debt
Unremitted foreign earnings
Capitalized commissions
Total deferred tax liabilities
Deferred tax assets, net
Less foreign deferred tax liabilities
Total net deferred tax assets
$
27,632 $
7,953
1,794
7,158
27,525
110,064
113,357
295,483
52,133
243,350
8,888
20,706
6,161
5,250
710
10,174
51,889
191,461
1,910
189,551
(5,109)
(1,179)
(2,971)
3,634
(235)
(4,905)
11,381
—
—
829
1,422
2,867
15,773
7,133
3,527
8,377
30,832
73,243
97,113
235,998
44,797
191,201
4,109
23,343
7,661
7,028
554
10,078
52,773
138,428
1,045
137,383
The Company considered both positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies,
differences between prior book and tax profits/losses, and results of future operations, and determined that a valuation allowance was not required for a significant portion of its deferred tax assets. A
valuation allowance of $52.1 million and $44.8 million remained as of July 31, 2022 and 2021, respectively, primarily related to California, Federal and Canada deferred tax assets. The increase of
$7.3 million in the valuation allowance in the current fiscal year relates primarily to net operating losses, and income tax credits in certain tax jurisdictions for which no tax benefit is expected to be
recognized.
Table of Contents
As of July 31, 2022, the Company had U.S. Federal, California, and other states net operating loss (“NOL”) carryforwards of $438.4 million, $68.8 million and $229.2 million, respectively. The
U.S. Federal and California NOL carryforwards will start to expire in 2029 and 2023, respectively.
As of July 31, 2022, the Company had research and development tax credits (“R&D credit”) carryforwards of the following (in thousands):
U.S. Federal
California
Total R&D credit carryforwards
$
$
60,056
50,310
110,366
The U.S. Federal R&D credits will start to expire in 2023 and the California R&D tax credits do not expire.
Federal and California laws impose restrictions on the utilization of NOL carryforwards and R&D credit carryforwards in the event of a change in ownership of the Company, as defined by
Internal Revenue Code 382 and 383. The Company experienced an ownership change in the past that does not materially impact the availability of its carryforwards. However, should there be an
ownership change in the future, the Company’s ability to utilize existing carryforwards could be substantially restricted.
As of July 31, 2022, the Company has recorded a provisional estimate for foreign withholding taxes on undistributed earnings from foreign subsidiaries of $0.7 million. The Company may
repatriate foreign earnings in the future to the extent that the repatriation is not restricted by local laws or there are no substantial incremental costs associated with such repatriation.
The Tax Act amended Internal Revenue Code Section 174 to require that specific research and experimental (“R&E”) expenditures be capitalized and amortized over five years (U.S. R&E) or
fifteen years (non-U.S. R&E) beginning in the Company’s fiscal year 2023. Although Congress has considered legislation that would defer, modify or repeal the capitalization and amortization
requirement, there is no assurance that the provision will be deferred, repealed, or otherwise modified. If the requirement is not modified, the Company may be required to utilize some of its federal
and state tax attributes and there may be increases to state cash taxes or tax expense.
Unrecognized Tax Benefits
Activity related to unrecognized tax benefits is as follows (in thousands):
Unrecognized tax benefits - beginning of period
Gross increases - prior period tax positions
Gross decreases - prior period tax positions
Gross increases - current period tax positions
Unrecognized tax benefits - end of period
2022
2021
2020
Fiscal years ended July 31,
$
$
17,138 $
147
—
1,501
18,786 $
23,690 $
65
(7,769)
1,152
17,138 $
11,633
3,401
(147)
8,803
23,690
During the year ended July 31, 2022, the Company’s unrecognized tax benefits increased by $1.6 million. As of July 31, 2022, the Company had unrecognized tax benefits of $11.8 million that,
if recognized, would affect the Company’s effective tax rate, as certain unrecognized tax benefits have a valuation allowance. The Company recognizes interest and penalties related to unrecognized
tax benefits as income tax expense in its consolidated statements of operations. As of July 31, 2022, the Company has accrued total interest and penalties related to unrecognized tax benefits of
$0.8 million.
The Company, or one of its subsidiaries, files income taxes in the U.S. Federal jurisdiction and various state and foreign jurisdictions. If the Company utilizes NOL carryforwards or tax credits
in future years, the U.S. Federal, state and local, and non-U.S. tax authorities may examine the tax returns covering the 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 to examination from fiscal years 2002 through 2021.
Table of Contents
12. Defined Contribution and Other Post-Retirement Plans
The Company’s employee savings and retirement plan in the United States is qualified under Section 401(k) of the Internal Revenue Code. Employees on the Company’s U.S. payroll are
automatically enrolled when they meet eligibility requirements, unless they decline participation. Upon enrollment employees are provided with tax-deferred salary deductions and various investment
options. Employees may contribute up to 60% of their eligible salary up to the statutory prescribed annual limit. The Company matches employees’ contributions up to $5,000 per participant per
calendar year. Certain of the Company’s foreign subsidiaries also have defined contribution plans in which a majority of its employees participate and the Company makes matching contributions.
The Company’s contributions to its 401(k) and foreign subsidiaries’ plans were $13.1 million, $11.8 million, and $10.7 million for the fiscal years ended July 31, 2022, 2021, and 2020, respectively.
Table of Contents
13. Segment Information
The Company operates in one segment. The Company’s chief operating decision maker (the “CODM”), its Chief Executive Officer, manages the Company’s operations on a consolidated basis
for purposes of allocating resources. When evaluating the Company’s financial performance, the CODM reviews separate revenue information for the Company’s subscription, support, term license,
perpetual license, and services offerings, as well as revenue by geographic region, while all other financial information is reviewed on a consolidated basis. The Company’s principal operations and
decision-making functions are located in the United States.
The Company’s long-lived assets for this disclosure are defined as property and equipment and operating lease assets. The Company’s long-lived assets by geographic region are as follows (in
thousands):
Americas
EMEA
APAC
Total
July 31, 2022
July 31, 2021
$
$
133,939 $
31,230
5,858
171,027 $
143,736
32,171
1,601
177,508
Table of Contents
14. Subsequent Events
In September 2022, the Company's board of directors authorized and approved a share repurchase program of up to $400.0 million of the Company’s outstanding shares of common stock.
Share repurchases under the program may be made from time to time, in the open market, in privately negotiated transactions and otherwise, at the discretion of management of the Company and in
accordance with applicable federal securities laws, including Rule 10b-18 of the Exchange Act, and other applicable legal requirements. Such repurchases may also be made in compliance with Rule
10b5-1 trading plans entered into by the Company.
Table of Contents
Item 9.
Changes in and Disagreements with Accountant on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act), 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
principal financial officer have concluded that, as of such date, our disclosure controls and procedures were effective.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting as defined in Rule 13a-15(f) or 15d-15(f) of the Exchange Act. Internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles, and includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of July 31, 2022, using the criteria set forth in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission’s 2013 framework. Based on this assessment and those criteria, management concluded that our internal control over
financial reporting was effective, at a reasonable level of assurance, as of July 31, 2022.
Our internal control over financial reporting has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report, which appears in Part II, Item 8 of this
Annual Report on Form 10-K.
Inherent Limitations of Internal Controls
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all
errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of
the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time,
controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended July 31, 2022 identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of
the Exchange Act that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Other Information
Table of Contents
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
Table of Contents
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers, and employees, including our principal executive officer 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 investor relations website.
The other information required by this item will be contained in our definitive proxy statement to be filed with the SEC in connection with our 2022 Annual Meeting of Stockholders (the
“Proxy Statement”), which is expected to be filed not later than 120 days after the end of our fiscal year ended July 31, 2022, and is incorporated in this report by reference.
Item 11.
Executive Compensation
The 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 Matters
The 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 Independence
The 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 Services
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.
Table of Contents
PART IV
Item 15.
Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements
See Index to Consolidated Financial Statements at Item 8 herein.
2. Financial Statement Schedules
Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes herein.
3. Exhibits
Table of Contents
The exhibits listed below are filed or incorporated by reference as part of this Annual Report on Form 10-K.
EXHIBIT INDEX
Exhibit
Number
Description
3.1
3.2
4.1
4.2
4.3
4.4
4.5
10.1#
10.2#
10.3#
10.4#
10.5#
10.6#
10.7#
10.8#
10.9#
10.10#
10.11
10.12#
10.13#
Amended and Restated Certificate of Incorporation
Amended and Restated Bylaws
Form of Common Stock certificate of Guidewire Software, Inc.
Indenture between Guidewire Software, Inc. and U.S. Bank National
Association, dated as of March 13, 2018
First Supplemental Indenture between Guidewire Software, Inc. and U.S.
Bank National Association, dated as of March 13, 2018
Form of 1.25% Convertible Senior Note Due March 15, 2025
Description of Guidewire Software, Inc.’s Securities Registered Pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended
Guidewire Software, Inc. 2011 Stock Plan and Forms of Agreements
thereunder
Guidewire Software, Inc. Form of Performance-Based Restricted Stock Unit
Award Agreement under the 2011 Stock Plan
Guidewire Software, Inc. Forms of Notice of Restricted Stock Unit Award
and Restricted Stock Unit Award Agreement (Performance-Based) under the
2011 Stock Plan
Guidewire Software, Inc. Form of Restricted Stock Unit Award Agreement
(Global Time-Based) under the 2011 Stock Plan
Guidewire Software, Inc. Form of Restricted Stock Unit Award Agreement
(U.S. Time-Based) under the 2011 Stock Plan
Guidewire Software, Inc. Form of Restricted Stock Unit Award Agreement
(U.S. Time-Based, Executives) under the 2011 Stock Plan
Guidewire Software, Inc. Long Term Incentive Plan and Form of Notice and
Restricted Stock Unit Award Agreement thereunder
Guidewire Software, Inc. 2020 Stock Plan
Guidewire Software, Inc. Form of Notice and Restricted Stock Unit
Agreement (PSUs) under the 2020 Stock Plan
Guidewire Software, Inc. Global Stock Option Agreement under the
Guidewire Software, Inc. 2020 Stock Plan
Guidewire Software, Inc. Senior Executive Incentive Bonus Plan
Guidewire Software, Inc. Form of Executive Agreement
Executive Agreement between Guidewire Software, Inc. and Michael
Rosenbaum, dated as of August 3, 2019
Incorporated by
Reference From
Form
10-Q
8-K
S-1/A
8-K
8-K
8-K
Filed herewith
S-1/A
10-Q
10-Q
10-Q
10-Q
10-Q
10-Q
10-Q
Filed herewith
Filed herewith
S-1/A
10-Q
8-K
Incorporated
by Reference
From
Exhibit
Number
3.1
3.1
4.1
4.1
4.1
4.3
—
10.5
10.9
10.5
10.2
10.1
10.3
10.4
10.1
—
—
10.12
10.6
10.1
Date Filed
March 9, 2022
September 14, 2020
January 9, 2012
March 13, 2018
March 13, 2018
March 13, 2018
—
December 13, 2011
December 2, 2015
March 5, 2020
March 5, 2020
March 5, 2020
March 5, 2020
March 5, 2020
March 5, 2021
—
—
December 13, 2011
March 5, 2020
August 5, 2019
Table of Contents
10.14#
10.15#
10.16#
10.17
10.18
21.1
23.1
31.1
31.2
32.1*
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
First Amendment to Executive Agreement between Guidewire Software, Inc.
and Mike Rosenbaum, dated as of November 4, 2020
Executive Agreement between Guidewire Software, Inc. and John Mullen,
dated as of February 3, 2022
Form of Indemnification Agreement for directors and executive officers
Guidewire Software,, Inc. Form of Capped Call Confirmation
Lease Agreement between Bay Meadows Station 2 Investors, LLC and
Guidewire Software, Inc. dated as of December 18, 2017
Subsidiaries of the Registrant
Consent of KPMG LLP, Independent Registered Public Accounting Firm
Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act
Certification of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act
Certification of the Chief Executive Officer and the Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act
Inline XBRL Instance Document
Inline XBRL Taxonomy Extension Schema Document
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Inline XBRL Taxonomy Extension Definition Linkbase Document
Inline XBRL Taxonomy Extension Label Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File (formatted as inline XBRL with applicable
taxonomy extension information contained in Exhibits 101)
10-Q
10-Q
S-1/A
8-K
10-K
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Furnished herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
10.1
10.1
10.1
10.1
10.11
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December 9, 2020
June 7, 2022
October 28, 2011
March 13, 2018
September 19, 2018
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#
*
Indicates management contract or compensatory plan.
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” for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.
Table of Contents
Pursuant 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 its behalf by the undersigned, thereunto duly authorized.
Signatures
Date: September 26, 2022
GUIDEWIRE SOFTWARE, INC.
By:
/s/ JEFF COOPER
Jeff Cooper
Chief Financial Officer
(Principal Financial and Accounting Officer)
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and appoints Mike Rosenbaum, Jeff Cooper, 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 his or 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 all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every 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 do or 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 registrant and in the capacities and on the dates indicated.
Signature
/s/ MIKE ROSENBAUM
Mike Rosenbaum
/s/ JEFF COOPER
Jeff Cooper
/s/ MARCUS S. RYU
Marcus S. Ryu
/s/ ANDREW BROWN
Andrew Brown
/s/ MARGARET DILLON
Margaret Dillon
/s/ MICHAEL KELLER
Michael Keller
/s/ PAUL LAVIN
Paul Lavin
/s/ CATHERINE P. LEGO
Catherine P. Lego
/s/ RAJANI RAMANATHAN
Rajani Ramanathan
Chief Executive Officer and Director (Principal Executive Officer)
Title
Date
September 26, 2022
Chief Financial Officer (Principal Financial and Accounting Officer)
September 26, 2022
Director (Chairman of the Board)
Director
Director
Director
Director
Director
Director
September 26, 2022
September 26, 2022
September 26, 2022
September 26, 2022
September 26, 2022
September 26, 2022
September 26, 2022
EXHIBIT 4.5
DESCRIPTION OF THE COMPANY’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
As of July 31, 2022, Guidewire Software, Inc. (“Guidewire,” the “Company,” “we,” “us,” and “our”) had one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"): our common stock.
Our authorized capital stock consists of 500,000,000 shares of common stock, $0.0001 par value, and 25,000,000 shares of undesignated preferred stock, $0.0001 par value. The following description
of our common stock does not purport to be complete and is subject to, and qualified in its entirety by, our amended and restated certificate of incorporation and amended and restated bylaws, each of
which is incorporated by reference as an exhibit to our Annual Report on Form 10-K for the year ended July 31, 2022.
DESCRIPTION OF COMMON STOCK
Common Stock
The holders of our common stock are entitled to one vote per share on all matters to be voted on by the stockholders. Subject to preferences that may be applicable to any outstanding shares of
preferred stock, holders of common stock are entitled to receive ratably such dividends as may be declared by the board of directors out of funds legally available therefore. In the event we liquidate,
dissolve or wind up, holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred
stock. Holders of common stock have no preemptive, conversion or subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of
common stock are fully paid and nonassessable.
Our common stock is listed and traded on the New York Stock Exchange under the symbol “GWRE.”
Preferred Stock – Limitations on Rights of Holders of Common Stock
Our board of directors may, without further action by our stockholders, fix the rights, preferences, privileges and restrictions of up to an aggregate of 25,000,000 shares of preferred stock in one or
more series and authorize their issuance. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and the
number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of our common stock. Any issuance of our preferred stock could adversely
affect the voting power of holders of our common stock and the likelihood that such holders would receive dividend payments and payments upon liquidation. In addition, the issuance of preferred
stock could have the effect of delaying, deferring or preventing a change of control or other corporate action.
Transfer Agent
The transfer agent for our common stock is Computershare Trust Company, N.A.
Anti-Takeover Effects of Delaware Law and Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws
Certain provisions of Delaware law, our amended and restated certificate of incorporation and our amended and restated bylaws could have the effect of delaying, deferring or discouraging another
party from acquiring control of us. These provisions, which are summarized below, may have the effect of discouraging coercive takeover practices
and inadequate takeover bids. These provisions are also designed, in part, to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the
benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us because negotiation
of these proposals could result in an improvement of their terms.
Limits on ability of stockholders to call a special meeting. Our amended and restated bylaws provide that special meetings of the stockholders may be called only by a majority of the board of
directors then in office. These restrictions may delay the ability of our stockholders to force consideration of a proposal or for holders controlling a majority of our capital stock to take any action,
including the removal of directors.
Requirements for advance notification of stockholder nominations and proposals. Our amended and restated bylaws establish advance notice procedures with respect to stockholder proposals relating
to the nomination of candidates for election as directors or new business to be brought before meetings of our stockholders. These procedures provide that notice of stockholder proposals must be
timely given in writing to our corporate secretary prior to the meeting at which the action is to be taken. Generally, to be timely, notice must be received at our principal executive office not less than
90 days nor more than 120 days prior to the first anniversary date of the annual meeting the preceding year. As a result, our amended and restated bylaws may have the effect of precluding the
conduct of certain business at a meeting if the proper procedures are not followed. These provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect
the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.
No cumulative voting. The Delaware General Corporation Law provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless our amended and restated
certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation and amended and restated bylaws do not expressly provide for cumulative voting.
Board Composition and Filling Vacancies. Prior to December 17, 2019, our amended and restated certificate of incorporation provided for the division of our board of directors into three classes
serving staggered three-year terms, with one class being elected each year. Our amended and restated certificate of incorporation currently in effect provides for a gradual declassification of our board
of directors such that each director shall be elected to hold office for a one-year term expiring at the next annual meeting of stockholders, but no terms in effect prior to the filing of our amended and
restated certificate on December 17, 2019 were shortened. Beginning with the 2021 annual meeting, the entire board of directors will stand for election annually for one-year terms. Our amended and
restated certificate of incorporation also provides that directors may be removed only for cause. Furthermore, any vacancy on our board of directors, however occurring, including a vacancy resulting
from an increase in the size of our board, may only be filled by the affirmative vote of a majority of our directors then in office even if less than a quorum. The limitations on removal of directors and
treatment of vacancies have the effect of making it more difficult for stockholders to change the composition of our board of directors.
No Written Consent of Stockholders. Our amended and restated certificate of incorporation provides that all stockholder actions are required to be taken by a vote of the stockholders at an annual or
special meeting, and that stockholders may not take any action by written consent in lieu of a meeting. This limit may lengthen the amount of time required to take stockholder actions and would
prevent the amendment of our amended and restated bylaws or removal of directors by our stockholders without holding a meeting of stockholders.
Amendment to Certificate of Incorporation and Bylaws. Any amendment of our amended and restated certificate of incorporation must first be approved by a majority of our board of directors, and if
required by law or our amended and restated certificate of incorporation, must thereafter be approved by a majority of the outstanding shares entitled to vote on the amendment and a majority of the
outstanding shares of each class entitled to vote thereon as a class, except that the amendment of the provisions relating to stockholder action, board composition, limitation of liability and the
amendment of our amended and restated certificate of incorporation must be approved by not less than 66 2/3% of the outstanding shares entitled to vote on the amendment, and not less than 66 2/3%
of the outstanding shares of each class entitled to vote thereon as a class. Our amended and restated bylaws may be amended by the affirmative vote of a majority of the directors then in office,
subject to any limitations set forth in the bylaws; and
may also be amended by the affirmative vote of a majority of the outstanding shares entitled to vote on the amendment.
Undesignated Preferred Stock. Our amended and restated certificate of incorporation provides for 25,000,000 authorized shares of preferred stock. The existence of authorized but unissued shares of
preferred stock may enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise. For
example, if in the due exercise of its fiduciary obligations, our board of directors were to determine that a takeover proposal is not in the best interests of our stockholders, our board of directors could
cause shares of preferred stock to be issued without stockholder approval in one or more private offerings or other transactions that might dilute the voting or other rights of the proposed acquirer or
insurgent stockholder or stockholder group. In this regard, our amended and restated certificate of incorporation grants our board of directors broad power to establish the rights and preferences of
authorized and unissued shares of preferred stock. The issuance of shares of preferred stock could decrease the amount of earnings and assets available for distribution to holders of shares of common
stock. The issuance may also adversely affect the rights and powers, including voting rights, of these holders and may have the effect of delaying, deterring or preventing a change in control of us.
Exclusive Forum. Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole
and exclusive forum for any state law claim for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our
directors, officers and employees to us or our stockholders; (iii) any action asserting a claim arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of
incorporation or our amended and restated bylaws; or (iv) any action asserting a claim that is governed by the internal affairs doctrine (the “Delaware Forum Provision”). The Delaware Forum
Provision will not apply to any causes of action arising under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act. Further, our amended and restated bylaws provide
that, unless we consent in writing to the selection of an alternative forum, the United States District Court for the Northern District of California will be the sole and exclusive forum for resolving any
complaint asserting a cause of action arising under the Securities Act (the “Federal Forum Provision”). In addition, our amended and restated bylaws provide that any person or entity purchasing or
otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the Delaware Forum Provision and the Federal Forum Provision; provided, however, that
stockholders cannot and will not be deemed to have waived our compliance with the U.S. federal securities laws and the rules and regulations thereunder. The Delaware Forum Provision and the
Federal Forum Provision may impose additional costs on stockholders, may limit our stockholders’ ability to bring a claim in a forum they find favorable, and the designated courts may reach
different judgments or results than other courts. In addition, there is uncertainty as to whether the Federal Forum Provision for Securities Act claims will be enforced, which may impose additional
costs on us and our stockholders.
Section 203 of the Delaware General Corporation Law
We are subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business
combination” with an “interested stockholder” for a three-year period following the time that this stockholder becomes an interested stockholder, unless the business combination is approved in a
prescribed manner. Under Section 203, a business combination between a corporation and an interested stockholder is prohibited unless it satisfies one of the following conditions:
•
before the stockholder became interested, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder;
•
•
upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares owned by persons who are directors and
also officers, and employee stock plans, in some instances, but not the outstanding voting stock owned by the interested stockholder; or
at or after the time the stockholder became interested, the business combination was approved by the board of directors of the corporation and authorized at an annual or special
meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.
Section 203 defines a business combination to include:
•
•
•
•
•
any merger or consolidation involving the corporation and the interested stockholder;
any sale, transfer, lease, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation;
subject to exceptions, any transaction that results in the issuance of transfer by the corporation of any stock of the corporation to the interested stockholder;
subject to exceptions, any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; and
the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.
In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated
with or controlling or controlled by the entity or person.
ACTIVE/119020263.2 GUIDEWIRE SOFTWARE, INC. 2020 STOCK PLAN NOTICE OF PERFORMANCE-BASED RESTRICTED STOCK UNIT AWARD Name of Grantee: Award Number: ID: Pursuant to the Guidewire Software, Inc. 2020 Stock Plan (the “Plan”), this Notice of Performance-Based Restricted Stock Unit Award (the “Notice”) and the terms and conditions set forth in the Performance-Based Restricted Stock Unit Award Agreement (together with the Notice, the “Award Agreement”), Guidewire Software, Inc. (the “Company”) hereby grants an award of the number of Restricted Stock Units listed below (an “Award”) to the named Grantee. Each Restricted Stock Unit shall relate to one share (a “Share”) of Common Stock (the “Stock”) of the Company. Target No. of Restricted Stock Units Granted: Grant Date: Vesting Conditions: These Restricted Stock Units vest upon the achievement of the associated performance factors and satisfaction of a time-based vesting schedule, at which time the Grantee will receive shares of Guidewire Software, Inc. common stock. The performance factors will be measured as described in the Award Agreement and the time-based vesting will be satisfied in increments on the date(s) shown, subject to Grantee’s continuous employment with the Company through the applicable date(s): For FY[XX] Final Grant Amount: Vest Period Shares Vesting Date 1 33 1/3% MM/DD/20[XX] 2 33 1/3% MM/DD/20[XX+1 Yr] 3 33 1/3% MM/DD/20[XX+2 Yrs] For FY[YY] Final Grant Amount: Vest Period Shares Vesting Date 1 100% MM/DD/20[YY] By clicking on the “Accept” button or signing below, the Grantee and the Company agree this Award is granted under, and governed by the terms and conditions of, the Plan and the Award Agreement.
ACTIVE/119020263.2 2 By: Name: Title: Employee Name Date
ACTIVE/119020263.2 3 PERFORMANCE-BASED RESTRICTED STOCK UNIT AWARD AGREEMENT FOR COMPANY EMPLOYEES UNDER THE GUIDEWIRE SOFTWARE, INC. 2020 STOCK PLAN Name of Grantee: Target No. of Restricted Stock Units (“Target Grant Amount”): Grant Date: Pursuant to the Guidewire Software, Inc. 2020 Stock Plan as amended through the date hereof (the “Plan”), Guidewire Software, Inc. (the “Company”) hereby grants an award of the number of Restricted Stock Units listed above (an “Award”) to the Grantee named above. Each Restricted Stock Unit shall relate to one share of Common Stock (the “Stock”) of the Company. 1. Restrictions on Transfer of Award. This Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee, and any shares of Stock issuable with respect to the Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of until (i) the Restricted Stock Units have vested as provided in Paragraph 2 of this Agreement and (ii) shares of Stock have been issued to the Grantee in accordance with the terms of the Plan and this Agreement. 2. Vesting of Restricted Stock Units. [Subject to any Company leave of absence policy in effect, t]1 [T]he restrictions and conditions of Paragraph 1 of this Agreement shall lapse on the date that both (A) the time-based vesting condition indicated on the Notice of Performance-Based Restricted Stock Unit Award (the “Time Condition”) and (B) the FY[XX] performance-based vesting factor (the “FY[XX] Performance Factor”) and the FY[YY] performance-based vesting factor (the “FY[YY] Performance Factor” and together with the FY[XX] Performance Factor, the “Performance Factors”), as described below, are satisfied. The date on which both the Time Condition and applicable Performance Factor is satisfied shall be the “Vesting Date”. After a determination of the
Performance Factors have been made, as applicable, the total number of Restricted Stock Units granted to the Grantee (the “Final Grant Amount”) shall be set pursuant to the following formula: 50% Target Grant Amount * FY[XX] Performance Factor (the “FY[XX] Final Grant Amount”) + 50% Target Grant Amount * FY[YY] Performance Factor (the “FY[YY] Final Grant Amount”) = Final Grant Amount. The FY[XX] Performance Factor is dependent on Fiscal Year 20[XX] Annual Recurring Revenue (“FY[XX] ARR”) and the FY[YY] Performance Factor is dependent on Fiscal Year 20[YY] Annual Recurring Revenue ( 1 Include if LOA policy is in effect.
ACTIVE/119020263.2 4 “FY[YY] ARR”), in each case measured on a constant currency basis using July 31, 20[XX] exchange rates. If the Company’s FY[XX] ARR is (i) less than $[ __ ] million, then the FY[XX] Performance Factor is 0.0, (ii) equal to $[ __ ] million, then the FY[XX] Performance Factor is equal to 0.50; (iii) greater than $[ __ ] million but less than $[ __ ] million, then the FY[XX] Performance Factor is equal to 0.50 plus the actual amount achieved in excess of $[ __ ] million divided by [ __ ] million multiplied by 50% (iv) equal to $[ __ ] million, then the FY[XX] Performance Factor is equal to 1, (v) greater than $[ __ ] million but less than $[ __ ] million, then the FY[XX] Performance Factor is equal to 1 plus the actual amount achieved in excess of $[__ ] million divided by [ __ ] million multiplied by 50%, and (vi) equal to or greater than $[ __ ] million, then the FY[XX] Performance Factor is equal to 1.5. If the Company’s FY[YY] ARR is (i) less than $[ __ ] million, then the FY[YY] Performance Factor is 0.0, (ii) equal to $[ __ ] million, then the FY[YY] Performance Factor is equal to 0.50; (iii) greater than $[ __ ] million but less than $[ __ ] million, then the FY[YY] Performance Factor is equal to 0.50 plus the actual amount achieved in excess of $[ __ ] million divided by [ __ ] million multiplied by 50% (iv) equal to $[ __ ] million, then the FY[YY] Performance Factor is equal to 1, (v) greater than $[ __ ] million but less than $[ __ ] million, then the FY[YY] Performance Factor is equal to 1 plus the actual amount achieved in excess of $[ __ ] million divided by [ __ ] million multiplied by 50%, and (vi) equal to or greater than $[ __ ] million, then the FY[YY] Performance Factor is equal to 1.5. Upon achievement of an FY[XX] Performance Factor greater than 0.0, 33 1/3% of the FY[XX] Final Grant Amount shall vest immediately, subject to satisfaction of the applicable Time Condition, and any remaining portion of the
FY[XX] Final Grant Amount shall vest as the applicable Time Condition is satisfied. If an FY[XX] Performance Factor greater than 0.0 is not achieved (meaning the Company’s FY[XX] ARR is less than $[ __ ] million), then 50% of the Target Grant Amount will be forfeited. Upon achievement of an FY[YY] Performance Factor greater than 0.0, 100% of the FY[YY] Final Grant Amount shall vest immediately, subject to satisfaction of the applicable Time Condition. If an FY[YY] Performance Factor greater than 0.0 is not achieved (meaning the Company’s FY[YY] ARR is less than $[ __ ] million), then 50% of the Target Grant Amount will be forfeited. In the event that the Company makes any acquisitions during Fiscal Year 20[XX] or Fiscal Year 20[YY], the Administrator shall adjust the FY[XX] Performance Factor and/or FY[YY] Performance Factor, as applicable, (by adjusting the applicable FY[XX] ARR and/or FY[YY] ARR targets) to reflect the impact of such acquisition(s). The Administrator shall adjust the applicable FY[XX] ARR and/or FY[YY] ARR thresholds above to reflect the anticipated, recognizable Annual Recurring Revenue (“ARR”) from the acquired entity or assets for the remainder of Fiscal Year 20[XX] and/or Fiscal Year 20[YY], as applicable, as outlined in the management case presented to the Board on or around the closing of the applicable transaction. For example, if the management case presented to the Board for a given acquisition shows related attributable, recognizable ARR for the remaining portion of Fiscal Year 20[XX] in the amount of $10 million, then each of the threshold, target and maximum FY[XX] ARR amounts shall be
ACTIVE/119020263.2 5 adjusted upward by $10 million (in this example, to $[ __ ] million, $[ __ ] million, and $[ __ ] million, respectively). Notwithstanding anything in this Agreement to the contrary, in the case of a Sale Event, the Restricted Stock Units shall be treated as provided in Section 3(c) of the Plan [provided; however that the Restricted Stock Units shall be subject to any executive agreement by and between the Grantee and the Company, as applicable (as amended from time to time, the “Executive Agreement”). For the avoidance of doubt, with respect to any portion of the Award that has not yet achieved the applicable Performance Factors, “fully accelerated and vested”, as referenced in the Executive Agreement shall mean with respect to the applicable Target Grant Amount]2. The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 2. 3. Termination of Employment. Subject to Paragraph 2 above, if the Grantee’s employment with the Company or a Subsidiary terminates for any reason (including death or disability) prior to the satisfaction of the vesting conditions set forth in Paragraph 2 above, any Restricted Stock Units that have not vested as of such date shall automatically and without notice terminate and be forfeited, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such unvested Restricted Stock Units. 4. Issuance of Shares of Stock. As soon as practicable following each Vesting Date (but in no event later than two and one-half months after the end of the year in which the Vesting Date occurs), the Company shall issue to the Grantee the number of shares of Stock equal to the aggregate number of Restricted Stock Units that have vested pursuant to Paragraph 2 of this Agreement on such date and the Grantee shall thereafter have all the rights of a stockholder of the Company with respect to such
shares. 5. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein. 6. Tax Withholding. Regardless of any action that the Company, the Grantee’s actual employer or any parent, Subsidiary or affiliate to which the Grantee provides service if the Grantee is a Consultant (collectively, the “Employer”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account, or other tax-related items related to the Grantee’s participation in the Plan and legally applicable to him or her (“Tax-Related Items”), the Grantee acknowledges that the ultimate liability for all Tax-Related Items is and remains the Grantee’s responsibility and may exceed the amount actually withheld by the Company or the Employer. The Grantee further acknowledges that the Company and/or the Employer (a) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Restricted Stock Units, including, without limitation, the grant, 2 Include for execs with executive agreements.
ACTIVE/119020263.2 6 vesting, or settlement of the Restricted Stock Units, the issuance of shares of Stock upon settlement, the subsequent sale of shares of Stock acquired pursuant to such issuance, and the receipt of any dividends or dividend equivalents; and (b) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Restricted Stock Units to reduce or eliminate the Grantee’s liability for Tax-Related Items or achieve any particular tax result. The Grantee shall not make any claim against the Company or its Board, officers or employees related to Tax-Related Items arising from the Restricted Stock Units or the Grantee’s other compensation. Furthermore, if the Grantee has become subject to tax in more than one jurisdiction between the Grant Date and the date of any relevant taxable or tax withholding event, as applicable, the Grantee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction. Prior to any relevant taxable or tax withholding event, as applicable, the Grantee will pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, the Grantee authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following: (a) payment by the Grantee to the Company and/or Employer; or (b) withholding from the Grantee’s wages or other cash compensation paid to him or her by the Company and/or the Employer; or (c) withholding from proceeds of the sale of shares of Stock acquired upon vesting and settlement of the Restricted Stock Units, either through a voluntary sale or through a mandatory sale arranged by the Company (on the Grantee’s behalf pursuant to this authorization). To avoid
negative accounting treatment, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates. If the obligation for Tax-Related Items is satisfied by withholding in shares of Stock, the Grantee is deemed, for tax purposes, to have been issued the full number of shares subject to the vested Restricted Stock Units, notwithstanding that a number of the shares is held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the Grantee’s participation in the Plan. Finally, the Grantee shall pay to the Company or the Employer any amount of Tax- Related Items that the Company or the Employer may be required to withhold or account for as a result of the Grantee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the shares of Stock or the proceeds of the sale of shares if the Grantee fails to comply with his or her obligations in connection with the Tax- Related Items.. 7. Section 409A of the Code. This Agreement shall be interpreted in such a manner that all provisions relating to the settlement of the Award are exempt from the requirements of Section 409A of the Code as “short-term deferrals” as described in Section 409A of the Code.
ACTIVE/119020263.2 7 8. No Obligation to Continue Employment or Other Service Relationship. Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Grantee’s employment or any other Service Relationship with the Company or a Subsidiary and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the Grantee’s employment or any other Service Relationship with the Company or a Subsidiary at any time. 9. Integration. This Agreement [and the Executive Agreement] constitute[s] the entire agreement[s] between the parties with respect to this Award and supersede[s] all prior agreements and discussions between the parties concerning such subject matter. 10. Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Grantee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Grantee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Grantee shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in
accordance with applicable law. 11. Notices. Any notice required by the terms of this Agreement shall be given in writing. It shall be deemed effective upon (i) personal delivery, (ii) deposit with the United States Postal Service, by registered or certified mail, with postage and fees prepaid, (iii) deposit with Federal Express Corporation (or other overnight courier service approved by the Company), with shipping charges prepaid or (iv) the date on which an electronic notification is received. Notice shall be addressed to the Company at its principal executive office and to the Grantee at the address that he or she most recently provided to the Company.
1
GLOBAL STOCK OPTION AGREEMENT
UNDER THE GUIDEWIRE SOFTWARE, INC.
2020 STOCK PLAN
Name of Optionee:
No. of Option Shares:
Option Exercise Price per Share: $
[FMV on Grant Date]
Grant Date:
Expiration Date:
Option Type: Non-Qualified Stock Option
This Stock Option is not intended to be an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).
Pursuant to the Guidewire Software, Inc. 2020 Stock Plan as amended through the date hereof (the “Plan”), Guidewire Software, Inc. (the “Company”)
hereby grants to the Optionee named above an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of
shares of Common Stock (the “Stock”) of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set
forth in this Global Stock Option Agreement (the “Option Agreement”), including any additional terms and conditions for the Optionee’s country set forth in the
appendix attached hereto (the “Appendix” and, together with the Option Agreement, the “Agreement”) and in the Plan. Capitalized terms in this Agreement shall
have the meaning specified in the Plan, unless a different meaning is specified herein.
1.
Exercisability Schedule. No portion of this Stock Option may be exercised until such portion shall have become exercisable. Except as set forth below,
and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder [and to any Company leave
of absence policy in effect] , this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as the
Optionee continues to be employed with the Company or an Affiliate on such dates:
2
.
2
Include if LOA policy is in effect.
ACTIVE/103046236.5
Incremental Number of
Option Shares Exercisable[*]
_____________ (___%)
_____________ (___%)
_____________ (___%)
_____________ (___%)
_____________ (___%)
Exercisability Date
____________
____________
____________
____________
____________
Notwithstanding anything in this Agreement to the contrary, in the case of a Sale Event, this Stock Option and the Option Shares shall be treated as provided
in Section 3(c) of the Plan[ provided; however that the Stock Option and the Option Shares shall be subject to any executive agreement by and between the Optionee
3
and the Company, as applicable (the “Executive Agreement”)].
Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the
provisions hereof and of the Plan. For the avoidance of doubt, being employed with the Company or an Affiliate for only a portion of the vesting period, but where
the Optionee’s employment has terminated prior to a vesting date, will not entitle the Optionee to vest in and exercise a pro-rata portion of this Stock Option on such
vesting date or any future vesting date.
2.
Manner of Exercise.
(a)
The Optionee may exercise this Stock Option only in the following manner: from time to time on or prior to the Expiration Date of this Stock
Option, the Optionee may give written notice to the Administrator (or such other person or entity as the Administrator may designate) of his or her election to
purchase some or all of the Option Shares purchasable at the time of such notice. This notice shall specify the number of Option Shares to be purchased.
Payment of the purchase price for the Option Shares may be made by one or more of the following methods: (i) in cash, by certified or bank check or other
instrument acceptable to the Administrator; (ii) if permitted by the Administrator through the delivery (or attestation of ownership) of shares of Stock that have been
purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan
and that otherwise satisfy any holding periods as may be required by the Administrator; (iii) by the Optionee delivering to the Company (or such person or entity as
the Company may designate) a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a
check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so
provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator
shall prescribe as a condition of such payment procedure or (iv) a combination of (i), (ii), and (iii) above. Payment instruments will be received subject to collection.
The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Company’s receipt
from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the fulfillment of any other
3
For executives with executive agreements.
ACTIVE/103046236.5
requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other
evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any
subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations. In the event the Optionee chooses (and the Administrator
permits) to pay the purchase price by previously owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee
upon the exercise of the Stock Option shall be net of the Shares attested to.
(b)
The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the
transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer
and with the requirements hereof and of the Plan. The determination of the Administrator as to such compliance shall be final and binding on the Optionee. The
Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and
until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to the Optionee,
and the Optionee’s name shall have been entered as the stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend
and other ownership rights with respect to such shares of Stock.
(c)
Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.
3.
Termination of Employment. If the Optionee’s employment with the Company or an Affiliate (as defined in the Plan) is terminated, the period within
which to exercise the Stock Option may be subject to earlier termination as set forth below (and if not exercised within such period, shall thereafter terminate).
(d)
Termination Due to Death. If the Optionee’s employment with the Company or an Affiliate terminates by reason of the Optionee’s death, any
portion of this Stock Option outstanding on such date, to the extent exercisable on the date of death, may thereafter be exercised by the Optionee’s legal
representative or legatee for a period of twelve (12) months from the date of death or until the Expiration Date, if earlier. Any portion of this Stock Option that is not
exercisable on the date of death shall terminate immediately and be of no further force or effect.
(e)
Termination Due to Disability. If the Optionee’s employment with the Company or an Affiliate terminates by reason of the Optionee’s
disability (as determined by the Administrator), any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of such termination,
may thereafter be exercised by the Optionee for a period of twelve (12) months from the date of termination due to disability or until the Expiration Date, if earlier.
Any portion of this Stock Option that is not exercisable on the date of termination due to disability shall terminate immediately and be of no further force or effect.
(f)
Termination for Cause. If the Optionee’s employment with the Company or an Affiliate terminates for Cause, any portion of this Stock Option
outstanding on such date shall terminate immediately and be of no further force and effect. For purposes hereof, “Cause” shall mean, unless otherwise provided in an
employment or other service agreement between the Optionee and the Company or an Affiliate, as applicable, a determination by the Administrator that the Optionee
shall be dismissed as a result of (i) any material breach by the Optionee of any agreement between the Optionee and the Company; (ii) the conviction of, indictment
for or plea of nolo contendere by the Optionee to a felony or a crime involving moral turpitude; or (iii) any
ACTIVE/103046236.5
material misconduct or willful and deliberate non-performance (other than by reason of disability) by the Optionee of the Optionee’s duties to the Company or any
Affiliate.
(g)
Other Termination. If the Optionee’s employment with the Company or an Affiliate terminates for any reason other than the Optionee’s death,
the Optionee’s disability or Cause, and unless otherwise determined by the Administrator, any portion of this Stock Option outstanding on such date may be
exercised, to the extent exercisable on the date of termination, for a period of three months from the date of termination or until the Expiration Date, if earlier. Any
portion of this Stock Option that is not exercisable on the date of termination shall terminate immediately and be of no further force or effect.
For purposes of this Stock Option, the Optionee’s employment with the Company or an Affiliate will be considered terminated and termination date shall be
deemed to occur as of the date the Optionee is no longer actively providing services to the Company or any of its Subsidiaries or Affiliates (regardless of the reason
for such termination and whether or not later found to be invalid or in breach of labor laws in the jurisdiction where the Optionee is employed or otherwise providing
services or the terms of the Optionee’s employment or other service agreement, if any). Unless otherwise determined by the Company, the Optionee’s right to vest in
the Stock Option, if any, will terminate and the Optionee's right to exercise any vested Stock Option will be measured as of such date and, in either case, will not be
extended by any notice period (e.g., the Optionee’s period of service would not include any contractual notice period or any period of “garden leave” or similar
period mandated under labor laws in the jurisdiction where the Optionee is employed or otherwise providing services or the terms of the Optionee’s employment or
other service agreement, if any). The Administrator shall have the exclusive discretion to determine when the Optionee is no longer actively providing services for
purposes of this Stock Option (including whether the Optionee may still be considered to be providing services while on a leave of absence).
The Administrator’s determination of the reason for termination of the Optionee’s employment with the Company or an Affiliate shall be conclusive and
binding on the Optionee and his or her representatives or legatees.
4.
Incorporation of Plan. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and
conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan.
5.
Transferability. This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise,
other than by will or the laws of descent and distribution. This Stock Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only
by the Optionee’s legal representative or legatee.
6.
Tax Withholding. Regardless of any action that the Company, or if different, an Affiliate to which the Optionee provides service (collectively, the
“Employer”) takes with respect to any or all income tax, social insurance, fringe benefits tax, payroll tax, payment on account, or other tax-related items related to the
Optionee’s participation in the Plan and legally applicable or deemed applicable to him or her (“Tax-Related Items”), the Optionee acknowledges that the ultimate
liability for all Tax-Related Items is and remains the Optionee’s responsibility and may exceed the amount actually withheld by the Company or the Employer. The
Optionee further acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items
in connection with any aspect of the Stock Option, including, without limitation, the grant, vesting, or exercise of the Stock Option, the issuance of Stock upon
exercise, the subsequent sale of Stock acquired pursuant to such issuance, and the receipt of any dividends; and (ii) do not commit to and are
ACTIVE/103046236.5
under no obligation to structure the terms of the grant or any aspect of the Stock Option to reduce or eliminate the Optionee’s liability for Tax-Related Items or
achieve any particular tax result. The Optionee shall not make any claim against the Company or its Board, officers or employees related to Tax-Related Items arising
from this Stock Option. Furthermore, if the Optionee has become subject to tax in more than one jurisdiction, the Optionee acknowledges that the Company and/or
the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
Prior to any relevant taxable or tax withholding event, as applicable, the Optionee will pay or make adequate arrangements satisfactory to the Company and/or
the Employer to satisfy all Tax-Related Items. In this regard, the Optionee authorizes the Company and/or the Employer, or their respective agents, at their discretion,
to satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following:
(a) requiring a cash payment by the Optionee to the Company and/or the Employer; or
(b) withholding from the Optionee’s wages or other cash compensation payable to him or her by the Company and/or the Employer; or
(c) withholding from proceeds of the sale of Stock acquired upon exercise of the Stock Options, either through a voluntary sale or through a
mandatory sale arranged by the Company (on the Optionee’s behalf pursuant to this authorization without further consent); or
(d) any other withholding method determined by the Company to be in compliance with applicable laws and permitted under the Plan.
The Company may withhold or account for Tax-Related Items by considering applicable statutory withholding amounts or other applicable withholding rates,
including maximum rates applicable in the Optionee’s jurisdiction(s). In the event of over-withholding, the Optionee may receive a refund of any over-withheld
amount in cash and will have no entitlement to the equivalent in shares of Stock, or if not refunded, the Optionee may seek a refund from the applicable tax
authorities. In the event of under-withholding, the Optionee may be required to pay additional Tax-Related Items directly to the applicable tax authorities or to the
Company and/or the Employer. If the obligation for Tax-Related Items is satisfied by withholding in shares of Stock, for tax purposes, the Optionee is deemed to
have been issued the full number of Option Shares subject to the exercised Stock Option, notwithstanding that a number of the Option Shares is held back solely for
the purpose of paying the Tax-Related Items..
The Optionee agrees to pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to
withhold or account for as a result of the Optionee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to
issue or deliver the Option Shares or the proceeds of the sale of the Option Shares acquired upon the exercise of this Stock Option, if the Optionee fails to comply
with his or her obligations in connection with the Tax-Related Items.
7.
Nature of Award. In accepting this Stock Option, the Optionee acknowledges, understands, and agrees that:
Neither the Company nor any Affiliate is obligated by or as a result of the Plan or this Agreement to continue the Optionee’s
employment or any other Service Relationship with the Company or an Affiliate, and neither the Plan nor this Agreement shall interfere in any way with the right of
the Company or any Affiliate to terminate the Optionee’s employment or any other Service Relationship with the Company or an Affiliate at any time.
(a)
ACTIVE/103046236.5
by the Company at any time, to the extent permitted by the Plan;
(b)
the Plan is established voluntarily by the Company, is discretionary in nature and may be modified, amended, suspended, or terminated
future stock options, or benefits in lieu of stock options, even if such grants have been made in the past;
(c)
the grant of this Stock Option is exceptional, voluntary and occasional and does not create any contractual or other right to receive
(d)
(e)
(f)
all decisions with respect to future Stock Options, if any, will be at the sole discretion of the Company;
the Optionee’s participation in the Plan is voluntary;
this Award and the shares of Stock subject to this Stock Option, and the income from and value of the same, are not intended to replace
any pension rights or compensation;
this Stock Option and the shares of Stock subject to this Award, and the income from and value of same, are not part of normal or
expected compensation or salary for purposes of, including, without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-
service payments, holiday pay, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;
(g)
(h)
the future value of the shares of Stock subject to this Stock Option is unknown, indeterminable and cannot be predicted with certainty;
(i)
(j)
if the underlying shares of Stock subject to the Stock Option do not increase in value, the Stock Option will have no value;
if Optionee exercises the Stock Option and acquires shares of Stock, the value of such shares of Stock may increase or decrease, even
below the Option Exercise Price per Share;
no claim or entitlement to compensation or damages shall arise from forfeiture of any portion of this Stock Option resulting from
termination of the Optionee’s employment (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction
where the Optionee renders service or the terms of the Optionee’s employment agreement, if any);
(k)
(l)
for purposes of the Stock Option, the Optionee’s employment will be considered terminated as of the date the Optionee is no longer
actively providing services (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the
jurisdiction where the Optionee renders service or the terms of the Optionee’s employment agreement, if any), and unless otherwise expressly provided in this
Agreement or determined by the Company, the Optionee’s right to continue to vest in the Stock Option, if any, will terminate effective as of such date and will not be
extended by any notice period (e.g., active employment would not include any contractual notice period or any period of “garden leave” or similar period mandated
under employment laws in the jurisdiction where Optionee renders service or the terms of the Optionee’s employment agreement, if any); the Administrator shall
have the exclusive discretion to determine when the Optionee’s active employment is terminated for purposes of this Stock Option (including whether the Optionee
may still be considered to actively be providing services while on a leave of absence);
ACTIVE/103046236.5
income from and value of the same, are not granted as consideration for, or in connection with, the service the Optionee may provide as a director of an Affiliate;
(m)
unless otherwise agreed with the Company in writing, the Stock Option and the shares of Stock subject to this Stock Option, and the
unless otherwise provided in the Plan or by the Company in its discretion, the Stock Option and the benefits evidenced by this
Agreement do not create any entitlement to have the Stock Option or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed
out or substituted for, in connection with any corporate transaction affecting the shares of Stock; and
(n)
(o)
the following provisions apply only if the Optionee is providing services outside the United States:
normal or expected compensation or salary for any purpose;
(i)
the Stock Option and the shares of Stock subject to the Stock Option and the income from and value of the same, are not part of
neither the Company, the Employer nor any other Affiliate shall be liable for any foreign exchange rate fluctuation between the
Optionee’s local currency and the U.S. Dollar that may affect the value of the Stock Option or of any amounts due to the Optionee pursuant to the
settlement of the Stock Option or the subsequent sale of any shares of Stock acquired upon settlement.
(ii)
8.
Integration. This Agreement [and the Executive Agreement] constitute[s] the entire agreement[s] between the parties with respect to this Stock Option
and supersede[s] all prior agreements and discussions between the parties concerning such subject matter.
9.
Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its
Subsidiaries and Affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not
limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for
the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Optionee (i) authorizes the Company to
collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Optionee may have with respect to the
Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the
Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Optionee shall have access to, and the right to change, the
Relevant Information. Relevant Information will only be used in accordance with applicable law.
10.
Notices. Any notice required by the terms of this Agreement shall be given in writing. It shall be deemed effective upon (i) personal delivery,
(ii) deposit with the United States Postal Service or comparable non-US postal service, by registered or certified mail, with postage and fees prepaid, (iii) deposit with
Federal Express Corporation (or other overnight courier service approved by the Company), with shipping charges prepaid or (iv) the date on which an electronic
notification is received. Notice shall be addressed to the Company at its
ACTIVE/103046236.5
principal executive office and to the Optionee at the address that he or she most recently provided to the Company in accordance with this Paragraph.
11. Miscellaneous Provisions.
(a)
Governing Law; Choice of Venue. The Stock Option and the provisions of this Agreement shall be governed by and constructed in accordance
with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in
accordance with the internal laws of the State of California, without regard to conflict of law principles that would result in the application of any law other than the
law of the State of California. For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by the Stock
Option or this Agreement and/or the Plan, the parties hereby submit to and consent to the exclusive jurisdiction of the State of California and agree that such
litigation shall be conducted only in the courts of the County of San Mateo, California, or the United States federal courts for the Northern District of California, and
no other courts, where the grant of the Stock Option is made and/or to be performed.
(a)
Language. The Optionee acknowledges that he or she is proficient in the English language, or has consulted with an advisor who is sufficiently
proficient in English, so as to allow the Optionee to understand the terms and conditions of this Agreement. If the Optionee receives the Agreement or any other
document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the
English version will control.
(b)
Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions nevertheless shall be binding and enforceable.
(c)
Appendix. Notwithstanding any provisions in this Option Agreement, this Stock Option shall be subject to any additional terms and conditions
set forth in any Appendix to this Agreement for the Optionee’s country. Moreover, if the Optionee relocates to one of the countries included in the Appendix, the
additional terms and conditions for such country will apply to the Optionee, to the extent that the Company determines that the application of such terms and
conditions is necessary or advisable for legal or administrative reasons. The Appendix constitutes part of this Agreement.
(d)
Imposition of Other Requirements. The Company reserves the right to impose other requirements on the Optionee’s participation in the Plan,
on this Stock Option and on any shares of Stock acquired under the Plan, to the extent that the Company determines that it is necessary or advisable for legal or
administrative reasons, and to require the Optionee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
(e) Waiver. The Optionee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be
construed as a waiver of any other provision of this Agreement, or of any subsequent breach of this Agreement.
(f)
No Advice Regarding Award. The Company is not providing any tax, legal, or financial advice, nor is the Company making any
recommendations regarding the Optionee’s participation in the Plan, or his or her acquisition or sale of the shares of Stock subject to this Stock Option. The Optionee
is solely responsible for taking all appropriate legal advice, notably concerning U.S. and local country tax and social insurance regulations, when signing this
Agreement, or selling the shares of Stock acquired upon settlement of the Stock Option, or more generally when making any decision in relation with this Stock
Option, this
ACTIVE/103046236.5
Agreement or otherwise under the Plan. The Company does not represent or guarantee that the Optionee may benefit from specific provisions under said regulations
and the Optionee shall on his or her own efforts receive proper information in this respect. The Optionee understands and agrees that he or she should consult with his
or her personal tax, legal, and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.
(g)
Electronic Delivery of Documents. The Optionee agrees that the Company may decide, in its sole discretion, to deliver by email or other
electronic means any documents relating to the Plan or this Stock Option (including, without limitation, a copy of the Plan) and all other documents that the
Company is required to deliver to its security holders (including, without limitation, disclosures that may be required by the U.S. Securities and Exchange
Commission). The Optionee also agrees that the Company may deliver these documents by posting them on a website maintained by the Company or by a third party
under contract with the Company. If the Company posts these documents on a website, it shall notify the Optionee by email.
(h)
Insider-Trading/Market-Abuse Laws. The Optionee acknowledges that, depending on his or her country, he or she may be subject to insider-
trading restrictions and/or market-abuse laws, which may affect the Optionee’s ability to purchase or sell shares of Stock acquired under the Plan during such times as
the Optionee is considered to have “inside information” regarding the Company (as defined by the laws in the Optionee’s country). Any restrictions under these laws
or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider-trading policy. The Optionee is
responsible for complying with any applicable restrictions and is advised to speak to his or her personal legal advisor for further details regarding any applicable
insider-trading and/or market-abuse laws in the Optionee’s country.
(i)
Foreign Asset/Account Reporting Requirements; Exchange Controls. The Optionee acknowledges that his or her country may have certain
foreign asset and/or foreign account reporting requirements and exchange controls which may affect his or her ability to acquire or hold shares of Stock acquired
under the Plan or cash received from participating in the Plan (including from any dividends paid on shares of Stock acquired under the Plan) in a brokerage or bank
account outside his or her country. The Optionee may be required to report such accounts, assets or transactions to the tax or other authorities in his or her country.
The Optionee also may be required to repatriate sale proceeds or other funds received as a result of his or her participation in the Plan to his or her country through a
designated bank or broker within a certain time after receipt. The Optionee acknowledges that it is his or her responsibility to be compliant with such regulations and
is encouraged to consult his or her personal legal advisor for any details.
ACTIVE/103046236.5
Guidewire Software, Inc.
By:
Title:
The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement
pursuant to the Company’s instructions to the Optionee (including through an online acceptance process) is acceptable.
Dated:
Optionee’s Signature
Optionee’s name and address:
ACTIVE/103046236.5
APPENDIX TO
GLOBAL STOCK OPTION AGREEMENT
UNDER THE
GUIDEWIRE SOFTWARE, INC. 2020 STOCK PLAN
Certain capitalized terms used but not defined in this Appendix have the meanings set forth in the Global Stock Option Agreement (the “Option Agreement”) or, if
not defined therein, the Plan.
TERMS AND CONDITIONS
This Appendix, which is part of the Agreement, includes additional terms and conditions that govern the Stock Option and that will apply to the Optionee if he or she
resides and/or works in one of the countries listed below. If the Optionee is a citizen or resident of a country other than the one in which the Optionee resides and/or
works, is considered a resident of another country for local law purposes or transfers employment and/or residency between countries after the Grant Date, the
Company, in its discretion, will determine to what extent terms and conditions contained herein shall be applicable to the Optionee.
NOTIFICATIONS
This Appendix also includes information regarding securities, exchange control and certain other issues of which the Optionee should be aware with respect to his or
her participation in the Plan. The information is based on the securities, exchange control and other laws in effect in the respective countries as of May 2022. Such
laws are often complex and change frequently. As a result, the Optionee should not rely on the information in this Appendix as the only source of information
relating to the consequences of his or her participation in the Plan because such information may be outdated when the Stock Option become vested, exercised and/or
when any shares of Stock acquired upon exercise are sold.
In addition, the information contained herein is general in nature and may not apply to the Optionee’s particular situation. As a result, the Company is not in a
position to assure the Optionee of any particular result. The Optionee therefore should to seek appropriate professional advice as to how the relevant laws in his or
her country may apply to his or her particular situation.
Finally, if the Optionee is a citizen or resident of a country other than the one in which the Optionee resides and/or works, is considered a resident of another country
for local law purposes or transfers employment and/or residency between countries after the Grant Date,, then the notifications contained herein may not apply to him
or her in the same manner.
ACTIVE/103046236.5
ALL NON-U.S. JURISDICTIONS
Data Privacy Consent. The following provision replaces Paragraph 7 of the Option Agreement:
Consent to Personal Data Processing and Transfer. By accepting the Stock Option via the Company’s acceptance procedure, the Optionee is declaring that he or
she agrees with the data processing practices described herein and consents to the collection, processing and use of Personal Data (as defined below) by the
Company and the transfer of Personal Data to the recipients mentioned herein, including recipients located in countries which do not adduce an adequate level
of protection from a European (or other) data protection law perspective, for the purposes described herein.
(a)
Declaration of Consent. The Optionee understands that the Optionee must review the following information about the processing of the
Optionee’s personal data by or on behalf of the Company and its Subsidiaries and Affiliates as described in this Agreement and any materials related to the Stock
Option (the “Personal Data”) and declare his or her consent. As regards the processing of the Optionee’s Personal Data in connection with the Plan and this
Agreement, the Optionee understands that the Company is the controller of the Optionee’s Personal Data.
(b)
Data Processing and Legal Basis. The Company collects, uses and otherwise processes Personal Data about the Optionee for purposes of
allocating shares of Stock and implementing, administering and managing the Plan. The Personal Data processed by the Company includes, without limitation,
the Optionee’s name, home address and telephone number, email address, date of birth, social insurance number, passport number or other identification
number (e.g., resident registration number), salary, nationality, job title, any shares of stock or directorships held in the Company or its Affiliates, details of all
Awards or any other entitlement to shares of stock or equivalent benefits awarded, canceled, exercised, vested, unvested or outstanding in the Optionee’s favor.
The legal basis for the processing of the Optionee’s Personal Data, where required, is the Optionee’s consent.
(c)
Stock Plan Administration Service Providers. The Optionee understands that the Company transfers the Optionee’s Personal Data, or
parts thereof, to (i) E*Trade Corporate Financial Services, Inc. and its affiliated companies (“E*Trade”), an independent service provider based in the United
States which assists the Company with the implementation, administration and management of the Plan. In the future, the Company may select different service
providers and share the Optionee’s Personal Data with such different service providers that serve the Company in a similar manner. The Company’s service
providers will open an account for the Optionee to receive and trade shares of Stock acquired under the Plan and the Optionee will be asked to agree on separate
terms and data processing practices with the service provider, which is a condition of the Optionee’s ability to participate in the Plan.
(d)
International Data Transfers. The Company and, as of the date hereof, any third parties assisting in the implementation, administration
and management of the Plan, such as E*Trade, are based in the United States. If the Optionee is located outside the United States, the Optionee’s country may
have enacted data privacy laws that are different from the laws of the United States. The Company’s legal basis for the transfer of the Optionee’s Personal Data
is the Optionee’s consent.
(e)
Data Retention. The Company will process the Optionee’s Personal Data only as long as is necessary to implement, administer and
manage the Optionee’s participation in the Plan, or to comply with legal or regulatory obligations, including under tax, exchange
ACTIVE/103046236.5
control, labor and securities laws. This period may extend beyond Optionee’s end of Service Relationship. In the latter case, the Optionee understands and
acknowledges that the Company’s legal basis for the processing of the Optionee’s Personal Data would be compliance with the relevant laws or regulations.
When the Company no longer needs the Optionee’s Personal Data for any of the above purposes, the Optionee understands the Company will remove it from its
systems.
(f)
Voluntariness and Consequences of Denial/Withdrawal of Consent. The Optionee understands that any participation in the Plan and his
or her consent are purely voluntary. The Optionee may deny or later withdraw his or her consent at any time, with future effect and for any or no reason. If the
Optionee denies or later withdraws his or her consent, the Company can no longer offer participation in the Plan or grant equity awards to the Optionee or
administer or maintain such awards, and the Optionee will no longer be eligible to participate in the Plan. The Optionee further understands that denial or
withdrawal of his or her consent would not affect his or her status or salary as an employee or his or her career and that the Optionee would merely forfeit the
opportunities associated with the Plan.
(g)
Data Subject Rights. The data subject rights regarding the processing of personal data vary depending on the applicable law and that,
depending on where the Optionee is based and subject to the conditions set out in the applicable law, the Optionee may have, without limitation, the rights to (i)
inquire whether and what kind of Personal Data the Company holds about the Optionee and how it is processed, and to access or request copies of such Personal
Data, (ii) request the correction or supplementation of Personal Data about the Optionee that is inaccurate, incomplete or out- of-date in light of the purposes
underlying the processing, (iii) obtain the erasure of Personal Data no longer necessary for the purposes underlying the processing, (iv) request the Company to
restrict the processing of the Optionee’s Personal Data in certain situations where the Optionee feels its processing is inappropriate, (v) object, in certain
circumstances, to the processing of Personal Data for legitimate interests, and to (vi) request portability of the Optionee’s Personal Data that the Optionee has
actively or passively provided to the Company (which does not include data derived or inferred from the collected data), where the processing of such Personal
Data is based on consent or the Optionee’s employment and is carried out by automated means. In case of concerns, the Optionee may also have the right to
lodge a complaint with the competent local data protection authority. Further, to receive clarification of, or to exercise any of, the Optionee’s rights the Optionee
should contact the Optionee’s local human resources representative.
AUSTRALIA
Notifications
Securities Law Information. If Optionee offers any shares of Stock for sale to a person or entity resident in Australia, the offer may be subject to disclosure
requirements under Australian law (in addition to any requirements under the Plan and this Agreement). Optionee should consult his or her personal legal advisor
prior to making any such offer to ensure compliance with the applicable requirements.
Tax Consideration. The Plan is a plan to which Subdivision 83A-C of the Income Tax Assessment Act 1997 (Cth) applies (subject to the conditions of the Act).
Exchange Control Information. Exchange control reporting is required for cash transactions exceeding a certain threshold and international fund transfers. The
Australian bank assisting with the transaction may file the report on the Optionee's behalf. If there is no Australian bank involved in the transfer, the Optionee will be
required to file the report. The Optionee should
ACTIVE/103046236.5
consult with his or her personal advisor to ensure proper compliance with applicable reporting requirements in Australia.
CANADA
Terms and Conditions
Non-Qualified Securities. All or a portion of the shares of Common Stock subject to the Option may be "non-qualified securities" within the meaning of the Income
Tax Act (Canada). The Company will provide the Optionee with additional information and/or appropriate notification regarding the characterization of the Stock
Option for Canadian income tax purposes as may be required by the Income Tax Act (Canada) and the regulations thereunder.
Manner of Exercise. The following provision supplements Paragraph 2 of the Option Agreement:
Notwithstanding anything in the Plan to the contrary, the Optionee is prohibited from surrendering shares of Stock the Optionee already owns or attesting to the
ownership of shares of Stock to pay the Option Exercise Price per Share or any Tax-Related Items in connection with the Stock Option.
Termination of Employment. The following provision replaces Paragraph 7(l) of the Option Agreement:
For purposes of the Stock Option, unless otherwise provided for in the Option Agreement, the Optionee’s Service Relationship will be considered terminated as of
the date that is the earliest of (a) the date the Optionee's employment is terminated; (b) the date the Optionee receives notice of termination of employment; or (b) the
date the Optionee is no longer providing services to the Company or any Affiliate (in all cases regardless of the reason for such termination and whether or not later
found to be invalid or in breach of employment laws in the jurisdiction where the Optionee renders service or the terms of the Optionee’s employment agreement, if
any). Unless otherwise expressly provided in this Agreement or determined by the Company, the Optionee’s right to continue to vest in the Stock Option, if any, will
terminate effective as of such date and will not be extended any period during which notice, pay in lieu of notice or related payments or damages are provided or
required to be provided under local law. The Administrator shall have the exclusive discretion to determine when the Optionee’s employment is terminated for
purposes of this Stock Option (including whether the Optionee may still be considered providing services while on a leave of absence).
Notwithstanding the foregoing, if applicable employment standards legislation explicitly requires
continued entitlement to vesting during a statutory notice period, the Optionee’s right to vest in the Stock Option under the Plan, if any, will terminate effective as of
the last day of the Optionee’s minimum statutory notice period, but the Optionee will not earn or be entitled to pro-rated vesting if the vesting date falls after the end
of the Optionee’s statutory notice period, nor will the Optionee be entitled to any compensation for lost vesting
The following provisions apply to the Stock Option if the Optionee is a resident of Quebec:
Language Consent. The parties acknowledge that it is their express wish that the Agreement, as well as all documents, notices and legal proceedings entered into,
given, or instituted pursuant hereto or relating directly or indirectly hereto, be drawn up in English.
ACTIVE/103046236.5
Les parties reconnaissent avoir exigé la rédaction en anglais de cette convention, ainsi que de tous documents, avis et procédures judiciaires, exécutés, donnés ou
intentés en vertu de, ou liés directement ou indirectement à, la présente convention.
Personal Data Authorization. The following provision supplements the Data Privacy Consent, set forth above in this Appendix:
The Optionee hereby authorizes the Company and the Company’s representatives to discuss with and obtain all relevant information from all personnel, professional
or non-professional, involved in the administration and operation of the Plan. The Optionee further authorizes the Company, the Employer and its other Affiliates to
disclose and discuss with their advisors the Optionee’s participation in the Plan. The Optionee also authorizes the Company, the Employer and its other Affiliates to
record such information and to keep it in his or her employment file. If the Optionee is resident in Quebec, the Optionee acknowledges and agrees that his or her
personal information, including sensitive personal information, may be transferred or disclosed outside of the province of Quebec, including to the United States. The
Optionee acknowledges and authorizes the Company and other parties involved in the administration of the Plan to use technology for profiling purposes and to make
automated decisions that may have an impact on the Optionee or the administration of the Plan.
Notifications
Securities Law Information. The Optionee is permitted to sell shares of Stock acquired through the Plan through the designated broker appointed under the Plan, if
any, provided the resale of shares of Stock acquired under the Plan takes place outside of Canada through the facilities of a stock exchange on which the shares of
Stock are listed. The shares of Stock are currently listed on the New York Stock Exchange.
Foreign Account/Asset Reporting Information. If the Optionee is a Canadian resident, the Optionee is required to report annually on Form T1135 (Foreign Income
Verification Statement) the foreign specified property (including shares of Stock acquired under the Plan) he or she holds if the total cost of such foreign specified
property exceeds C$100,000 at any time during the year. Unvested Stock Options also must be reported (generally at nil cost) on Form T1135 if the C$100,000
threshold is exceeded due to other foreign property the Optionee holds. If shares of Stock are acquired, their cost generally is the adjusted cost base (“ACB”) of the
shares of Stock. The ACB would normally equal the fair market value of the shares of Stock at vesting, but if the Optionee owns other shares, this ACB may have to
be averaged with the ACB of the other shares. The Form T1135 must be filed at the same time the Optionee files his or her annual tax return. The Optionee is advised
to consult with a personal advisor to ensure he or she complies with the applicable reporting obligations.
FRANCE
Terms and Conditions
Language Consent. In accepting this Stock Option, the Optionee confirms having read and understood the Plan and the Agreement which were provided in the
English language. The Optionee accepts the terms of those documents accordingly.
Consentement Relatif à la Langue Utilisée. En acceptant l’attribution, le Bénéficiaire de l’Option confirme avoir lu et compris le Plan et le Contrat, qui ont été
communiqués en langue anglaise. le Bénéficiaire de l’Option accepte les termes de ces documents en connaissance de cause.
ACTIVE/103046236.5
Notifications
Nature of Grant. This Stock Option is not intended to qualify for special tax and social security treatment applicable to stock options granted under Section L. 225-
177 to L. 225-186-1 of the French Commercial Code, as amended.
Foreign Asset/Account Reporting Information. If the Optionee is a French resident, the Optionee must declare all of the Optionee’s foreign bank and brokerage
accounts in which he or she holds cash or securities, including the accounts that were opened and/or closed during the tax year, on an annual basis on a special form
N° 3916, together with the Optionee’s income tax return
Exchange Control Information. The Optionee must report the value of any cash or securities that the Optionee brings into France or sends out of France without the
use of a financial institution to the French Customs and Excise Authorities when the value of such cash or securities reaches or exceeds the threshold amount.
GERMANY
Notifications
Exchange Control Information. Cross-border payments in excess of €12,500 must be reported monthly to the German Federal Bank. If the Optionee receives cross-
border payments in excess of €12,500 in connection with the sale of securities (including shares of Stock acquired under the Plan) or the receipt of dividends paid on
such shares of Stock, the Optionee must report by the fifth day of the month following the month in which the payment was received. The report must be filed
electronically. The form of report can be accessed via the German Federal Bank’s website at www.bundesbank.de and is available in both German and English. The
Optionee is advised to consult a personal legal advisor to ensure compliance with applicable reporting obligations.
Foreign Asset/Account Reporting Information. If the acquisition of shares of Stock under the Plan leads to a “qualified participation” at any point during the
calendar year, Optionee understands that Optionee will need to report the acquisition when Optionee files his or her tax return for the relevant year. A qualified
participation is attained only if (a) the value of the shares of Stock acquired exceeds €150,000 and the Optionee holds 1% or more of the total shares of Stock, or (b)
the Optionee holds shares of Stock exceeding 10% of the Company’s total Stock. Optionee should contact his or her personal advisor for further information
regarding whether Optionee's acquisition of Stock under the Plan will result in a qualified participation.
IRELAND
No country-specific provisions.
INDIA
Terms and Conditions
Manner of Exercise. The following provision supplements Paragraph 2 of the Option Agreement:
Due to legal considerations in India, the Optionee will not be permitted to pay the Exercise Price per Share by a broker-assisted cashless exercise in which the
Optionee irrevocably instruct a
ACTIVE/103046236.5
broker to sell a portion of the shares of Stock for which the Stock Option is being exercised and deliver the proceeds of the sale to the Company in payment of the
Exercise Price per Share of such shares of Stock and, if applicable, in payment of Tax-Related Items. The Optionee may, however, pay the Exercise Price per Share
by a broker-assisted cashless exercise in which the Optionee irrevocably instructs a broker to sell all of the shares of Stock for which the Stock Option is being
exercised and deliver the proceeds of the sale to the Company in payment of the Exercise Price per Share of such shares of Stock and, if applicable, in payment of
Tax-Related Items. The Company reserves the right to allow additional methods of payment depending on the development of local law.
Notifications
Exchange Control Information. Exchange control laws and regulations in India require that all proceeds resulting from the sale of shares of Stock and any
dividends received in relation to the shares of Stock be repatriated to India within such time as prescribed under applicable Indian exchange control laws, as may be
amended from time to time. Indian residents must obtain a foreign inward remittance certificate (“FIRC”) from the bank into which foreign currency is deposited and
retain the FIRC as evidence of repatriation of funds in the event that the Reserve Bank of India or the Service Recipient requests proof of repatriation.
Foreign Asset/Account Reporting Information. Foreign bank accounts and any foreign financial assets (including shares of Stock held outside India) must be
reported in the annual Indian personal tax return. It is the Optionee’s responsibility to comply with this reporting obligation and the Optionee should consult with his
or her personal advisor in this regard.
POLAND
Notifications
Exchange Control Information. If the Optionee holds foreign securities (including shares of Stock) and maintains accounts abroad, the Optionee may be required to
file certain reports with the National Bank of Poland on the transactions and balances of the securities and cash deposited in such accounts if the value of such
transactions or balances exceeds PLN 7,000,000 in the aggregate. If required, the Optionee must file reports on the transactions and balances of the accounts on a
quarterly basis on special forms available on the website of the National Bank of Poland.
Further, if the Optionee transfers funds in excess of €15,000 into Poland in connection with the sale of shares of Stock under the Plan, the funds must be transferred
via a bank account held at a bank in Poland. The Optionee is required to maintain all documents related to foreign exchange transactions for a period of five years, in
case of a request for their production from the Bank of Poland.
SPAIN
Terms and Conditions
No Entitlement for Claims or Compensation. By accepting the Stock Option, the Optionee acknowledges that he or she consents to participation in the Plan and
has received a copy of the Plan. The Optionee understands that the Company has unilaterally, gratuitously and in its sole discretion decided to grant Stock Options
under the Plan to individuals who may be employees of the Employer, the Company or its other Affiliates throughout the world. The decision is a limited decision
that is entered into upon the express assumption and condition that any Stock Option will not economically or otherwise bind the Employer, the Company or its other
ACTIVE/103046236.5
Affiliates on an ongoing basis. Consequently, the Optionee understands that the Stock Options are granted on the assumption and condition that the Sock Option and
the shares of Stock acquired upon settlement shall not become a part of any employment contract (either with the Employer, the Company or any of its other
Affiliates) and shall not be considered a mandatory benefit, salary for any purposes (including severance compensation) or any other right whatsoever. In addition,
the Optionee understands that grant of Stock Option would not be made to the Optionee but for the assumptions and conditions referred to above; thus, the Optionee
acknowledges and freely accepts that should any or all of the assumptions be mistaken or should any of the conditions not be met for any reason, then any grant of
Stock Options shall be null and void.
Further, the vesting of the Stock Options is expressly conditioned on the Optionee’s continued employment, such that if the Optionee’s status as an employee
terminates for any reason whatsoever, the Stock Options may, subject to the terms of the Option Agreement, cease vesting immediately, in whole or in part, effective
on the date of the Optionee ceases to be an employee. This will be the case, for example, unless otherwise provided for in the Option Agreement, even if (a) the
Optionee is considered to be unfairly dismissed without good cause; (b) the Optionee is dismissed for disciplinary or objective reasons or due to a collective
dismissal; (c) the Optionee ceases to be an employee due to a change of work location, duties or any other employment or contractual condition; (d) the Optionee
ceases to be an employee due to a unilateral breach of contract by the Employer, the Company or its other Affiliates; or (e) the Optionee ceases to be an employee for
any other reason whatsoever. Consequently, once the Optionee ceases to be an employee any of the above reasons, the Optionee may automatically lose any rights to
Stock Options that were not vested on the date of the Optionee’s termination of employment, as described in the Plan and the Agreement.
The Optionee acknowledges that he or she has read and specifically accepts the conditions referred to in Paragraphs 3 and 7 of the Option Agreement.
Notifications
Securities Law Information. No “offer of securities to the public,” as defined under Spanish law, has taken place or will take place in the Spanish territory in
connection with the grant of the Stock Option. The Agreement has not been nor will it be registered with the Comisión Nacional del Mercado de Valores, and does
not constitute a public offering prospectus.
SWITZERLAND
Notifications
Securities Law Notification. The Option Agreement, this Appendix and any other materials relating to the Stock Option (a) do not constitute a prospectus according
to articles 35 et seq. of the Swiss Federal Act on Financial Services (“FinSA”), (b) may not be publicly distributed or otherwise made publicly available in
Switzerland to any person other than an employee of the Company, or (c) has not been and will not be filed with, approved or supervised by any Swiss reviewing
body according to article 51 FinSA or any Swiss regulatory authority, including the Swiss Financial Market Supervisory Authority (FINMA).
UNITED KINGDOM
Terms and Conditions
ACTIVE/103046236.5
Joint Election for Transfer of Liability for Employer National Insurance Contributions. As a condition of participation in the Plan and settlement of any Stock
Option upon vesting, the Optionee hereby irrevocably agrees to accept any liability for secondary Class 1 National Insurance contributions and, to the extent
permissible, the employer portion of the Health and Social Care Levy (the “Employer NICs”) that may be payable by the Company or the Employer (and any
successor to the Company and/or the Employer) in connection with the Stock Options and any event giving rise to Tax-Related Items. Without prejudice to the
foregoing, the Optionee agrees to execute a joint election with the Company and/or the Employer in such form as the Company may determine (the “Joint Election”),
and any other required consent or election requested by the Company. The Optionee further agrees to execute such other joint elections as may be required between
the Optionee and any successor to the Company or the Employer. The Optionee further agrees that the Company and the Employer (and any successor to the
Company and/or the Employer) may collect the Employer NICs from the Optionee by any of the means set forth in Paragraph 6 of the Option Agreement.
If the Optionee does not enter into a Joint Election prior to exercise of the Stock Option, the Stock Option shall not be settled unless and until he or she enters into a
Joint Election, and no shares of Stock will be issued to the Optionee under the Plan, without any liability to the Company, the Employer, or any other Affiliate.
Tax Withholding. The following provision supplements Paragraph 6 of the Option Agreement:
Without limitation to Paragraph 6 of the Option Agreement, the Optionee agrees that he or she is liable for all Tax-Related Items, including, to the extent permissible,
the Employer’s portion of the Health and Social Care levy, and hereby covenants to pay all such Tax-Related Items as and when requested by the Company, the
Employer or by HM Revenue & Customs ("HMRC") (or any other tax authority or any other relevant authority). The Optionee also agrees to indemnify and keep
indemnified the Company and the Employer (and any successor to the Company and/or the Employer) against any Tax-Related Items that they are required to pay or
withhold on or have paid or will pay to HMRC (or any other tax authority or any other relevant authority) on the Optionee’s behalf. For the purposes of the Option
Agreement, Tax-Related Items include (without limitation) employment income tax, employee National Insurance contributions and the employee portion of the
Health and Social Care levy.
Notwithstanding the foregoing, if the Optionee is an executive officer or director (within the meaning of Section 13(k) of the Exchange Act), the Optionee
acknowledges that may not be able to indemnify the Company or the Employer for the amount of any income tax not collected from or paid by the Optionee, as it
may be considered a loan. In such case, if the amount of any income tax due is not collected from or paid by the Optionee within ninety (90) days of the end of the
U.K. tax year in which an event giving rise to the indemnification described above occurs, the amount of any uncollected income tax may constitute an additional
benefit to the Optionee on which additional income tax and National Insurance contributions (“NICs”) may be payable. The Optionee will be responsible for
reporting and paying any income tax due on this additional benefit directly to HMRC under the self-assessment regime and for paying the Company and/or the
Employer (and any successor to the Company and/or the Employer) the value of any employee NICs due on this additional benefit, which the Company and/or the
Employer may recover at any time thereafter by any of the means referred to in Paragraph 6 of the Option Agreement.
ACTIVE/103046236.5
NICs JOINT ELECTION FOR UK PARTICIPANTS FOR THE GUIDEWIRE SOFTWARE, INC. 2020 STOCK PLAN
Important Note on the Election to Transfer Employer’s NICs
(the “Election”)
As a condition of your participation in the Guidewire Software, Inc. 2020 Stock Plan, you are required to enter into the Election to transfer to you any liability for
employer National Insurance contributions (“Employer NICs”) that may arise in connection with your participation in the Plan.
By accepting your stock option award (the “Award”) (whether by signing the applicable award or by clicking on the “ACCEPT” box as part of the Company’s online
acceptance procedures) or by separately accepting the Election (whether in hard copy or by clicking on the “ACCEPT” box), you indicate your acceptance to transfer
Employer’s NICs and to be bound by the terms of the Election. You should read this important note and the Election in their entirety before accepting the applicable
award agreement and the Election. Please print and keep a copy of the Election for your records.
By entering into the Election:
•
•
•
you agree that any Employer’s NICs liability that may arise in connection with your participation in the Plan will be transferred to you;
you authorise your employer to recover an amount sufficient to cover this liability by such methods as set forth in Paragraph 6 of the Option Agreement
including, but not limited to, deductions from your salary or other payments due or the sale of sufficient shares acquired pursuant to your Awards; and
you acknowledge that the Company or your employer may require you to sign a paper copy of this Election (or a substantially similar form) if the Company
determines such is necessary to give effect to the Election even if you have accepted the applicable award agreement or the Election through the Company’s
electronic acceptance procedure.
You understand that by providing your signature or acceptance and thereby enrolling into the Plan, you are agreeing to be bound by the terms of the Joint Election.
Please print and keep a copy of the Election for your records.
ACTIVE/103046236.5
Joint Election for Transfer of Liability for
Employer National Insurance Contributions to Employee
Election To Transfer the Employer’s National Insurance Liability to the Employee
This Election is between:
A.
B.
1.
1.1
1.2
The individual who has obtained authorised access to this Election (the “Employee”), who is employed by one of the employing companies listed in the
attached schedule (the “Employer”) and who is eligible to receive stock options and/or restricted stock units (the “Awards”) pursuant to the Guidewire
Software, Inc. 2020 Stock Plan (the “Plan”), and
Guidewire Software, Inc., a Delaware corporation, with registered offices at 2850 S. Delaware Street, Suite 100, San Mateo, CA 94403, U.S.A. (the
“Company”), which may grant Awards under the Plan and is entering into this Election on behalf of the Employer.
Introduction
This Election relates to all Awards granted to the Employee under the Plan up to the termination date of the Plan.
In this Election the following words and phrases have the following meanings:
(a) “Chargeable Event” means any event giving rise to Relevant Employment Income.
(b) “ITEPA” means the Income Tax (Earnings and Pensions) Act 2003.
(c) “Relevant Employment Income” from Awards on which Employer's National Insurance Contributions becomes due is defined as:
(i) an amount that counts as employment income of the earner under section 426 ITEPA (restricted securities: charge on certain post-acquisition
events);
(ii) an amount that counts as employment income of the earner under section 438 of ITEPA (convertible securities: charge on certain post-acquisition
events); or
(iii) any gain that is treated as remuneration derived from the earner's employment by virtue of section 4(4)(a) SSCBA, including without limitation:
(A)the acquisition of securities pursuant to the Awards (within the meaning of section 477(3)(a) of ITEPA);
(B) the assignment (if applicable) or release of the Awards in return for consideration (within the meaning of section 477(3)(b) of ITEPA);
(C) the receipt of a benefit in connection with the Awards, other than a benefit within (i) or (ii) above (within the meaning of section 477(3)(c) of
ITEPA).
(d) “SSCBA” means the Social Security Contributions and Benefits Act 1992.
1.3
This Election relates to the Employer’s secondary Class 1 National Insurance Contributions (the “Employer’s Liability”) which may arise in respect of
Relevant
ACTIVE/103046236.5
Employment Income in respect of the Awards pursuant to section 4(4)(a) and/or paragraph 3B(1A) of Schedule 1 of the SSCBA.
1.4
1.5
This Election does not apply in relation to any liability, or any part of any liability, arising as a result of regulations being given retrospective effect by virtue
of section 4B(2) of either the SSCBA, or the Social Security Contributions and Benefits (Northern Ireland) Act 1992.
This Election does not apply to the extent that it relates to relevant employment income which is employment income of the earner by virtue of Chapter 3A of
Part VII of ITEPA (employment income: securities with artificially depressed market value).
2.
The Election
The Employee and the Company jointly elect that the entire liability of the Employer to pay the Employer’s Liability that arises on any Relevant Employment
Income is hereby transferred to the Employee. The Employee understands that, by signing or electronically accepting this Election (including by electronic
signature process) or by accepting the Awards (including by electronic signature or acceptance process if made available by the Company), as applicable, he
or she will become personally liable for the Employer’s Liability covered by this Election. This Election is made in accordance with paragraph 3B(1) of
Schedule 1 of the SSCBA.
3.
Payment of the Employer’s Liability
3.1 The Employee hereby authorises the Company and/or the Employer to collect the Employer’s Liability in respect of any Relevant Employment Income from the
Employee at any time after the Chargeable Event:
(a) by deduction from salary or any other payment payable to the Employee at any time on or after the date of the Chargeable Event; and/or
(b) directly from the Employee by payment in cash or cleared funds; and/or
(c) by arranging, on behalf of the Employee, for the sale of some of the securities which the Employee is entitled to receive in respect of the Awards, the
proceeds from which must be delivered to the Employer in sufficient time for payment to be made to HM Revenue & Customs (“HMRC”) by the due
date; and/or
(d) by any other means specified in the applicable Award agreement entered into between the Employee and the Company.
3.2 The Company hereby reserves for itself and the Employer the right to withhold the transfer of any securities to the Employee in respect of the Awards until full
payment of the Employer’s Liability is received.
3.3 The Company agrees to procure the remittance by the Employer of the Employer’s Liability to HMRC on behalf of the Employee within 14 days after the end of
the UK tax month during which the Chargeable Event occurs (or within 17 days after the end of the UK tax month during which the Chargeable Event occurs
if payments are made electronically).
4.
Duration of Election
ACTIVE/103046236.5
4.1 The Employee and the Company agree to be bound by the terms of this Election regardless of whether the Employee is transferred abroad or is not employed by
the Employer on the date on which the Employer’s Liability becomes due.
4.2 Any reference to the Company and/or the Employer shall include that entity’s successors in title and assigns as permitted in accordance with the terms of the
Plan and relevant award agreement. This Election will continue in effect in respect of any awards which replace the Awards in circumstances where section
483 of ITEPA applies.
4.3 This Election will continue in effect until the earliest of the following:
(a) the date on which the Employee and the Company agree in writing that it should cease to have effect;
(b) the date on which the Company serves written notice on the Employee terminating its effect;
(c) the date on which HMRC withdraws approval of this Election; or
(d) the date on which, after due payment of the Employer’s Liability in respect of the entirety of the Awards to which this Election relates or could relate, the
Election ceases to have effect in accordance with its own terms.
4.4 This Election will continue in force regardless of whether the Employee ceases to be an employee of the Employer.
Acceptance by the Employee
The Employee acknowledges that, by electronically accepting or signing this Election (including by electronic signature process) or by accepting the Awards
(including by electronic signature process if made available by the Company), the Employee agrees to be bound by the terms of this Election.
……………………………………….. …./…./……….
Signature (Employee) Date
Acceptance by the Company
The Company acknowledges that, by signing this Election (including by electronic signature process) or arranging for the scanned signature of an
authorised representative to appear on this Election, the Company agrees to be bound by the terms of this Election.
Signature for and on
behalf of the Company ____________________
Position ____________________
Date ____________________
ACTIVE/103046236.5
Schedule of Employer Companies
The employing companies to which this Election relates include:
Name
Registered Office:
Company Registration Number:
Corporation Tax Reference:
PAYE Reference:
Guidewire Software (UK) Ltd.
4th Floor, 9 Cloak Lane
London EC4R 2RU, U.K.
05427894
18293 29999
951 / BZ75816
ACTIVE/103046236.5
Exhibit 21.1
Country or Jurisdiction
Subsidiaries of the Registrant
Subsidiary
Guidewire Software Pty Ltd.
Guidewire Servicios de Software Services do Brazil Ltda
Guidewire Software Canada ULC
Guidewire Software (Beijing) Co. Ltd.
Guidewire Software Denmark ApS
Guidewire Software France S.A.S
Guidewire Software GmbH
Guidewire Software Solutions India Private Limited
Guidewire Software (Ireland) Limited.
Guidewire Software (Italy) S.r.l.
Guidewire Software Japan K.K.
Guidewire Software (Malaysia) Sdn. BHD
Guidewire Software Poland Sp. z o.o.
Guidewire Software Spain, S.L.
Guidewire Software (Switzerland) GmbH
Guidewire Software (UK) Limited
Cyence LLC
EagleEye Analytics, LLC
HazardHub LLC
Guidewire International Holdings, Inc.
Australia
Brazil
Canada
China
Denmark
France
Germany
India
Ireland
Italy
Japan
Malaysia
Poland
Spain
Switzerland
United Kingdom
United States (Delaware)
United States (Delaware)
United States (Delaware)
United States (Delaware)
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We consent to the incorporation by reference in the registration statements (Nos. 333-253968, 333-230132, 333-223478, 333-216530, 333-209906, 333-202541, 333-194290, 333-187004, and 333-
179799) on Form S-8, and in the registration statements (Nos. 333-223487, 333-221298, 333-191856, and 333-191834) on Form S-3 of Guidewire Software, Inc. of our report dated September 26,
2022, with respect to the consolidated financial statements of Guidewire Software, Inc. and the effectiveness of internal control over financial reporting.
/s/ KPMG LLP
Santa Clara, California
September 26, 2022
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Mike Rosenbaum, 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 light of 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
4.
registrant as of, and for, the periods presented in this report;
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 that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period 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 provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted 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 the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation; and
d) 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 (the registrant’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 internal control over financial reporting; and
5.
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 auditors and 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 to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:
September 26, 2022
By:
/s/ MIKE ROSENBAUM
Mike Rosenbaum
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Jeff Cooper, 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 light of 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
4.
registrant as of, and for, the periods presented in this report;
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 that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period 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 provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted 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 the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation; and
d) 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 (the registrant’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 internal control over financial reporting; and
5.
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 auditors and 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 to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:
September 26, 2022
By:
/s/ JEFF COOPER
Jeff Cooper
Chief Financial Officer
(Principal Financial and Accounting Officer)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K of Guidewire Software, Inc. for the year ended July 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Mike
Rosenbaum, as Chief Executive Officer of Guidewire Software, Inc., hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted 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) of the 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 of Guidewire Software, Inc.
Date:
September 26, 2022
By:
/s/ MIKE ROSENBAUM
Mike Rosenbaum
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, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Jeff Cooper,
as Chief Financial Officer of Guidewire Software, Inc., hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted 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) of the 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 of Guidewire Software, Inc.
Date:
September 26, 2022
By:
/s/ JEFF COOPER
Jeff Cooper
Chief Financial Officer
(Principal Financial and Accounting Officer)