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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
FORM 10-K
________________________________________
(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, 2024
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)
________________________________________
Delaware
36-4468504
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
970 Park Pl., Suite 200, San Mateo, California, 94403
(Address of principal executive offices, including zip code)
(650) 357-9100
(Registrant’s telephone number, including area code)
________________________________________
Securities registered pursuant to Section 12(b) of the Act:
(Title of each class)
(Trading Symbol(s))
(Name of each exchange on which registered)
Common Stock, $0.0001 par value
GWRE
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
_______________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ 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 ☒
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
☒
Accelerated filer
☐
Non-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. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an
error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
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, 2024,
the last business day of the registrant’s most recently completed second fiscal quarter, as reported on the New York Stock Exchange, was approximately $6.6 billion. Shares of common stock held
by each executive officer, director and holder of 5% or more of the outstanding common stock have been
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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 30, 2024, the registrant had 83,025,888 shares of common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement relating to its 2024 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.
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Guidewire Software, Inc.
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Part I
Item 1.
Business
2
Item 1A.
Risk Factors
13
Item 1B.
Unresolved Staff Comments
40
Item 1C.
Cybersecurity
40
Item 2.
Properties
41
Item 3.
Legal Proceedings
41
Item 4.
Mine Safety Disclosures
41
Part II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
42
Item 6.
[Reserved]
44
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
44
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
61
Item 8.
Financial Statements and Supplementary Data
63
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
102
Item 9A.
Controls and Procedures
102
Item 9B.
Other Information
102
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
103
Part III
Item 10.
Directors, Executive Officers and Corporate Governance
104
Item 11.
Executive Compensation
104
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
104
Item 13.
Certain Relationships and Related Transactions, and Director Independence
104
Item 14.
Principal Accountant Fees and Services
104
Part IV
Item 15.
Exhibits and Financial Statement Schedules
105
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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, cloud operations, cybersecurity effectiveness, 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.
SUMMARY OF MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS
The principal risks and uncertainties affecting our business include (but are not limited to) the following:
•
our quarterly and annual results may fluctuate significantly due to economic conditions, customer behavior, contract changes, operational
costs, seasonality, and other uncertainties, which could impact our stock price;
•
the market for cloud services, including the migration of our existing term license customers to cloud-based offerings on a subscription
basis, and the long-term pricing commitments in our customer contracts that are based on available information and estimates about our
future costs that may change;
•
our reliance on orders from a relatively small number of customers in the property and casualty (“P&C”) insurance industry for a substantial
portion of our revenue and Annual Recurring Revenue (“ARR”) and the related substantial negotiating leverage of these customers, as well
as our dependence on customer renewals and expansions of their contracts for our products, which may not occur;
•
lengthy and variable sales and implementation cycles, with factors beyond our control including competitive pressures, potentially causing
expenditure of significant time and resources prior to revenue generation;
•
competitive attributes of our applications, including the need to continuously develop and enhance our products to satisfy customer
demands, maintain market acceptance, respond to competitive pressures, and meet local requirements of international markets;
•
failure to grow our business and manage our expanding operations, including internationally, effectively;
•
exposure to risks in relation to data security breaches of our cloud-based products, unauthorized access to our customers’ or employees’
data, or breaches of third-party technologies and systems we rely on and the related impact on our ability to effectively operate our cloud
environment for our customers;
•
issues in the development and use of artificial intelligence (“AI”), as well as the use of AI by our workforce, combined with an uncertain
regulatory environment, may result in reputational harm, liability, or other adverse consequences to our business operations;
•
retaining existing and hiring new personnel, including managing personnel in a hybrid work environment;
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•
errors or failures in our products or services, as well as service interruptions or failure of the third-party service providers we rely on, could
impair the availability of our products, harm our reputation, lead to customer loss, increase liability claims, or harm our future financial
results;
•
dependence on the quality and effectiveness of our professional services, technical support, and system integrator (“SI”) partners, and
successful development of our global direct sales force and the expansion of our relationships with SI partners;
•
factors that could affect our gross and operating margins, including revenue mix and costs related to operating, securing, and enhancing our
subscription services;
•
pursuing acquisitions or partnerships may lead to management distractions, integration challenges, increased costs, and stockholder dilution,
with risks including unforeseen difficulties, capital investment needs, and competitive pressures;
•
exposure to market risks, including geographical and global events, supply chain disruptions, inflation, political and regional conflicts,
interest rates, foreign currency exchange rates, and financial markets’ volatility and their impact on our stock price and its volatility and our
customers, partners, vendors, or our business operations; and
•
required compliance with current and evolving local data privacy and cybersecurity laws and regulations in all jurisdictions where we have
customers, and our ability to maintain the security of our customers’ data and our cloud-based products, appropriately limit the use of
information, and manage related costs and liabilities incurred.
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.” When using the term “products,” we are generally referring to both our subscription services and term
license software.
Item 1.
Business
Overview and Purpose
Guidewire is the platform that P&C insurers trust to engage, innovate, and grow efficiently. Our core systems leverage data and analytics, digital, and
AI. As a partner to our customers, we continually evolve to enable their success and assist them in navigating a rapidly changing insurance market. We
were founded in 2001.
Our core products are InsuranceSuite Cloud, InsuranceNow, and InsuranceSuite for self-managed installations. These products are transactional
systems of record that support the entire insurance lifecycle, including insurance product definition, distribution, underwriting, policyholder services, and
claims management. We also sell digital engagement and analytics products. Our digital engagement products enable digital sales, omnichannel service,
and enhanced claims experiences for policyholders, agents, vendor partners, and field personnel. Our analytics 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 suite of products for use in a variety of international regulatory, language, and currency environments.
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 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 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 products, the introduction of new products, efficient
operation of our
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cloud infrastructure, continued development of relevant local content and automated tools for updating content, content in the Guidewire Marketplace to
improve efficiencies, accelerate integration, and provide access to innovation, and successful implementations and migrations.
We sell our suite of products through subscription services for our platform and cloud-delivered products and term licenses for our self-managed
products. We generally price our products based on the amount of Direct Written Premium (“DWP”) that will be managed by our products. 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 to existing on-
premise customers and are typically an initial commitment with optional annual renewals thereafter. We may enter into term license arrangements with our
customers that have an initial term of more than one year or may renew license arrangements for longer than one year. Term license revenue is 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 and suite of products. A majority of our services revenue is billed monthly on a time and materials basis.
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 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:
•
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 omnichannel 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;
•
an increase in consolidation of providers of insurance products and associated rationalization of markets served given recent claims ratio
trends and developments;
•
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;
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•
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, generative AI, large language models, the “Internet of Things,”
chatbots, and telematics.
Many of these trends have increased in importance following the COVID-19 pandemic and the resulting change to a more hybrid world. 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.
•
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 and 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 or AI 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.
Products
The Guidewire ecosystem is designed so that insurers can increase revenue, reduce operational costs and losses, improve pricing, and engage with a
customer base that increasingly demands convenience and automated forms of self-service and communication. We are investing in research and
development to accelerate improvements in our platform and suite of products to better serve our customers.
Core Operational Products
We offer the following core products: Guidewire InsuranceSuite Cloud, Guidewire InsuranceNow, and Guidewire InsuranceSuite for Self-Managed.
Guidewire InsuranceSuite Cloud
Guidewire 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”)
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architecture and leverage our in-house cloud operations team. GWCP is a Guidewire-developed infrastructure layer enabled by and hosted on Amazon Web
Services (“AWS”). GWCP’s architecture consists of three primary layers. Specialized cloud infrastructure services and tools are centered around
maximizing service and resource availability, optimizing performance, scalability, and cost efficiency, maintaining data security, privacy and regulatory
compliance, as well as offering a high degree of service observability to provide customers with better insight and control consistent with their operational
needs. The Data Platform layer provides access to core and predictive analytics data to allow creation of curated datasets that can be used to drive delivery
of actionable insights across the insurance lifecycle. The App Platform layer contains modular, cloud-native services decoupled from the InsuranceSuite
core that can be used individually or interconnected to enhance existing applications and empower creation of new business applications. GWCP was
developed to meet the specialized needs of the P&C insurance industry, providing a scalable cloud architecture that combines 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.
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.
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.
Guidewire InsuranceNow
Guidewire InsuranceNow is a complete, cloud-based application that offers policy, billing, and claims management functionality, plus pre-integrated
document production, analytics, and other capabilities, that increases agility without adding complexity. InsuranceNow is hosted on AWS and managed by
our internal cloud operations team.
Guidewire InsuranceSuite for Self-Managed
Guidewire 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.
Guidewire InsuranceSuite: Complementary Capabilities and Applications
We offer several complementary capabilities and applications, some of which are included in the core operational services and products, and all of
which are 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 Advanced Product Designer
Guidewire Advanced Product Designer is a cloud-native application for insurance product design and management across the complete insurance
lifecycle. It enables insurers to launch and update products quickly by providing visual product development tools, prebuilt product model templates,
product management capability, and auto generated product code.
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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 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 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 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
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. Digital engagement applications are enabled by the Jutro Digital Platform (“Jutro”),
allowing insurers to strengthen customer relationships and brand loyalty while reducing operational cost through easy-to-use, self-service interactions. The
focus of Jutro is on empowering “digital native users,” or those who understand and expect to interact with their insurers through digital experiences that
are seamless, intuitive, user-friendly, mobile-ready, and omnichannel. In order to provide a holistic experience, Digital Applications are unified with
InsuranceSuite.
Data and Analytics
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
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perils from air, water, earth, and fire. HazardHub is a cloud-native solution delivered through an Application Programming Interface that provides access to
this information for any personal or commercial property located in 19 countries, including, among others, Australia, France, Germany, New Zealand,
South Africa, the United Kingdom (“U.K.”), and 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.
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, open-source, 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 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. Additionally, we promote
innovation through our Insurtech Vanguards which is a community of select startups and technology providers, bringing transformative solutions to the
P&C industry and making innovation more accessible. Nine Insurtech Vanguards have been promoted to our PartnerConnect program. As of July 31, 2024,
the Guidewire Marketplace had over 215 partner-developed integrations that have been awarded Ready for Guidewire validation and hundreds of
Guidewire-developed resources available for download. We are continually expanding the breadth of functionality and depth of partnerships in the
Guidewire Marketplace.
Technology
We have increased the scope of our platform, products, 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 prioritization of cloud-delivered solutions has also
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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, American Institute of
Certified Public Accountants, and Payment Card Industry Security Standards Council.
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 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.
Our investments in services and partners are designed to ensure customer success by committing appropriate resources to both cloud-based and self-
managed implementation projects.
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 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, 2024, we had 3,469 employees, including 1,782 in global product development and operations (comprised of research and
development, cloud operations, and technical support), 750 in professional services, 477 in sales and marketing, and 460 in general and administrative
roles. As of July 31, 2024, we had 1,692 employees in the United States and 1,777 employees internationally.
Attracting, Developing, and Retaining Employees
Our recruiting, development, and retention objectives focus on providing an optimal employee experience and culture across the employee life cycle
from recruitment to retirement, and involve 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 for certain roles 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 by providing diverse growth opportunities,
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including cutting-edge skills training, on-demand AI learning platforms, dynamic mentorship, and transformative leadership 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, employee feedback, and our progress toward hiring and promotion goals.
Diversity, Inclusion, and Belonging
We believe that understanding and respecting another’s perspective, experience, background, and beliefs provides an opportunity to expand horizons,
increase innovation, 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 2024, we had eight ERGs including
African Ancestry, Asian and Pacific Islander, Early Career Professionals, LatinX and Hispanic, LGBTQ+ and Allies, Veterans and Allies, Visible or
Invisible Disabilities, and Women’s Leadership.
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.
Corporate Culture
Our employees are critical to our success, and we believe creating an 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 August 2024, and periodic pulse surveys to elicit
feedback.
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 management systems, policies, and programs that encompass
our global operations. Our current benefit and wellness programs drive engagement that positively impacts our culture, job satisfaction, recruiting, and
retention programs. We increased our commitment to well-being by expanding our physical, mental, and family health programs. We enhanced our support
through professional development, by launching virtual skill-building workshops, providing a connection point to the community as well as continued
growth opportunities for remote roles. We also prioritized personal empowerment, wellness initiatives, safe and flexible workspaces, and comprehensive
benefits — ensuring our team stays healthy, supported, and connected. Additionally, we have transitioned to a hybrid work environment in which a
significant portion of our workforce works in-person on a part-time basis.
Employee 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 products to a wide variety of global P&C insurers ranging from some of the largest global insurers to national, regional, and
state 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
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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 and, in other instances, customers are in industries adjacent to the insurance industry and do not have
an insurance brand. As of July 31, 2024, we had approximately 470 customers representing approximately 570 insurance brands in 42 countries. We have
updated our customer definition to exclude customers that pay us less than $10,000 per year, which primarily represents customers of our HazardHub
product.
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, obtain certifications related to our products, 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 our products. Our partnerships with
leading SI partners allow 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 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.
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 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 products address, our sales and marketing efforts are tailored to communicate
effectively to senior executives within the P&C insurance industry. Our sales, marketing, customer success, 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.
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 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 customer conference, where customers both participate in and deliver presentations on a wide range of Guidewire and
insurance technology topics. We invite potential customers and partners to our customer 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 particular emphasis 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 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.
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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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 products, introduce new 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 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, Origami Risk, and Sapiens; and
horizontal software vendors such as SAP SE 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 2026. 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.
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 12 “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 due to efforts by our sales team to achieve annual incentives. Because we recognize revenue upfront for term licenses
compared to over time for subscription services, changes in the mix between term license and subscription services may impact our quarterly results.
Additionally, any significant multi-year term license renewal or non-renewal could impact quarterly results. Subscription sales now represent the significant
majority of total sales and, as a result when compared to term license sales, the revenue we recognize in the initial fiscal year of an order is lower, deferred
revenue is higher, and our total reported revenue growth may be adversely affected in the near term due to the ratable nature of these arrangements. Over
time, this ratable revenue dynamic has and will dampen the impact of seasonality on our revenue.
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 calendar year end holidays in the United States. Our fourth fiscal quarter 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,
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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. The risks and
uncertainties described below are not the only ones we face. Additional risks and uncertainties may also become important factors that adversely affect our
business. If any of such risks and uncertainties actually occurs, our business, results of operations, or financial condition 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, results of operations, or financial condition could be harmed
substantially, which could cause the market price of our stock to decline, perhaps significantly.
Risks Related to our Business and Industry
We may experience significant quarterly and annual fluctuations in our results of operations due to a number of factors.
Our quarterly and annual results of operations may fluctuate significantly due to a variety of factors, many of which are outside of our control. 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:
•
the impact of economic downturns and related market volatility caused by economic volatility, inflation, bank failures and associated
financial instability and crises, 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 software licenses, and the variations in revenue recognition between these
contract types;
•
changes in contract durations of term software licenses and renewals or modifications of customer contracts;
•
increases in costs related to cloud operations, cybersecurity, 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;
•
employee retention, the ability to hire and onboard appropriate personnel, and the timing of hiring personnel and employee related expenses;
•
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;
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•
the impact of a recession or any other adverse global economic condition on our business, including public health crises, such as epidemics
and pandemics, geographic and political conflicts, trade tariffs, trade agreements, and other uncertainties that may cause a delay in entering
into, a failure to enter into, or cancel significant customer agreements or the fulfillment of professional service arrangements;
•
adverse litigation judgments, dispute-related settlement payments, or litigation-related costs;
•
future accounting pronouncements, changes in accounting rules, new tax laws or regulations, or tax interpretations and our related
accounting policies, interpretations, and controls;
•
fluctuations in foreign currency exchange rates; and
•
the effects of inflation or deflation in the economies in which we operate, and their impact on interest rates, collection timeframes, and our
revenue 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 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.
If we do not receive customer or market acceptance of our business model focused on delivering cloud-based offerings on a subscription basis, or if
we 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 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. Our subscription business model has required 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 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. 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 or migrations, 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. 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 is generally recognized ratably over the term of the contract. Ratable revenue recognition results 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. Additionally, 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 revenue in any period.
Acceptance of our cloud-based solutions may not develop as anticipated and could be affected by a variety of factors, including, but not limited to,
cost, security, reliability, performance, customer preference, perceived value associated with such offerings, public concerns regarding privacy, and the
enactment of restrictive laws or regulations. If the market for our cloud-based solutions generally does not evolve as expected, it could result in reduced
customer purchases, reduced renewal rates, and decreased revenue, any of which will adversely affect our business, results of operations, or financial
condition. Further, for any of our existing customers that have not yet transitioned to our cloud-based offering, any perceived negative impacts or
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incremental costs associated with the transition, or an accelerated transition schedule, may lead to customer dissatisfaction and provide our competitors
with an opportunity to acquire these customers.
We are continually updating our existing products and developing new 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 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 evaluate our business model may evolve over the course of time as significant trends emerge. It
may be difficult, therefore, to accurately determine the impact on our business on a contemporaneous basis, or to clearly communicate the appropriate
metrics to our investors. If we are unable to sell our cloud offerings 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 years 2023 and 2024, our ten largest
customers accounted for 23% and 22% of our revenue, respectively. Additionally, our ten largest customers based on ARR accounted for 22% of total ARR
at July 31, 2024. 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 and ARR for the foreseeable future. As a result, if we fail to successfully sell our 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 products or professional services, 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.
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 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 products, including the technical capabilities of our products, the potential
cost savings achievable by organizations deploying our products, and the benefits and risks associated with cloud-based services. Customers typically
undertake a significant evaluation process, which frequently involves not only our 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, if we commit to
include specific features in our base product offering at the request of a customer or group of customers, we may be unable to recognize revenue until the
specific features have been delivered with our 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 products will be operational or
that once implemented our 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.
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The implementation and testing of our products by our customers typically lasts six to 24 months or longer and unexpected implementation delays and
difficulties can occur. Implementing our products typically involves integration with our customers’ and third parties’ systems and creating or updating the
digital experience, 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 products. Failing to meet the expectations of our customers during the
implementation of our products could result in a loss of customers and negative publicity about us and our 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 products or upon renewal of existing products, potential reversals of previously recognized revenue,
renegotiating existing customers’ contractual terms, and a customer’s refusal to pay their contractually obligated license, subscription, 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. 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, in the future, affect
services delivery, delay implementations, and interrupt sales activity. We cannot predict the duration or the extent of adverse impacts from pandemics and
other global events on our business, results of operations, and financial condition.
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 products 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 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.
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.
If our competitors’ products, services, or technologies become more accepted than our solutions, if they are successful in bringing their products or
services to market earlier than we are, if their products or services are more technologically capable than ours (including, without limitation, as a result of
new or better use of evolving AI technologies, such as generative AI), or if customers replace our solutions with custom-built software, then our revenue
could be adversely affected.
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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 security 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 products, to initiate or withstand substantial price competition, or to take advantage of emerging
opportunities by developing and expanding their product 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.
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. In particular, we have been expanding and plan to continue to expand our operations in India. Additionally, we
operate a hybrid work environment in which a large portion of our workforce works either in-person on a part-time basis or remotely on a permanent basis,
which brings challenges to managing our business and workforce. This expansion and hybrid 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, enhanced, or more secure products or investments in cloud
operations. If we increase the size of our organization without experiencing an increase in sales of our 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.
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 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 products we sell to them or add complexity to our customer agreements. These customers may also delay making payments under existing
agreements, or at renewal, in an attempt to obtain more favorable terms from us. We have been required to, and may again be required to, reduce the
average selling price and ARR of our products, along with agreeing to steeper ramps that delay reaching fully
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ramped ARR, in response to these pressures. If we are unable to avoid reducing our average selling prices or ARR, our results of operations could be
harmed.
Issues in the development and use of AI, combined with an uncertain regulatory environment, may result in reputational harm, liability, or other
adverse consequences to our business operations.
We use, and are continuously incorporating, machine learning and AI technologies in our offerings and business, and we are making investments in
expanding our AI capabilities in our products, professional services, and tools, including the ongoing deployment and improvement of existing machine
learning and AI technologies, as well as developing new product features using generative and other AI technologies. AI technologies are complex, and
generative AI technologies, in particular, are rapidly evolving. We face significant competition from other companies as well as an evolving regulatory
landscape in relation to these technologies. The introduction of AI technologies, including generative AI, into new or existing products may result in new
or enhanced governmental or regulatory scrutiny, litigation, confidentiality or security risks, privacy concerns, ethical challenges, or other complications
that could adversely affect our business, reputation, or financial results.
The complexity of our products that incorporate machine learning and AI technologies could result in unforeseen delays or expenses, or undetected
defects, bugs, or security vulnerabilities, which may harm the market acceptance of new products, damage our reputation with current or prospective
customers, cause significant remediation expenses, and may harm our business, results of operations, and financial condition. Our products may contain
defects when they are first introduced or as new versions or enhancements are released, or their release may be delayed due to unforeseen difficulties
during development. Additionally, our products may have undiscovered vulnerabilities that could be exploited by hackers or other malicious actors,
potentially exposing our customers to adverse consequences.
The intellectual property ownership and license rights, including without limitation, copyright, surrounding AI technologies generally, and generative
AI technologies specifically, has not been fully addressed by competent legal tribunals or applicable laws or regulations. Further, the use or adoption of
third-party AI technologies, including generative AI technologies, into our products may result in exposure to claims of copyright infringement or other
intellectual property-related causes of action.
The uncertainty around new and emerging AI technologies, such as generative AI, may require additional investment in the development and
maintenance of proprietary datasets and machine learning models, development of new approaches and processes to provide attribution or remuneration to
creators of training data, and development of appropriate protections and safeguards for handling the use of customer data with such technologies, which
may be costly and could impact our expenses if we decide to expand AI technologies, including generative AI, into our product offerings. AI technologies,
including without limitation generative AI, may create content that appears facially correct but is factually inaccurate or flawed. Our customers, employees,
or others may rely on or use such factually incorrect or flawed content to their detriment, which may expose us to brand or reputational harm, competitive
harm, and/or legal liability. In all events, the development, marketing and use of AI technologies, including, in particular, generative AI, presents emerging
ethical and social issues, and if we enable or offer solutions that draw scrutiny or controversy due to their perceived or actual impact on customers or on
society as a whole, we may experience brand or reputational harm, competitive harm, additional costs, and/or legal liability. If our AI development,
deployment, content labeling or governance is ineffective or inadequate, it may result in incidents that impair the public acceptance of AI solutions or cause
harm to individuals, customers or society, or result in our offerings not working as intended or producing unexpected outcomes.
Further, the development of next-generation solutions that utilize new and advanced features, including AI and machine learning, involves making
predictions regarding the willingness of the market to adopt such technologies over legacy solutions. We may be required to commit significant resources
to developing new products before knowing whether such investment will result in products that the market will accept.
We may fail to set the optimal pricing and packaging of our products, which could negatively impact our growth strategy and ability to effectively
compete in the market.
We may face challenges in selling our solutions to insurers that have internally developed their own proprietary software solutions, and we face
competition from emerging and established vendors. As a result, these companies may offer lower prices, additional products or services, or other
incentives that may impact our ability to maintain our prices.
The market for our products is constantly evolving, and our pricing and packaging decisions are made based on the best information available at the
time, but may change significantly in the future from our expectations. We are continually analyzing and refining our pricing and packaging models to
adapt to this dynamic environment. For example, we may need to change our pricing in future periods in response to market demands, the inflation and
interest rate environment or increased
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costs. Our contracts are often multi-year in duration and our inability to foresee changing events could impact the profitability of certain contracts. Further,
as competitors introduce new products that compete with ours or reduce their prices, we may be unable to attract new customers or retain existing
customers based on our historical pricing. As we expand internationally, we also must determine the appropriate price to enable us to compete effectively in
each market. In addition, if our mix or bundle of products sold changes, then we may need to, or choose to, revise our pricing. As a result, we may be
required or choose to reduce our prices or change our pricing model, which could harm our business, results of operations, and financial condition. In
addition, we cannot predict whether our current or prospective customers, or the market in general, will accept these changes. If these adjustments do not
gain acceptance, our business and operational results could be adversely affected. Failure to identify an optimal pricing and packaging strategy may harm
our business and operational outcomes. Should customers reject our new or modified pricing plans, we may face increasing challenges in attracting new
customers and retaining existing ones, particularly if we apply new pricing models to current customer subscriptions.
Our business depends on customers renewing and expanding their license, support, and subscription contracts for our 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. Our customers’ renewal rates may fluctuate or decline
because of several factors, including their satisfaction or dissatisfaction with our products, the prices of our products, the prices of 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.
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 ending 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 and cash receipts have 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. 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 will most likely remain
concentrated in the fourth fiscal quarter and 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:
•
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 and cash flows, 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
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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
•
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 number of renewals in a given quarter. Seasonal
and other variations may cause significant fluctuations in our revenue, 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 are unable to develop, introduce, and market new and enhanced versions of our products, we may be put at a competitive disadvantage.
Our success depends on our continued ability to develop, introduce, and market new and enhanced versions of our products to meet evolving customer
requirements. Because our products are complex and require rigorous testing, new features, new functionality, and updates to our existing products can take
significant time and resources to develop and bring to market. As we expand internationally, our 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 products or the technology platform underlying our existing products or that new 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.
If we fail to develop new products, enhance our existing products, or manage our products in the cloud, our business could be adversely affected,
especially if our competitors are able to introduce products with enhanced functionality in the cloud. It is critical to our success for us to anticipate changes
in technology, industry standards and regulations, and customer requirements and to successfully introduce new, enhanced, and competitive 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 products in a timely manner that are competitive in technology and price or develop 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.
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We operate a hybrid in-person and remote workforce, which will subject us to certain operational challenges and risks and potential harm to our
business.
We operate a hybrid work environment in which a significant portion of our workforce works either in-person on a part-time basis or remotely on a
permanent basis. As a result, we are subject to the challenges and risks of having a remote and 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. Hybrid in-person as well as remote working may also subject us to other
operational challenges and risks. For example, hybrid working arrangements 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 a hybrid workforce including, among other things, facilitating permanent remote work for a portion of our workforce and updating our
offices to offer more collaborative workspaces. If we are unable to effectively operate 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.
Real or perceived errors or failures in our products and professional services, including implementation and cloud support 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 products, undetected errors or failures may exist or occur, especially when products are first introduced or when new
versions or updates are released. Our 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 products or may expose undetected errors,
failures, or bugs in our products. Despite testing by us, we may not identify all errors, failures, or bugs in new 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. While we have implemented, and continually improve, a breadth of industry standard technology controls designed to ensure system stability
and availability, we may introduce errors, design flaws, software bugs, and other issues into the environment, and fail to remediate them in a timely
manner, which may cause serious or prolonged service interruptions to our customers. Additionally, our Guidewire cloud offerings rely on third-party
services including, but not limited to, AWS and Okta. Any material disruption, failure or slowdown in these services or the systems of third parties who we
depend upon could cause outages or delays in our products, 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
products. Failure to meet these upfront estimates and the expectations of our customers could result from our product capabilities or professional 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 products or upon renewal of existing
products, 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 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.
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Our ability to sell our products is highly dependent on the quality of our professional services and technical support services and the support of our
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 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 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 products to existing customers would be adversely affected and our reputation with potential customers
could be damaged. Once our 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 products. High-quality
support is critical for the continued successful marketing and sale of our 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 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 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 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 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.
The use of AI by our workforce may present risks to our business.
Our workforce is exposed to and uses AI technologies for certain tasks related to our business. We have guidelines and policies specifically directed at
the use of AI tools in the workplace. Nevertheless, the use of these AI tools, whether authorized or unauthorized, by our workforce, poses potential risks
relating to the protection of data, including cybersecurity risk, exposure of our proprietary confidential information to unauthorized recipients, and the
misuse of our or third-party intellectual property. Use of AI technology by our workforce, even when used consistently with our guidelines, may result in
allegations or claims against us related to violation of third-party intellectual property rights, unauthorized access to or use of proprietary information, or
failure to comply with open source software requirements. In addition, our employees may use AI tools for various design and engineering tasks, such as
writing code and building content, and these AI technology tools may produce facially correct but factually inaccurate or flawed responses that could lead
to errors in our decision-making, solution development, or other business activities, which could have a negative impact on our business, operating results
and financial condition. Our ability to mitigate these risks will depend on our continued effective training, monitoring and enforcement of appropriate
policies, guidelines and procedures governing the use of AI technology, and compliance by our workforce.
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 56% and 48% of total revenue for fiscal years 2024 and 2023, respectively. Our subscription and support
revenue produces lower gross margins than our license revenue. The gross margin of our subscription and support revenue was 63% and 51% for fiscal
years 2024 and 2023, respectively, while the gross margin for license revenue was 98% and 98% for fiscal years 2024 and 2023, respectively. 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 expenses to operate our cloud services and manage our cloud operations which
may not result in an improvement 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 economic volatility, inflation, or other global events and disasters.
Further, our services revenue was 18% and 23% of total revenue for fiscal years 2024 and 2023, respectively. Our services revenue produces lower
gross margin than either our license revenue or our subscription and support revenue. The gross margin
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of our services revenue was negative in both fiscal years 2024 and 2023. If we experience an increase in the percentage of total revenue represented by
services revenue, due to acquisitions or 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 change in customer demand for our services team’s
involvement in the implementation of and migration to new 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, the extent to
which we subcontract services to those 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 customers to
enter into cloud agreements 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, if we subcontract out services without an adequate markup, or if we require
additional personnel on unexpectedly difficult projects to ensure customer success, perhaps without receiving commensurate compensation.
Failure of any of our established 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 products. We expect to continue to derive a
substantial portion of our revenue from these sources. As such, continued market acceptance of these products is critical to our growth and success.
Demand for our products is affected by a number of factors, some of which are beyond our control, including the successful implementation of our
products, the timing of development and release of product upgrades, enhancements, 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 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 products, our business,
results of operations, financial condition and growth prospects may be adversely affected.
If we are unable to continue the successful development of our global direct sales force and the expansion of our relationships with our strategic
partners, sales of our products 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 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 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 products may compete directly against products that such leading SI
partners support or market. Additionally, we are unable to control the quantity or quality of resources that our SI partners commit to migrating or
implementing our products, the quality or timeliness of such migrations and implementations, or the effects of 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 products, would have an
adverse effect on our business and our results of operations could fail to grow in line with our projections.
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Our international sales and operations subject us to additional risks that can adversely affect our business, results of operations, and financial
condition.
We sell our products 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 2024, 2023, and 2022, $347.9 million, $331.5 million, and $296.2 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, legal, and compliance costs associated with having multiple international operations;
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unique terms and conditions in contract negotiations imposed by customers in foreign countries;
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longer payment cycles and difficulties in enforcing contracts and collecting accounts receivable;
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the need to localize our contracts and our products for international customers;
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lack of familiarity with and unexpected changes in foreign regulatory requirements;
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increased exposure to fluctuations in currency exchange rates, especially on revenue and ARR;
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highly inflationary international economies and related governments;
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geographic and political conflicts, such as the wars between Israel and Hamas and between Russia and Ukraine and the escalating tensions
in the South China Sea;
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the burdens and costs of complying with a wide variety of foreign laws and legal standards, including without limitation any new or
evolving laws and regulations relating to the use of data in AI, generative AI, machine learning technologies, climate-related disclosures,
and the General Data Protection Regulation in the European Union (“EU”) and the U.K.;
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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;
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compliance by international staff with accounting practices generally accepted in the United States, including adherence to our accounting
policies and internal controls;
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import and export license requirements, tariffs, taxes and other trade barriers;
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increased financial accounting, tax and reporting burdens and complexities;
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weaker protection of intellectual property rights in some countries;
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multiple and possibly overlapping tax regimes, including certain Organization for Economic Cooperation and Development (“OECD”)
proposals, including the implementation of the global minimum tax under the Pillar Two model rules;
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government sanctions that may interfere with our ability to sell into particular countries, such as Russia;
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disruption to our operations caused by public health crises, such as epidemics and pandemics; and
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political, social, and economic instability abroad, terrorist attacks, and security concerns in general.
As we increase the number of products we offer, increase the number of countries in which we operate, and incorporate new technologies and
capabilities into our products (including, without limitation, the use of AI, generative AI and machine learning technologies), the complexity of adjusting
our offerings to comply with legal and regulatory changes will increase.
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.
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 property risk insights. Acquisitions and alliances,
such as our strategic partnerships with One
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Inc. and Smart Communications, 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 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 products, the timing of revenue from the sale of products that we acquired or that result from the alliance, or from the sale of a bundle
of products that includes such new products, may be different than the timing of revenue from existing products. In addition, our ability to maintain
favorable pricing of new products may be challenging if we bundle such products with existing products. A delay in the recognition of revenue from sales
of acquired or alliance 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.
Incorrect or improper use of our products or our failure to properly train customers on how to utilize our products could result in customer
dissatisfaction and negatively affect our business, results of operations, financial condition, and growth prospects.
Our products are complex and are deployed in a wide variety of environments. The proper use of our products requires training of the customer. If our
products are not used correctly or as intended, inadequate performance may result. Our products may also be intentionally misused or abused by customers
or their employees or third parties who are able to access or use our 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 products, our failure to properly train customers on how to efficiently and effectively use
our products, or our 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 products.
In addition, if there is substantial turnover of customer personnel responsible, especially at the executive level, for the use and support of our products,
or if customer personnel are not well trained in the use and support of our products, customers may defer the deployment of our 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 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 products,
acquire businesses and technologies, service our existing debt, 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 products, or otherwise respond to competitive pressures would be significantly limited.
Any of these factors could harm our results of operations.
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Risks Related to Data Security and Privacy, Intellectual Property, and Information Technology
If our products experience cybersecurity breaches, there is unauthorized access to our customers’ data, or unauthorized use of our products or any
of these events are perceived to happen, we may lose current or future customers and our reputation and business may be harmed.
Our products involve the collection, storage and processing of customer data (including, in some cases, personal data), and may provide business
critical software and analytics necessary for our customers’ operations. As such, we may be an attractive target for data security attacks that threaten the
confidentiality, integrity, and availability of our information technology systems and confidential information. Security breaches could result in public
disclosure of confidential information, loss or modification of data affecting our customers’ operations, fraud or theft, ransom demands, or other misuse of
confidential information, which in turn could result in our cloud services being perceived as not being secure, a reduction in customers using our products,
as well as litigation, breach of contract claims, indemnity obligations, additional reporting requirements and/or oversight, restrictions on processing
customer data, and other liabilities for our Company, all of which could lead to loss of revenue, a diminished ability to retain or attract new customers due
to reputational harm, fines, costs, or other penalties or sanctions. 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. Our ability to control or prevent breaches of any of these systems
may be beyond our control. Any failure by a third party to prevent or mitigate data security breaches or improper access to, or use, acquisition, disclosure,
alteration or destruction of customer data could have adverse consequences for us. Because techniques used to obtain unauthorized access or infiltrate,
sabotage, disable or degrade 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. The use
of constantly evolving technologies by diverse threat actors, such as the increased use of AI technologies, are sophisticated and complex and may increase
the velocity of such threats, frequency of incident cases, and otherwise magnifying the risks associated with these types of attacks. These attack vectors
may include social engineering/phishing, malware (including ransomware), malfeasance by insiders, human or technological error, and as a result of bugs,
misconfigurations or exploited vulnerabilities in software or hardware. Although we have developed systems and processes designed to protect our and our
customers’ data, prevent loss or unauthorized modification of data, ensure only authorized use of services, and prevent other cybersecurity breaches,
including systems and processes designed to reduce the impact of a security breach to a third-party vendor, such measures cannot provide absolute security,
and our systems may be vulnerable to malware or physical or electronic break-ins that our security measures may not detect. There can also be no
assurance that our cybersecurity risk management program and processes, including our policies, controls or procedures, will be fully implemented,
complied with or effective in protecting our information technology systems or confidential information. Individuals, including trusted employees and
contractors, who circumvent our security measures may misappropriate proprietary, confidential, or personal data held by or on behalf of us, disrupt our
operations, damage our systems, or otherwise damage our business. In addition, we may need to expend significant resources to protect against data
security breaches or mitigate the impact of any such breaches. 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, which could adversely affect our business, results of operations, financial
condition, or reputation. We cannot guarantee that any costs and liabilities incurred in relation to an attack or incident will be covered by our existing
insurance policies or that applicable insurance will be available to us in the future on economically reasonable terms or at all.
In addition, data security breaches could expose us to liability under various laws and regulations across jurisdictions, increase the risk of litigation and
governmental or regulatory investigation, and increase our costs for compliance. For example, we may need to notify governmental authorities and/or
affected individuals with respect to certain data security breach in light of a growing number of laws, including those in the European Economic Area
(“EEA”), U.K., and the United States. Complying with such numerous and complex regulations in the event of a data security breach would be expensive
and difficult, and failure to comply with these regulations could subject us to regulatory scrutiny and additional liability. We may also be contractually
required to notify customers or other counterparties of a security incident, including a data security breach.
Service interruptions or failures of our third-party service providers may impair the availability of our products, which may expose us to liability,
damage our reputation, and harm our future financial results.
We rely on services provided by third-parties to operate our products, any of which such services, if they encounter interruptions, failure, or slowdown
for any reason, could cause outages or delays in our products, negatively affect our platform,
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damage our reputation with current and potential customers, expose us to liability, cause us to lose customers, adversely affect our results of operations, or
otherwise harm our business. For example, we host our platform using AWS data centers and all of our cloud products rely on resources operated by AWS.
Our operations depend on protecting our virtual cloud infrastructure hosted by service providers; preserving the infrastructure’s configuration, architecture,
and interconnection specifications; and maintaining access to our products and the information stored in virtual data centers and transmitted over internet
service providers. Although we have disaster recovery plans that use multiple virtual data center locations, any incident affecting our service providers’
operations and infrastructure, including but not limited to those caused by power loss, telecommunications failures, unauthorized intrusion or malicious
action, malware and disabling devices, natural catastrophes, terrorism, wars, and other similar events beyond our control, could negatively affect our
products. A prolonged third-party service disruption affecting our platform for any of the foregoing reasons could be detrimental to our business. We may
also incur significant costs for taking other actions in preparation for, or in reaction to, events that disrupt the third-party services we use.
Our platform is accessed by a large number of customers, often at the same time, and we do not control the operation of our third-party service
providers. As we continue to expand the number of our customers and products available to our customers, we may not be able to scale our technology to
accommodate the increased capacity requirements, which may result in interruptions or delays in our products. In addition, the failure of third-party virtual
data centers, third-party internet service providers, or other third-party service providers whose services are integrated with our products, to meet our
capacity requirements, could result in interruptions or delays in access to our products or impede our ability to scale our operations. In the event that our
third-party service agreements are not renewed or are terminated, or there is a lapse of service, interruption of service provider connectivity or damage to
such services, we could experience interruptions in access to our products as well as delays and additional expense in arranging new third-party service
providers, all of which could harm our business.
Evolving policy and regulatory responses to AI and machine learning and their potential implications for the fields of information technology, data
privacy, and security may result in increased compliance costs and associated concerns for us.
At present, multiple jurisdictions are taking a heightened interest in AI and machine learning. There has been a recent wave of policy and regulatory
responses from various governments rolling out action plans for risk mitigation to legislation being introduced to generally oversee the use of AI. For
example, in 2023, the President of the United States issued an executive order, promulgating guidelines to executive departments, and various states have
enacted legislation relating to disclosure requirements for the use of AI, and in the EU, the EU AI Act, adopted in 2024, establishes a comprehensive, risk-
based governance framework and applies to, amongst other entities, providers, importers, and distributors of AI systems or general-purpose AI models that
are placed on the EU market or put into service or used in the EU. There is a risk that our current or future products may be subject to heightened
obligations under the EU AI Act, which may impose additional costs on us, increase our risk of liability, or adversely affect our business. New or evolving
regulations relating to rapidly evolving generative AI and machine learning technologies may impose additional rules and restrictions on the use of the AI
in our products.
Compliance with such global laws and regulations, including but not limited to the EU AI Act and any new or evolving regulations relating to
generative AI and machine learning technologies, has and will continue to require valuable management, operating expenses, and employee time and
resources, and any actual or perceived failure to comply with these laws and regulations or other actual or asserted obligations relating to privacy, data
protection, or cybersecurity could lead to inspections, audits, regulatory investigations and other proceedings, significant fines, severe penalties, and other
relief imposed by governmental agencies and regulatory bodies, and claims, demands, and litigation by our customers or third parties, which may reduce
demand for our products and result in reputational harm, substantial damages and other liabilities.
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 products occurs, the amount of customer data, including customer personal data, that we manage, hold, and/or collect
continues to increase. In addition, our 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 data as greater amounts of such personal data may
be transferred from our customers to us. 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.
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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 data. 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 and the California Privacy Rights Act, which substantially went into effect on January 1, 2023 and other state privacy
laws enacted in recent years. New EU laws related to the use of data, including in the Digital Services Act, the EU Data Act, and the EU Artificial
Intelligence Act (“EU AI Act”), may impose additional rules and restrictions on the use of the data in our products. 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. We may be subject to fines, penalties, and potential litigation, including class action lawsuits, 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 evolving privacy-related
laws, regulations, and standards may limit the use and adoption of our 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 products effectively. Even the perception that the privacy and/or security of personal data is not satisfactorily
managed, or does not meet applicable legal, regulatory, and other requirements, could inhibit sales of our products, and could limit adoption of our
solutions, resulting in a negative impact on our sales, reputation, and results of 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 European General Data Protection Regulation (the “GDPR”), that took effect on May 25, 2018. The GDPR
applies to any company established in the 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 and 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, we have previously invested significant resources to
comply with GDPR requirements. While our expenditures have decreased in recent periods as we have improved our compliance efforts, we have in the
past and may in the future need to allocate additional resources in response to new interpretations, regulatory guidance, and enforcement decisions, or
ongoing negotiation of data processing agreements with our customers and business partners.
In addition, the GDPR restricts transfers of personal data outside the EEA to countries without adequate privacy protections, such as the United States,
unless an appropriate safeguard specified by the GDPR such as the Standard Contractual Clauses is implemented. We expect the existing legal complexity
and uncertainty regarding international personal data transfers to continue, with changes to the regulatory landscape recently adopted or anticipated from
the EU and other jurisdictions such as Switzerland and the U.K. We (and many other companies) have and may in the future 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 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 products 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 the nature of our cloud-based products 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.
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In addition, as we are subject to the supervision of relevant data protection authorities under both the GDPR and United Kingdom’s General Data
Protection Regulation (“U.K. GDPR”), we could be fined under each of those regimes independently in respect of the same breach. The U.K. GDPR
mirrors the data protection obligations and fines under the GDPR, but there may be further developments causing the obligations and fines to diverge,
which could cause our cost of and risks associated with compliance to increase. 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 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 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.
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 products that are alleged to infringe or misappropriate the intellectual property of others;
expend additional development resources to redesign our 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.
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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 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 products
and disrupt our business.
We use technology and intellectual property licensed from unaffiliated third parties in certain of our products, and we may license additional third-
party technology and intellectual property in the future. Any errors, defects, or security issues in this third-party technology and intellectual property or the
integration of third-party technology and intellectual property with our products could result in errors that could harm our brand and business. Though we
have not experienced resulting impact to date, recent industry incidents, such as the CrowdStrike incident, involving vulnerabilities in third-party
technology, underscore the potential risks associated with the use of third-party technology and intellectual property. Moreover, licensed technology and
intellectual property may not continue to be available on commercially reasonable terms, or at all, or otherwise will be subject to restrictions that under
applicable law could adversely affect our proprietary software. The loss of the right to license and distribute this third-party technology could limit the
functionality of our products and might require us to redesign our products.
In addition, our Guidewire cloud offerings rely on third-party hosting and infrastructure services provided by AWS and other service providers, 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 products 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 products subject to those licenses.
Some of our products 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. Further, this third-party technology and intellectual property has the potential for security-related concerns, given that we do not
create or maintain such third-party technology and intellectual property that may be exposed to unknown future security risks.
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
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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 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 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 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 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.
Risks Related to Legal, Regulatory, Accounting, and Tax Matters
The nature of our business requires the application of accounting guidance that requires management to make estimates and assumptions.
Reported results under United States Generally Accepted Accounting Principles (“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 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 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, 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 ARR, a non-GAAP metric, 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 if we increase arrangements with multiple performance obligations that include services at discounted rates,
more of the total contract value would be recognized as services revenue, but our reported ARR amount would
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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 guidance regarding tax laws, including impacts of the Tax Cuts and
Jobs Act of 2017, the Coronavirus Aid, Relief, Economic Security Act of 2020, the Inflation Reduction Act of 2022, and certain OECD proposals,
including the implementation of the global minimum tax under the Pillar Two model rules.
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, results of operations, or
financial condition.
Risks Related to Ownership of Our Common Stock
Our stock price may be volatile, which could result in securities class action litigation against us.
The market price of our common stock could be subject to wide fluctuations in response to, among other things, the risk factors described in this
report, 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, international currency fluctuations, or other global events 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.
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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:
•
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. 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
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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 (including, without limitation, any claims in respect of
stockholder nominations of directors as permitted under our amended and restated bylaws), 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 September 2022, our board of directors authorized and approved a share repurchase program of up to $400.0 million of our outstanding common
stock. As of July 31, 2024, $138.2 million of the share repurchase program remained available for future repurchases. 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 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 us. The timing, pricing, and size of these repurchases will depend on a number of
factors, including the market price of our common stock and general market and economic conditions. The 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. The share repurchase program could affect the price of our common stock, increase volatility, and diminish our cash reserves.
General Risk Factors
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 personnel
experienced in delivering cloud-based offerings. Additionally, our stakeholders expect us to have a culture that embraces diversity, inclusion, and
belonging. 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.
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
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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, 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, 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 customers, 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 customers, our reputation could suffer and our ability to attract new
customers may be harmed.
Because of the technical nature of our 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 products and enhancements of existing
products.
Our indebtedness related to our Convertible Senior Notes is due within twelve months. Servicing our indebtedness requires a significant amount of
cash. We may have to use significant cash to pay our indebtedness, which could adversely affect our business and results of operations.
As of July 31, 2024, we had outstanding an aggregate principal amount of $400.0 million of our 1.25% Convertible Senior Notes due March 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
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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.
Increased and complex scrutiny of environmental, social, and governance (“ESG”) matters may require us to incur additional costs or otherwise
adversely impact our business.
Increased investor, governmental, and societal attention to and expectations around the wide range of issues generally referred to as ESG matters and
our response to the same, may result in increased costs (including, but not limited to, increased costs related to compliance, stakeholder engagement and
contracting), impact our reputation, or otherwise negatively affect our business performance. In addition, organizations that provide information to
investors on corporate governance and related matters have developed ratings processes for evaluating companies on ESG matters, while other
organizations are pushing corporations not to focus on ESG matters in decision making. Both unfavorable ESG ratings and engaging in activities designed
to improve such ratings could lead to negative investor sentiment toward us and/or our industry, which could have a negative impact on our access to and
costs of capital. To the extent ESG matters negatively impact our reputation, we may also not be able to compete as effectively to recruit or retain
employees. We may take certain actions in relation to ESG matters in response to stakeholder demand; however, such actions may be costly or be subject to
numerous conditions that are outside our control, and we cannot guarantee that such actions will have the desired effect or outcome. Moreover, while we
may create and publish voluntary disclosures regarding ESG matters (in particular, information related to sustainability, environmental and human capital
matters) from time to time, many of the statements in such voluntary disclosures are based on certain expectations and assumptions that may or may not be
representative of current or actual risks or events or forecasts of expected risks or events, including the costs associated therewith. Such expectations and
assumptions are necessarily uncertain and may be prone to error or subject to misinterpretation given the long timelines involved and the lack of an
established single approach to identifying, measuring and reporting on many sustainability, environmental and human capital matters. Such disclosures may
also be at least partially reliant on third-party information that we have not independently verified or that otherwise cannot be independently verified.
Statements about our sustainability, environmental and human capital initiatives and goals, and progress against those goals, may be based on
standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to
change in the future. If our related data, processing and reporting are incomplete or otherwise inaccurate, or if we fail to achieve progress on certain metrics
on a timely basis, our reputation, business, financial performance, and growth could be adversely affected.
In addition, we expect there will likely continue to be increasing levels of regulation and disclosure-related requirements with respect to sustainability,
environmental and human capital matters, and increased regulation will likely lead to increased compliance costs as well as scrutiny that could heighten all
of the associated risks identified in this risk factor. Such compliance matters may also impact our customers, which could adversely impact our business,
results of operations, or financial condition.
Global events have adversely affected, and may continue to adversely affect, our business, results of operations, and financial condition.
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Global events have adversely affected and may continue to adversely affect workforces, organizations, economies, and financial markets globally,
leading to economic downturns, inflation, and increased market volatility. Ongoing conflicts such as the wars between Israel and Hamas and between
Russia and Ukraine, escalating tensions in the South China Sea, high interest rates, financial instability and crises, pandemics, and supply chain issues have
added to global economic and market volatility. Our past business and financial results, including our ARR growth rates, services revenue, and margins,
have been adversely impacted due to the disruptions resulting from such events, and may be again in the future. Such global events have disrupted and may
again disrupt the normal operations of our customers’ businesses and our SI partners’ businesses. The related impacts of 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 could
increase, which 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 such global events and related implementation delays. As a
result of such 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. Due to the continuing and evolving nature of such 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
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.
Our customers may defer or forego purchases of our 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, global inflation concerns, ongoing conflicts such as the wars between Israel and Hamas and between Russia
and Ukraine, the occurrence of regional epidemics or a global pandemic and related public health measures, and escalating tensions in the South China Sea,
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 products, which could delay and lengthen our sales cycles, delay or increase pricing pressures on services engagements, 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 products and
professional services. 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.
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 or third parties we rely on, preventing us from expanding or maintaining our existing customer base and harming our
business. 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.
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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 that impact our business, our customers, or third parties we rely on can be caused by various events,
including, without limitation, hurricanes, tsunamis, floods, typhoons, windstorms, earthquakes, hail, tornadoes, explosions, volcanic eruptions, severe
weather, excessive heat, 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 conflicts such as the wars between Israel and Hamas and between Russia and
Ukraine as well as the escalation of tensions in the South China Sea, 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 damage from Hurricane Idalia, wildfires in Maui, Hawaii, and heatwaves affecting the Pacific Northwest, while Turkey and Syria experienced
severe earthquakes, Canada faced wildfires, and Australia experienced wildfires 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 a substantial portion of our operations are located in the San Francisco Bay Area, a region known for seismic activity
and rising ocean levels and near an area subject to severe fire damage. A significant natural disaster, such as an earthquake, tsunami, fire or flood affecting
the Bay Area 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 recent CrowdStrike incident. To the extent that such disruptions result in delays or cancellations of customer orders or collections, or the
deployment or availability of our products, our business, results of operations, and financial condition would be adversely affected.
Adverse developments affecting certain financial institutions, as well as the banking system as a whole, could negatively affect our current and
projected business operations and our financial condition and results of operations.
Adverse developments that may affect certain financial institutions and the banking system as a whole, such as events involving liquidity that are either
rumored or actual, have in the past and may in the future lead to bank failures and market-wide liquidity concerns. For example, in March 2023, Silicon
Valley Bank was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation
as receiver. Similarly, other institutions have been and may continue to be swept into receivership. Up until March of 2023, our primary banking partner in
the United States was Silicon Valley Bank. Since such time, we have further diversified our banking relationships. In connection with such developments,
we have not experienced any material adverse impact to our cash flow or to our current and projected business operations, financial condition, or results of
operations. Although we are continuing to evaluate and diversify our banking relationships, uncertainty may remain over liquidity concerns in the broader
financial services industry. As a consequence, our business, our business partners, or industry as a whole may be adversely impacted in ways that we cannot
predict at this time. Further, a significant portion of our assets are held in cash, cash equivalent and marketable securities. If any financial uncertainty were
to impact a broad segment of the financial services industry, our enterprise value and our future prospects could be harmed or otherwise negatively
impacted.
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 majority 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. We expect global exchange rates for various currencies may be more volatile than normal as a result
of ongoing conflicts, including the wars between Israel and Hamas and between Russia and Ukraine and
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related events. We will continue to experience fluctuations in foreign currency exchange rates, which, if material, may harm our revenue, ARR, or results of
operations.
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.
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.
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 we adopted on August 1, 2022. The ASU simplifies the
accounting for convertible instruments, and among other things, eliminates the treasury stock method to calculate diluted earnings per share for convertible
instruments and requires the use of the if-converted method. When calculating diluted EPS, the if-converted method requires us to assume that convertible
debt instruments (and any applicable conversion premium) are converted to common stock as of the beginning of the period presented regardless of the
price of our stock in periods that we have net income. Additionally, the if-converted method does not allow us to offset the impact of our capped call
transactions on the calculation. We expect that such calculations will negatively affect our reported diluted EPS in the periods that we have net income
irrespective of actual conversion of the Convertible Senior Notes.
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 and recent global economic conditions
have resulted in the actual or perceived failure or financial difficulties of many 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.
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Item 1B.
Unresolved Staff Comments
Not applicable.
Item 1C. Cybersecurity
Our products involve the collection, storage and processing of customer data (including, in some cases, personal data), and may provide business
critical software and analytics necessary for our customers’ operations. Guidewire develops, implements, and maintains cybersecurity measures designed to
safeguard our products and protect the confidentiality, integrity, and availability of our customer data and our confidential information.
Risk Management and Strategy
We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity, and availability of
our critical systems, information, and products. Our cybersecurity risk management program includes a cybersecurity incident response plan.
We maintain various internationally recognized security certifications and aim to adopt best practices from industry-leading frameworks and
standards for cybersecurity and cloud computing, including, without limitation, ISO 27001 certification, SOC 2, U.S. NIST Cybersecurity Framework
(CSF), and the CIS Critical Security Controls. This does not imply that we have met any particular technical standards, specifications, or requirements,
only that we use these frameworks, industry best practices, and standards as a guide to help us identify, assess, and manage cybersecurity risks relevant to
our business.
Our cybersecurity risk management program is integrated into our overall enterprise risk management program, and shares common methodologies,
reporting channels and governance processes that apply across the enterprise risk management program to other legal, compliance, strategic, operational,
and financial risk areas.
Our cybersecurity risk management program includes:
•
risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products, and our broader enterprise IT
environment;
•
an enterprise-wide security team principally responsible for managing our cybersecurity risk assessment processes, implementing and maintaining
our security controls, and responding to cybersecurity incidents;
•
the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls;
•
cybersecurity awareness training of our employees, including incident response personnel, product development personnel, and senior
management;
•
a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents; and
•
a third-party risk management process for service providers, suppliers, and vendors, including, among others, vetting, periodic monitoring, and the
implementation of contractual safeguards to ensure adherence to our cybersecurity standards.
We have not identified risks from known cybersecurity threats to date, including as a result of any prior cybersecurity incidents, that have materially
affected or are reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial condition. However,
we face ongoing cybersecurity risks, including threats that might become more sophisticated and effective over time, and we cannot anticipate when or the
extent to which cybersecurity breaches will materially affect the Company. Additional information on the cybersecurity risks we face is discussed in Part I,
Item 1A, “Risk Factors.”
Governance
Our Board, by way of our Risk Committee, oversees management of cybersecurity and other information technology risks. The Risk Committee
receives periodic reports from management on our cybersecurity risks and control structure. In addition, management updates the Risk Committee, as
necessary, regarding cybersecurity incidents.
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The Risk Committee reports to the full Board regarding its activities, including those related to cybersecurity. The full Board also receives briefings
from management on our cybersecurity risk management program. Board members receive reports on cybersecurity risks from our Chief Information
Security Officer (“CISO”), internal security staff and/or external experts as part of the Board’s continuing education on topics that impact public
companies.
Our management team, including our CISO, is responsible for assessing and managing our material risks from cybersecurity threats. The team has
primary responsibility for our overall cybersecurity risk management program and supervises both our internal cybersecurity personnel and our retained
external cybersecurity consultants. Our CISO has over 20 years of experience in the technology sector, including 18 years dedicated to information
security. He has held multiple executive security roles in a large Fortune 500 company, overseeing product security, mergers and acquisitions security,
marketplace security, and enterprise security. He holds a Bachelor of Science in Information Systems Management and a Masters of Business
Administration.
Our management team will periodically receive information on our cybersecurity program designed to prevent, detect, mitigate, and remediate
cybersecurity risks and incidents through various means, which may include periodic briefings from internal security personnel; threat intelligence and
other information obtained from governmental, public or private sources, including external consultants engaged by us; and alerts and reports produced by
security tools deployed in our information technology environment.
Item 2.
Properties
Our corporate headquarters in San Mateo, California consists of approximately 79,000 square feet of space leased through June 2027. Our European
headquarters in Dublin, Ireland consists of approximately 85,000 square feet of space leased through March 2032. As of July 31, 2024, 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. 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 any 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 8 “Commitments and Contingencies” to our consolidated financial statements included elsewhere in this Annual Report on
Form 10-K, which is 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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PART II
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.”
On July 31, 2024, the last reported sale price of our common stock on the New York Stock Exchange for fiscal year 2024 was $150.07 per share. As
of July 31, 2024, we had 32 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.
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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, 2019 through July 31, 2024. 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.
7/31/2019
7/31/2020
7/31/2021
7/31/2022
7/31/2023
7/31/2024
Guidewire Software, Inc.
$
100.00 $
115.26 $
112.85 $
76.14 $
83.08 $
146.97
NASDAQ Composite-Total Return Index
$
100.00 $
132.78 $
182.62 $
155.31 $
181.43 $
224.29
S&P Software & Services Select Industry Index
$
100.00 $
118.37 $
175.17 $
123.67 $
146.47 $
160.93
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 the 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, 2023,
filed on September 18, 2023, for reference to discussion of the fiscal year ended July 31, 2022, the earliest of the three fiscal years presented.
Overview
Guidewire is the platform that property and casualty (“P&C”) insurers trust to engage, innovate, and grow efficiently. Our core systems leverage data
and analytics, digital, and artificial intelligence (“AI”). 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 products are InsuranceSuite Cloud, InsuranceNow, and InsuranceSuite for self-managed installations. These products are transactional
systems of record that support the entire insurance lifecycle, including insurance product definition, distribution, underwriting, policyholder services, and
claims management. We also sell digital engagement and analytics products. Our digital engagement products enable digital sales, omnichannel service,
and enhanced claims experiences for policyholders, agents, vendor partners, and field personnel. Our analytics 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 suite of products 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 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, plus pre-integrated document
production, analytics, and other capabilities, that increases agility without adding complexity. InsuranceNow is hosted on AWS and managed by our
internal cloud operations team.
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 products or is considering a
move to a cloud-based subscription for the first time. Sales to new customers often involve extensive customer due diligence and reference checks. The
success of our sales efforts relies on continued improvements and enhancements to our current products, the introduction of new products, efficient
operation of our cloud infrastructure, continued development of relevant local content and automated tools for updating content, and successful
implementations and migrations.
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We sell our suite of products through subscription services for our platform and cloud-delivered products and term licenses for our self-managed
products. We generally price our products based on the amount of Direct Written Premium (“DWP”) that will be managed by our products. 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 to existing on-
premise customers and are typically an initial commitment with optional renewals thereafter. We may enter into term license arrangements with our
customers that have an initial term of more than one year or may renew license arrangements for longer than one year. Term license revenue is 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 and suite of 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 significant majority of annual new sales going forward. We may decide to change certain contract terms
in new arrangements to remain competitive or otherwise meet market demands which may impact the way we recognize revenue and/or ARR.
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 products, introduce new 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 our 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 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, but not limited to, 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 products successfully, making long-term pricing commitments in our customer contracts based on available information and estimates about our
future costs that may change, increasing the overall market acceptance of our cloud-based products, maintaining customer satisfaction and renewals of our
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, introduction of new products and/or
new features, implementation and migration services, and sales and marketing.
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, which is the quarter ending July 31. We generally see significantly increased orders in our fourth fiscal quarter, due to
efforts by our sales team to achieve annual incentives. Because we recognize revenue upfront for term licenses compared to over time for subscription
services, changes in the mix between term license and subscription services may impact our quarterly results. Additionally, any significant multi-year term
license or
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term license non-renewal could impact quarterly results. Subscription sales now represent the significant majority of total sales and, as a result when
compared to term license sales, the revenue we recognize in the initial fiscal year of an order is lower, deferred revenue is higher, and our total reported
revenue growth may be adversely affected in the near term due to the ratable nature of these arrangements. Over time, this ratable revenue dynamic will
dampen the impact of seasonality on our revenue.
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. Our second fiscal quarter, which is the quarter ending January 31,
usually has fewer billable days due to the impact of calendar year end holidays in Europe and the United States. Our fourth fiscal quarter 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.
Global Events
Global events have adversely affected and may continue to adversely affect workforces, organizations, economies, and financial markets globally,
leading to economic downturns, inflation, and increased market volatility. For instance, ongoing conflicts such as the wars between Israel and Hamas and
between Russia and Ukraine, escalating tensions in the South China Sea, inflation, previous bank failures in the United States and Switzerland, and supply
chain issues have contributed to global economic and market volatility in recent years. We are unable to accurately predict the full impact that these global
events will have on our results of operations, financial condition, liquidity, and cash flows due to numerous uncertainties.
Our business and financial results have been and may in the future be impacted due to these disruptions, which may affect our ARR and revenue
growth rates, sales cycles, services revenue and margins, operating cash flow and expenses, employee attrition, hiring and onboarding necessary personnel,
allowance for collectibility of accounts receivable and unbilled receivables, and the change in fair value of strategic investments. Additionally, inflation
levels are impacting the global economy and have magnified the impact of these disruptions.
Our customers may be unable to pay or may request amended payment terms for their outstanding invoices due to the economic impacts from these
disruptions, and we may need to increase our accounts receivable allowances. A decrease in orders in a given period could negatively affect our revenue
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 global economic impact of these disruptions could affect our customers’ DWP, which could ultimately
impact our revenue as we generally price our products based on the amount of DWP that will be managed by our products. 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, intangible assets, or goodwill.
We will continue to monitor and evaluate the nature and extent of these global events 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 contractual terms and
invoicing activities for the current reporting period, which may not be the same as the timing and amount of revenue recognized. ARR reflects all fee
changes due to contract renewals, non-renewals, expansion, cancellations, attrition, or renegotiations at a higher or lower fee arrangement that are effective
as of the ARR reporting date. All components of the licensing and other arrangements that are not expected to recur (primarily perpetual licenses and
professional services) are excluded from our ARR calculations. In some arrangements with multiple performance obligations, a portion of recurring license
and support or subscription contract value is allocated to services revenue for revenue recognition purposes, but does not get allocated for purposes of
calculating ARR. This revenue allocation generally only impacts the initial term of the contract. This means that if we increase arrangements with multiple
performance obligations that include services at discounted rates, more of the total contract value would be recognized as services revenue, but our reported
ARR amount would not be impacted. In fiscal year 2024, the recurring license and support or subscription contract value recognized as services revenue
was $10.7 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, 2024, ARR was $864 million, or $872 million based on currency exchange rates as of July 31, 2023. We measure ARR results on a
constant currency basis during the fiscal year and revalue ARR at year end to current currency rates. ARR grew in fiscal year 2024 by 13%, or 14% 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 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 improved in fiscal year 2024 from fiscal year 2023
primarily due to our lower net loss and increased cash collections from customers. For a further discussion of our operating cash flows, see “Liquidity and
Capital Resources – Cash Flows.”
Fiscal years ended July 31,
2024
2023
(in thousands)
Net cash provided by (used in) operating activities
$
195,748 $
38,395
Purchases of property and equipment
(6,362)
(5,821)
Capitalized software development costs
(12,165)
(11,606)
Free cash flow
$
177,221 $
20,968
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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 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.
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 of operations for any period should not be considered indicative of results for any future period.
Fiscal years ended July 31,
2024
As a % of total revenue
2023
As a % of total revenue
(in thousands except percentages)
Revenue:
Subscription and support
$
549,087
56 % $
429,667
48 %
License
250,176
26
265,593
29
Services
181,234
18
210,081
23
Total revenue
980,497
100
905,341
100
Cost of revenue:
Subscription and support
204,794
21
210,507
23
License
4,536
—
6,488
1
Services
187,806
19
230,135
25
Total cost of revenue
397,136
40
447,130
49
Gross profit:
Subscription and support
344,293
35
219,160
25
License
245,640
26
259,105
28
Services
(6,572)
(1)
(20,054)
(2)
Total gross profit
583,361
60
458,211
51
Operating expenses:
Research and development
269,381
27
249,746
27
Sales and marketing
199,033
20
188,224
21
General and administrative
167,520
17
169,731
19
Total operating expenses
635,934
64
607,701
67
Income (loss) from operations
(52,573)
(4)
(149,490)
(16)
Interest income
43,478
4
24,389
3
Interest expense
(6,738)
(1)
(6,716)
(1)
Other income (expense), net
(11,005)
(1)
(2,277)
—
Income (loss) before provision for (benefit from) income taxes
(26,838)
(2)
(134,094)
(14)
Provision for (benefit from) income taxes
(20,735)
(3)
(22,239)
(3)
Net income (loss)
$
(6,103)
(1)% $
(111,855)
(11)%
Comparison of the Fiscal Years Ended July 31, 2024 and 2023
Revenue
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, 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
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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. Support related to subscription arrangements is
included in subscription revenue, as support is not quoted or priced separately from the subscription services.
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 are sold under an initial term with optional annual renewals after the initial term.
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. We do enter into license arrangements that have an initial term of two or more years and renewal terms of more than one year which
results in significantly higher revenue in the initial year of the committed term than arrangements for our subscription services
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.
Fiscal years ended July 31,
2024
2023
Change
As a % of total
As a % of total
Amount
revenue
Amount
revenue
($)
(%)
(in thousands, except percentages)
Revenue:
Subscription and support:
Subscription
$
477,460
49 % $
352,145
39 % $
125,315
36 %
Support
71,627
7
77,522
9
(5,895)
(8)
License:
Term license
248,849
26
265,389
29
(16,540)
(6)
Perpetual license
1,327
—
204
—
1,123
550
Services
181,234
18
210,081
23
(28,847)
(14)
Total revenue
$
980,497
100 % $
905,341
100 % $
75,156
8 %
Subscription and Support
We anticipate subscriptions will continue to represent a significant 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 towards the end of 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 our fourth fiscal quarter, our historically largest quarter for new orders, is not fully
reflected in revenue until the following fiscal year.
Subscription revenue increased by $125.3 million compared to the prior year primarily due to the impact of new subscription agreements and cloud
transition agreements entered into and provisioned since July 31, 2023 of $101.0 million, and the renewal or extension of subscription services at the fully
ramped annual fees after the initial committed term of $24.9 million.
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Support revenue decreased by $5.9 million compared to the prior year, primarily due to customers migrating from on-premise term licenses to
subscription services. 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 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 $16.5 million compared to the prior year primarily due to agreements that migrated from a term license to a
subscription service in the prior year, partially offset by higher renewals and expansion orders within our existing customer base. Ongoing revenue related
to migration agreements is recorded as subscription revenue. 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 $2.7 million during fiscal year 2024, as compared to $7.6 million in the prior year.
Services
Services revenue decreased by $28.8 million compared to the prior year. Services revenue was impacted by the completion of implementations,
partially offset by an increase from new and existing subscription implementation and migration projects. Services revenue overall continues to be
impacted by contracts with lower average services billing rates and 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. Additionally, our SI partners are leading more new subscription
implementation and migration projects than in the past.
As we successfully leverage our SI partners to lead more implementations and migrations, we expect our services revenue could be flat or decline in
the near-term. As we continue to expand into new markets and develop new 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 margin.
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 infrastructure and software expenses, information security infrastructure and software
expenses, and facilities expenses to all functional departments based on headcount. As such, these general overhead expenses are reflected in cost of
revenue and each functional operating expense.
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Cost of Revenue:
Fiscal years ended July 31,
2024
2023
Change
Amount
As a % of total
revenue
Amount
As a % of total
revenue
($)
(%)
(In thousands, except percentages)
Cost of revenue:
Subscription and support
$
204,794
21 % $
210,507
23 % $
(5,713)
(3)%
License
4,536
—
6,488
1
(1,952)
(30)
Services
187,806
19
230,135
25
(42,329)
(18)
Total cost of revenue
$
397,136
40 % $
447,130
49 % $
(49,994)
(11)%
Includes stock-based compensation of:
Cost of subscription and support revenue
$
13,425
$
14,073
$
(648)
Cost of license revenue
186
463
(277)
Cost of services revenue
19,013
19,257
(244)
Total
$
32,624
$
33,793
$
(1,169)
The $5.7 million decrease in cost of subscription and support revenue was primarily due to decreases in professional services of $5.2 million,
personnel costs of $4.1 million due to lower headcount, and amortization of intangibles of $1.4 million due to certain acquired intangible assets being fully
amortized. These decreases were partially offset by increases in royalties of $1.9 million, cloud infrastructure expense of $1.8 million for our growing
cloud usage and customer base, and internal-use software amortization of $1.3 million.
Cloud hosting costs are benefiting from the efficiencies that we are achieving from our development efforts associated with our GWCP platform and
the cost benefits associated with the five-year agreement with a cloud infrastructure services provider that was entered into in the second quarter of fiscal
year 2023. As a result of efficiencies that we are seeing from our previous investments in cloud operations and development efforts, we are critically
evaluating headcount additions, professional services contracts, and third-party software costs, along with other investment opportunities. However, we
expect cost of subscription and support revenue to increase in absolute dollars due to the increased number of customers utilizing our cloud services, the
volume of transactions by our cloud customers, and the impact of inflation and other macroeconomic events.
The $2.0 million decrease in our cost of license revenue was primarily due to a decrease in personnel costs associated with the development of online
training curriculum included with the latest releases of InsuranceSuite of $1.6 million and royalties of $0.4 million.
We continue to anticipate lower cost of license revenue over time as our term license customers transition to cloud subscription agreements.
The $42.3 million decrease in cost of services revenue was primarily due to decreases in subcontractor expenses of $44.4 million, and software
subscriptions, travel expenses, professional services, and web hosting costs of $1.3 million. These decreases were partially offset by an increase in
personnel expenses of $3.4 million, which includes severance payments of $3.3 million.
We had 613 cloud operations and technical support employees and 750 professional service employees as of July 31, 2024 compared to 648 cloud
operations and technical support employees and 784 professional services employees as of July 31, 2023.
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Gross Profit
Fiscal years ended July 31,
2024
2023
Change
Amount
Margin %
Amount
Margin %
($)
(%)
(In thousands, except percentages)
Gross profit:
Subscription and support
$
344,293
63 % $
219,160
51 % $
125,133
57 %
License
245,640
98
259,105
98
(13,465)
(5)
Services
(6,572)
(4)
(20,054)
(10)
13,482
(67)
Total gross profit
$
583,361
59 % $
458,211
51 % $
125,150
27 %
Our gross profit increased by $125.2 million compared to the prior year. Gross profit was impacted by an increase in subscription and support gross
profit due to the increase in subscription revenue and cloud operations efficiencies. License gross profit decreased as a result of lower revenue primarily
from our customers migrating from licenses to cloud subscriptions. The decrease in license gross profit was offset by lower services negative margin.
Our gross margin increased to 59% in fiscal year 2024, as compared to 51% in fiscal year 2023. Gross margin was primarily impacted by the increase
in subscription and support revenue at a higher margin due to cloud operations efficiencies and lower services negative margin.
We expect subscription and support gross margin to continue to improve, though at a slower rate than in fiscal year 2024, over the next several years
as we gain additional efficiencies and increase the number of cloud customers. We expect services gross margin will improve as we lower our reliance on
subcontractors and enter into fewer fixed fee arrangements. We expect license gross profit and license gross margin to decline based on changes in revenue
due to customers migrating from licenses to subscription services, 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 continue to improve over time as improvements in subscription and support gross margin and services gross margin will more than offset the negative
impact of revenue shifts away from high margin license 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 infrastructure and software expenses, information security infrastructure and software
expenses, and facilities expenses to all functional departments based on headcount. As such, these general overhead expenses are reflected in cost of
revenue and each functional operating expense.
Fiscal years ended July 31,
2024
2023
Change
As a% of total
As a % of total
Amount
revenue
Amount
revenue
($)
(%)
(In thousands, except percentages)
Operating expenses:
Research and development
$
269,381
27 % $
249,746
28 % $
19,635
8 %
Sales and marketing
199,033
20
188,224
21
10,809
6
General and administrative
167,520
17
169,731
19
(2,211)
(1)
Total operating expenses
$
635,934
64 % $
607,701
68 % $
28,233
5 %
Includes stock-based compensation of:
Research and development
$
40,213
$
39,865
$
348
Sales and marketing
34,590
29,925
4,665
General and administrative
39,033
39,259
(226)
Total
$
113,836
$
109,049
$
4,787
Research and Development
Our research and development expenses primarily consist of personnel costs for our technical staff and consultants providing professional services.
The $19.6 million increase in research and development expenses was primarily due to increases in personnel costs of $20.1 million due to higher
headcount, software subscription costs of $1.8 million, travel costs of $1.2 million, and professional services of $0.6 million. These increases were partially
offset by decreases in acquisition holdback of $2.8 million and cloud hosting costs of $1.3 million. Cloud hosting costs are benefiting from the efficiencies
that we are achieving with GWCP and the five-year agreement with a cloud infrastructure services provider that was entered into in the second quarter of
fiscal year 2023.
Our research and development headcount was 1,169 as of July 31, 2024, as compared to 1,069 as of July 31, 2023.
We expect our research and development expenses to increase in absolute dollars due to inflation and investments to support our growing customer
base, but decrease as a percentage of revenue after our recent period of significant investment in cloud platform capabilities as overall hiring slows, and we
focus on hiring in lower cost regions. We continue to 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 approximately five years. Sales and marketing expenses also include travel
expenses, professional services for marketing activities, and amortization of certain acquired intangibles.
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The $10.8 million increase in sales and marketing expenses was primarily due to increases in personnel costs of $11.4 million due to higher
headcount, including $2.1 million related to contract acquisition costs, travel costs of $1.1 million due to more in-person client interactions, software
subscriptions of $0.3 million, and professional services costs of $0.1 million. These increases were partially offset by decreases in marketing and
advertising costs of $1.5 million and cloud hosting costs of $0.6 million.
Our sales and marketing headcount was 477 as of July 31, 2024, as compared to 463 as of July 31, 2023.
We expect our sales and marketing expenses to continue to increase in absolute dollars due to inflation and investments to support ongoing growth,
but decrease as a percentage of revenue as overall hiring slows after our recent period of investment to build out our customer success team and add
analytics and cloud sales capabilities.
General and Administrative
Our general and administrative expenses include executive, finance, human resources, information technology, information security, legal, facilities,
and corporate development and strategy functions, and primarily consist of personnel costs and, to a lesser extent, professional services, software costs, and
cloud hosting costs.
The $2.2 million decrease in our general and administrative expenses was primarily due to decreases in facilities costs of $11.0 million primarily due
to the assignment of the lease agreement for our previous headquarters and concurrent sublease for less space in San Mateo, California during the third
quarter of fiscal year 2023 and cloud hosting costs of $0.7 million. These decreases were partially offset by increases in personnel costs of $4.9 million due
to higher headcount, professional services costs of $3.3 million, and software subscription costs of $1.3 million.
Our general and administrative headcount was 460 as of July 31, 2024, as compared to 451 as of July 31, 2023. General and administrative
headcount includes facilities personnel whose expenses are allocated across all functional departments.
We expect that our general and administrative expenses will increase in absolute dollars due to inflation and investments required to support our
strategic initiatives, grow our business, and meet our product and information security, compliance and reporting obligations, but decrease as a percentage
of revenue as overall hiring and investments slow.
Other Income (Expense)
Fiscal years ended July 31,
2024
2023
Change
Amount
Amount
($)
(%)
(In thousands, except percentages)
Interest income
$
43,478 $
24,389 $
19,089
78 %
Interest expense
$
(6,738) $
(6,716) $
(22)
— %
Other income (expense), net
$
(11,005) $
(2,277) $
(8,728)
383 %
Interest Income
Interest income represents interest earned on our cash, cash equivalents, and investments.
Interest income increased by $19.1 million in fiscal year 2024, primarily due to higher interest rates on invested funds.
Interest Expense
Interest expense includes both stated interest and the amortization of debt issuance costs associated with our Convertible Senior Notes. The
amortization of debt 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 the fiscal years ended July 31, 2024 and 2023 consists of stated interest of $5.0 million and non-cash interest expense of $1.7
million related to amortization of debt issuance costs.
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. Other income (expense) also
includes changes in the fair value of our strategic investments.
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We have significant transactions in the following currencies: Australian Dollar, British Pound, Canadian Dollar, Euro, Indian Rupee, and Polish Zloty.
Other income (expense), net in fiscal year 2024 was expense of $11.0 million compared to expense of $2.3 million in fiscal year 2023. The increase
was due to fluctuations in foreign currency exchange rates and a change in the fair value of one of our strategic investments. During the second quarter of
fiscal year 2024, one of our strategic investments was acquired by a privately held limited partnership. As a result, we received $12.1 million in
consideration for our equity interest in the investee, composed of $6.5 million in cash and $5.6 million of an ownership interest in the privately held limited
partnership, and recognized a $1.8 million gain in excess of cost in other income (expense), net.
Provision for (benefit from) Income Taxes
We are subject to taxes in the United States as well as other tax jurisdictions and countries in which we conduct business. Earnings from our non-U.S.
activities are subject to local country income tax and may also be subject to U.S. income tax.
Fiscal years ended July 31,
2024
2023
Change
Amount
Amount
($)
(%)
(In thousands, except percentages)
Provision for (benefit from) income taxes
$
(20,735)
$
(22,239)
$
1,504
(7)%
Effective tax rate
77 %
17 %
We recognized an income tax benefit of $20.7 million for fiscal year 2024 compared to $22.2 million for fiscal year 2023. The decrease in our
income tax benefit for fiscal year 2024 was primarily due to a decrease in pre-tax net loss, offset by an increase in deductions from stock-based
compensation, the foreign derived intangible income deduction, and an increase in research and development tax credits.
As of July 31, 2024, we had unrecognized tax benefits of $13.1 million that, if recognized, would affect our effective tax rate, as certain unrecognized
tax benefits have a valuation allowance.
The effective tax rate differs from the statutory U.S. Federal income tax rate of 21% primarily due to state taxes, permanent differences for stock-
based compensation including excess tax benefits, research and development credits, foreign earnings taxed in the U.S., the foreign derived intangible
income deduction, a 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, 2023 and 2022
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, 2023, filed on September 18, 2023, for the discussion of the comparison of the fiscal year ended July 31, 2023 to the fiscal year ended
July 31, 2022, 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):
Fiscal years ended July 31,
2024
2023
Gross profit reconciliation:
GAAP gross profit
$
583,361 $
458,211
Non-GAAP adjustments:
Stock-based compensation
32,624
33,793
Amortization of intangibles
1,940
3,360
Non-GAAP gross profit
$
617,925 $
495,364
Income (loss) from operations reconciliation:
GAAP income (loss) from operations
$
(52,573) $
(149,490)
Non-GAAP adjustments:
Stock-based compensation
146,460
142,842
Amortization of intangibles
5,468
6,888
Acquisition consideration holdback
143
2,939
Net impact of assignment of lease agreement
—
8,502
Non-GAAP income (loss) from operations
$
99,498 $
11,681
Net income (loss) reconciliation:
GAAP net income (loss)
$
(6,103) $
(111,855)
Non-GAAP adjustments:
Stock-based compensation
146,460
142,842
Amortization of intangibles
5,468
6,888
Acquisition consideration holdback
143
2,939
Net impact of assignment of lease agreement
—
8,502
Amortization of debt issuance costs
1,732
1,703
Changes in fair value of strategic investment
1,957
802
Gain on sale of strategic investment
(1,803)
—
Tax impact of non-GAAP adjustments
(33,333)
(22,611)
Non-GAAP net income (loss)
$
114,521 $
29,210
Tax provision (benefit) reconciliation:
GAAP tax provision (benefit)
$
(20,735) $
(22,239)
(1)
(1)
(2)
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Non-GAAP adjustments:
Stock-based compensation
13,930
92,849
Amortization of intangibles
520
4,677
Acquisition consideration holdback
25
1,924
Net impact of assignment of lease agreement
—
3,196
Amortization of debt issuance costs
165
1,105
Changes in fair value of strategic investment
208
(103)
Gain on sale of strategic investment
(196)
—
Tax impact of non-GAAP adjustments
18,681
(81,037)
Non-GAAP tax provision (benefit)
$
12,598 $
372
Net income (loss) per share reconciliation:
GAAP net income (loss) per share – diluted
$
(0.07) $
(1.36)
Non-GAAP adjustments:
Stock-based compensation
1.78
1.74
Amortization of intangibles
0.07
0.08
Acquisition consideration holdback
(0.01)
0.04
Net impact of assignment of lease agreement
—
0.10
Amortization of debt issuance costs
0.02
0.02
Changes in fair value of strategic investment
0.02
0.01
Gain on sale of strategic investment
(0.02)
—
Tax impact of non-GAAP adjustments
(0.41)
(0.28)
Interest expense on convertible debt
0.05
—
Non-GAAP dilutive shares excluded from GAAP net income (loss) per share calculation
(0.08)
—
Non-GAAP net income (loss) per share – diluted
$
1.35 $
0.35
Shares used in computing Non-GAAP net income (loss) per share amounts:
GAAP weighted average shares – diluted
82,291,483
82,176,629
Non-GAAP dilutive shares excluded from GAAP net income (loss) per share calculation
5,072,080
466,516
Pro forma weighted average shares – diluted
87,363,563
82,643,145
(1) During the three months ended April 31, 2023, the Company recorded in general and administrative expenses a net loss of $8.5 million related to the assignment of the lease agreement for the
remaining lease term of the Company’s previous headquarters. The loss is comprised of an $18.4 million gain from the de-recognition of the operating lease asset of $56.9 million, the de-
recognition of the lease liability of $75.5 million, and other expenses related to the lease assignment of $0.2 million, offset by accelerated depreciation expense related to property and equipment,
primarily consisting of leasehold improvements, at the previous headquarters of $26.9 million. Prior to the third quarter of fiscal year 2023, there were no transactions similar to the lease
assignment in any periods presented.
(2) During the three months ended January 31, 2024, one of Guidewire’s strategic investments was acquired by a privately-held limited partnership. As a result, Guidewire received $12.1 million
in consideration for its equity interest in the investee, composed of $6.5 million in cash and $5.6 million of an ownership interest in the privately-held limited partnership, and recognized a $1.8
million gain in excess of cost in other income (expense), net. Prior to the second quarter of fiscal year 2024, there were no transactions similar to the gain on sale of strategic investment in any
periods presented.
(3) During the fiscal year ended July 31, 2024, the Company's Convertible Notes were dilutive due to non-GAAP net income. Accordingly, interest expense related to the Convertible Notes was
excluded from the non-GAAP net income (loss) per share calculation under the “if-converted” method.
Liquidity and Capital Resources
Our principal sources of liquidity are as follows (in thousands):
July 31, 2024
July 31, 2023
Cash, cash equivalents, and investments
$
1,129,453 $
927,467
Working capital
$
457,899 $
726,342
Cash, Cash Equivalents, and Investments
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.
(1)
(2)
(1)
(2)
(3)
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As of July 31, 2024, approximately $75.1 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.
Working Capital
Our working capital decreased to $457.9 million as of July 31, 2024 compared to $726.3 million as of July 31, 2023, primarily due to the Convertible
Senior Notes becoming current during fiscal year 2024. Our Convertible Senior Notes are due in March 2025. We have the ability to settle the principal and
any conversion premium in cash, equity, or a combination of both.
Share Repurchase Program
In September 2022, our board of directors authorized and approved a share repurchase program of up to $400.0 million of our outstanding common
stock. During fiscal year 2024, we did not repurchase any shares of our common stock due to the market price of our shares. As of July 31, 2024,
$138.2 million remained available for future share repurchases under the authorized and approved share repurchase program.
During fiscal year 2023, the Company repurchased 4,041,284 shares of common stock at an average price of $64.78 per share, for an aggregate
purchase price of $261.8 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 our first fiscal quarter,
which is the quarter ending 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 and cloud operations 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):
Fiscal years ended July 31,
2024
2023
Net cash provided by (used in) operating activities
$
195,748 $
38,395
Net cash provided by (used in) investing activities
$
(52,359) $
12,712
Net cash provided by (used in) financing activities
$
1,055 $
(261,579)
Cash Flows from Operating Activities
Net cash provided by operating activities increased by $157.4 million in fiscal year 2024 as compared to fiscal year 2023. The increase in cash
provided by operating activities was primarily attributable to an $90.6 million decrease 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 and a decrease of $66.8 million in cash
used by working capital activities.
Cash Flows from Investing Activities
Net cash used in investing activities increased by $65.1 million in fiscal year 2024 as compared to fiscal year 2023. The increase in cash used in
investing activities was primarily due to higher net purchases of available-for-sale securities transactions of $80.1 million, higher capital expenditures and
capitalized software development costs of $1.1 million, offset by an increase of $6.6 million in proceeds from the sale of strategic investments and $9.5
million due to a decrease in the acquisition of new strategic investments.
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Cash Flows from Financing Activities
Net cash provided by financing activities increased by $262.6 million in fiscal year 2024 as compared to fiscal year 2023. The increase in cash
provided by financing activities was primarily because of $261.8 million of shares repurchased under the authorized and approved share repurchase
program in fiscal year 2023 while no shares were repurchased during fiscal year 2024, and an increase in proceeds from option exercises of $0.8 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, 2024. Refer to Note 7 ‘’Leases,’’
Note 8 “Commitments and Contingencies” and Note 10 “Income Taxes” to our consolidated financial statements included in this Annual Report on Form
10-K for more information.
Effective during the fiscal year ended July 31, 2023, we entered into an agreement with a cloud infrastructure services provider for a total obligation
of $600 million over a five-year period.
Effective during the fiscal year ended July 31, 2023, we assigned the remaining lease term of our previous headquarters and concurrently entered into
a sublease for office space in San Mateo, California with the same third party for our new worldwide headquarters.
Off-Balance Sheet Arrangements
Through July 31, 2024, 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, 2024 and 2023 were $1,129.5 million and $927.5 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 one percent increase in interest rates is estimated to result in a decrease of
$3.3 million and $3.0 million in the market value of our available-for-sale securities as of July 31, 2024 and 2023, 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, ARR, 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, 2024 and 2023, we recorded a foreign currency loss of $10.8 million and $1.8
million, respectively, as a component of other income (expense) in our consolidated statements of operations primarily due to currency exchange rate
fluctuations. We will continue to experience fluctuations in foreign currency exchange rates. If a hypothetical ten percent change in foreign currency
exchange rates were to occur in the future, the resulting transaction gain or loss is estimated to be approximately $39.1 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
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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. 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 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)
64
Consolidated Balance Sheets
66
Consolidated Statements of Operations
67
Consolidated Statements of Comprehensive Income (Loss)
68
Consolidated Statements of Stockholders’ Equity
69
Consolidated Statements of Cash Flows
70
Notes to Consolidated Financial Statements
71
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors
Guidewire Software, Inc.:
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, 2024 and 2023,
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, 2024, 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, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended July 31, 2024, 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, 2024 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 subscriptions to cloud services, software
licensing arrangements, and implementation and other professional services. The Company recognized total revenue of $980.5 million for the year
ended July 31, 2024. 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 subscriptions to
cloud services and software licensing arrangements is typically billed in advance on an annual basis over the term.
We identified the evaluation of revenue from subscriptions to cloud services and software licensing arrangements 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 subscriptions to
cloud services and software licensing arrangements with non-standard terms and conditions. We tested certain subscriptions to cloud services and
software licensing arrangements 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 16, 2024
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GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
July 31,
2024
July 31,
2023
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$
547,992 $
401,813
Short-term investments
455,576
396,872
Accounts receivable, net of allowances of $646 and $218, respectively
137,339
151,034
Unbilled accounts receivable, net
87,031
87,752
Prepaid expenses and other current assets
67,596
62,132
Total current assets
1,295,534
1,099,603
Long-term investments
125,885
128,782
Unbilled accounts receivable, net
4,157
11,112
Property and equipment, net
55,409
54,499
Operating lease assets
43,750
52,373
Intangible assets, net
9,005
14,473
Goodwill
372,214
372,214
Deferred tax assets, net
253,085
226,875
Other assets
67,255
67,957
TOTAL ASSETS
$
2,226,294 $
2,027,888
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable
$
15,209 $
34,627
Accrued employee compensation
109,084
103,980
Deferred revenue, net
281,855
206,923
Convertible senior notes, net
398,903
—
Other current liabilities
32,584
27,731
Total current liabilities
837,635
373,261
Lease liabilities
34,721
42,972
Convertible senior notes, net
—
397,171
Deferred revenue, net
3,628
5,988
Other liabilities
7,578
9,030
Total liabilities
883,562
828,422
Commitments and contingencies (Note 8)
STOCKHOLDERS’ EQUITY:
Common stock, par value $0.0001 per share—500,000,000 shares authorized as of July 31,
2024 and 2023; 83,025,637 and 81,440,669 shares issued and outstanding as of July 31,
2024 and 2023, respectively
8
8
Additional paid-in capital
1,979,021
1,831,267
Accumulated other comprehensive income (loss)
(12,244)
(13,859)
Retained earnings (accumulated deficit)
(624,053)
(617,950)
Total stockholders’ equity
1,342,732
1,199,466
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
2,226,294 $
2,027,888
See accompanying Notes to Consolidated Financial Statements.
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GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
Fiscal years ended July 31,
2024
2023
2022
Revenue:
Subscription and support
$
549,087 $
429,667 $
343,708
License
250,176
265,593
258,631
Services
181,234
210,081
210,275
Total revenue
980,497
905,341
812,614
Cost of revenue:
Subscription and support
204,794
210,507
202,832
License
4,536
6,488
8,754
Services
187,806
230,135
223,852
Total cost of revenue
397,136
447,130
435,438
Gross profit:
Subscription and support
344,293
219,160
140,876
License
245,640
259,105
249,877
Services
(6,572)
(20,054)
(13,577)
Total gross profit
583,361
458,211
377,176
Operating expenses:
Research and development
269,381
249,746
229,230
Sales and marketing
199,033
188,224
182,620
General and administrative
167,520
169,731
164,773
Total operating expenses
635,934
607,701
576,623
Income (loss) from operations
(52,573)
(149,490)
(199,447)
Interest income
43,478
24,389
6,277
Interest expense
(6,738)
(6,716)
(19,446)
Other income (expense), net
(11,005)
(2,277)
(17,099)
Income (loss) before provision for (benefit from) income taxes
(26,838)
(134,094)
(229,715)
Provision for (benefit from) income taxes
(20,735)
(22,239)
(49,284)
Net income (loss)
$
(6,103) $
(111,855) $
(180,431)
Net income (loss) per share:
Basic and diluted
$
(0.07) $
(1.36) $
(2.16)
Shares used in computing net income (loss) per share:
Basic and diluted
82,291,483
82,176,629
83,569,517
See accompanying Notes to Consolidated Financial Statements.
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GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Fiscal years ended July 31,
2024
2023
2022
Net income (loss)
$
(6,103) $
(111,855) $
(180,431)
Other comprehensive income (loss):
Foreign currency translation adjustments
(1,640)
2,642
(7,201)
Unrealized gain (loss) on available-for-sale securities
4,505
5,377
(8,342)
Tax benefit (expense) on unrealized gain (loss) on available-for-sale securities
(558)
(1,053)
2,009
Reclassification adjustment for realized gain (loss) included in net income (loss)
(693)
(980)
(93)
Total other comprehensive income (loss)
1,614
5,986
(13,627)
Comprehensive income (loss)
$
(4,489) $
(105,869) $
(194,058)
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)
Common stock
Additional
paid-in
capital
Accumulated
other
comprehensive
income (loss)
Retained earnings
(accumulated
deficit)
Total
stockholders’
equity
Shares
Amount
Balance as of July 31, 2021
83,194,157
$
8
$
1,617,204
$
(6,218)
$
(66,100)
$
1,544,894
Net income ( loss)
—
—
—
—
(180,431)
(180,431)
Issuance of common stock upon exercise of stock options
10,472
—
116
—
—
116
Issuance of common stock upon vesting of RSUs
1,202,125
—
—
—
—
—
Stock-based compensation
—
—
138,156
—
—
138,156
Repurchase and retirement of common stock
(322,545)
—
—
—
(37,451)
(37,451)
Foreign currency translation adjustment
—
—
—
(7,201)
—
(7,201)
Unrealized gain (loss) on available-for-sale securities, net of tax
—
—
—
(6,333)
—
(6,333)
Reclassification adjustment for realized gain (loss) on available-for-sale
securities, included in net income (loss)
—
—
—
(93)
—
(93)
Balance as of July 31, 2022
84,084,209
$
8
$
1,755,476
$
(19,845)
$
(283,982)
$
1,451,657
Net income (loss)
—
—
—
—
(111,855)
(111,855)
Issuance of common stock upon exercise of stock options
6,582
—
228
—
—
228
Issuance of common stock upon vesting of RSUs
1,391,162
—
—
—
—
—
Stock-based compensation
—
—
143,566
—
—
143,566
Repurchase and retirement of common stock
(4,041,284)
—
—
—
(261,807)
(261,807)
Foreign currency translation adjustment
—
—
—
2,642
—
2,642
Unrealized gain (loss) on available-for-sale securities, net of tax
—
—
—
4,324
—
4,324
Reclassification adjustment for realized gain (loss) on available-for-sale
securities, included in net income (loss)
—
—
—
(980)
—
(980)
Adoption of Accounting Standards Update ("ASU") 2020-06
(68,003)
39,694
(28,309)
Balance as of July 31, 2023
81,440,669
$
8
$
1,831,267
$
(13,859)
$
(617,950)
$
1,199,466
Net income (loss)
—
—
—
—
(6,103)
(6,103)
Issuance of common stock upon exercise of stock options
15,517
—
1,054
—
—
1,054
Issuance of common stock upon vesting of RSUs
1,569,451
—
—
—
—
—
Stock-based compensation
—
146,700
—
—
146,700
Foreign currency translation adjustment
—
—
—
(1,640)
—
(1,640)
Unrealized gain (loss) on available-for-sale securities, net of tax
—
—
—
3,948
—
3,948
Reclassification adjustment for realized gain (loss) on available-for-sale
securities, included in net income (loss)
—
—
—
(693)
—
(693)
Balance as of July 31, 2024
83,025,637
$
8
$
1,979,021
$
(12,244)
$
(624,053)
$
1,342,732
See accompanying Notes to Consolidated Financial Statements.
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GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Fiscal years ended July 31,
2024
2023
2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
$
(6,103)
$
(111,855)
$
(180,431)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization
22,309
24,838
33,540
Amortization of debt discount and issuance costs
1,732
1,703
14,391
Amortization of contract costs
17,816
17,966
14,456
Stock-based compensation
146,460
142,842
137,011
Changes to allowance for credit losses and revenue reserves
526
(131)
2,597
Deferred income tax
(26,847)
(27,516)
(54,115)
Amortization of premium (accretion of discount) on available-for-sale securities, net
(12,894)
(4,858)
5,498
Gain on sale of strategic investment
(1,803)
—
—
Changes in fair value of strategic investments
1,957
802
(1,545)
Accelerated depreciation related to lease assignment
—
26,921
—
Gain from lease assignment
—
(18,419)
—
Other non-cash items affecting net income (loss)
(74)
164
63
Changes in operating assets and liabilities:
Accounts receivable
12,631
(7,301)
(42,545)
Unbilled accounts receivable
7,676
(13,435)
18,106
Prepaid expenses and other assets
(33,534)
(22,613)
(23,390)
Operating lease assets
8,623
(19,000)
7,160
Accounts payable
(18,933)
(6,080)
13,580
Accrued employee compensation
6,453
12,440
(8,942)
Deferred revenue
72,572
34,635
31,564
Lease liabilities
(7,389)
9,548
(9,637)
Other liabilities
4,570
(2,256)
4,699
Net cash provided by (used in) operating activities
195,748
38,395
(37,940)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities
(615,935)
(506,115)
(519,536)
Maturities and sales of available-for-sale securities
576,886
547,094
908,914
Purchases of property and equipment
(6,362)
(5,821)
(9,510)
Capitalized software development costs
(12,165)
(11,606)
(12,266)
Acquisition of strategic investments
(1,336)
(10,840)
(11,560)
Sale of strategic investment
6,553
—
—
Acquisition of business, net of acquired cash
—
—
(43,830)
Net cash provided by (used in) investing activities
(52,359)
12,712
312,212
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon exercise of stock options
1,055
228
116
Repurchase and retirement of common stock
—
(261,807)
(37,451)
Net cash provided by (used in) financing activities
1,055
(261,579)
(37,335)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash
(2,050)
2,576
(7,161)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
142,394
(207,896)
229,776
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—Beginning of period
406,790
614,686
384,910
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—End of period
$
549,184
$
406,790
$
614,686
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest
$
5,000
$
5,000
$
5,000
Cash paid for income taxes, net of tax refunds
$
8,919
$
5,167
$
4,323
Accruals for purchase of property and equipment
$
682
$
1,136
$
1,114
Accruals for capitalized cloud software development costs
$
920
$
1,094
$
1,250
See accompanying Notes to Consolidated Financial Statements.
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GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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, machine learning, 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.
Restricted Cash
Unearned acquisition consideration holdback subject to service conditions is held in escrow and considered restricted cash. At July 31, 2024 and
2023, unearned acquisition consideration holdback of $1.2 million and $2.9 million, respectively, was included in prepaid expenses and other current assets
in the consolidated balance sheets. At July 31, 2024, there was no unearned acquisition holdback included in other assets in the consolidated balance sheets.
At July 31, 2023, unearned acquisition holdback of $2.1 million was included in other assets in the consolidated balance sheets.
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.
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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.
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
3 years
Purchased software
3 years
Capitalized software development costs
3 to 5 years
Equipment and machinery
3 to 5 years
Furniture and fixtures
5 years
Leasehold improvements
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 may also enter 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.
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Operating leases are included in operating lease assets, other current liabilities, and lease liabilities on the consolidated balance sheets.
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 March 2025 (the
“Convertible Senior Notes”). Prior to the adoption of ASU 2020-06 on August 1, 2022, upon the issuance of the Convertible Senior Notes, the Company
separated the Convertible Senior Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring
the fair value of a similar liability that did not have an associated convertible feature. 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.
The difference between the principal amount of the Convertible Senior Notes and the liability component was initially recorded as a debt discount and was
amortized as interest expense using the effective interest method over the term of the Convertible Senior Notes.
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, 2024, 2023, and 2022. As of July 31,
2024, one customer accounted for 10% or more of the Company’s total accounts receivable. As of July 31, 2023, 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 and unbilled accounts receivable. The expectation of collectability is based on historical loss patterns, the number 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
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Contracts with Customers (“ASC 606”). The core principle of ASC 606 is to recognize revenue upon the transfer of products to customers in an amount
that reflects the consideration the Company expects to be entitled to in exchange for those services or products. When using the term “products,” the
Company is generally referring to both our subscription services and term license software.
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 products to be
transferred, the Company can identify the payment terms for the 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
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 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 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 have an initial term with a customer option to renew on an annual basis after the initial term. The Company will enter into term licenses with an
initial term of two or more 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 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.
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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. This timing difference can also occur when subscription
services have significant ramps in the annual invoice amount over the committed term. A significant financing component generally does not exist under
the Company’s standard contracting and billing practices. For example, the Company’s time-based licenses with a two-year initial term have the final
payment due at the end of the first year and the Company’s 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, training services, and a portion of software-as-a-service offerings, 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 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.
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 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 and the annual
billing may ramp 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.
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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.
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.
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.
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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 anticipated period in 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 less than $0.3 million, during the years ended July 31, 2024, 2023, and 2022,
respectively.
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”) and
performance-based restricted stock units (“PSUs”). RSUs and 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 performance conditions 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, which are subjective and generally requires significant judgment to determine,
include:
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.
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
In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements
to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses and other
segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU
No. 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. The new standard will
be effective and the Company will adopt it for the annual period beginning August 1, 2024, and for the interim periods beginning after August 1, 2025 with
early adoption permitted. The adoption of this ASU will impact the Company’s disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which improves the
transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation
and income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The
new standard will be effective and the Company will adopt it beginning August 1, 2025 and early adoption is permitted. Upon adoption, the guidance can
be applied prospectively or retrospectively. The Company is currently assessing the impact of adopting this standard on the consolidated financial
statements.
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.
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2. Revenue
Disaggregation of Revenue
Revenue by product type is as follows (in thousands):
Fiscal years ended July 31,
2024
2023
2022
Subscription and support
Subscription
$
477,461 $
352,145 $
259,232
Support
71,626
77,522
84,476
License
Term license
248,849
265,389
258,440
Perpetual license
1,327
204
191
Services
181,234
210,081
210,275
Total revenue
$
980,497 $
905,341 $
812,614
Revenue by product type and by geography is as follows (in thousands):
Fiscal year ended July 31, 2024
Subscription and
support
License
Services
Total
United States
$
373,675 $
133,310 $
125,583 $
632,568
Canada
77,414
19,704
8,643
105,761
Other Americas
6,009
3,330
2,154
11,493
Total Americas
457,098
156,344
136,380
749,822
Total EMEA
59,968
59,274
35,192
154,434
Total APAC
32,021
34,558
9,662
76,241
Total revenue
$
549,087 $
250,176 $
181,234 $
980,497
Fiscal year ended July 31, 2023
Subscription and
support
License
Services
Total
United States
$
289,152 $
141,465 $
143,243 $
573,860
Canada
71,039
16,677
17,965
105,681
Other Americas
5,891
3,323
3,090
12,304
Total Americas
366,082
161,465
164,298
691,845
Total EMEA
40,661
66,743
35,238
142,642
Total APAC
22,924
37,385
10,545
70,854
Total revenue
$
429,667 $
265,593 $
210,081 $
905,341
Fiscal year ended July 31, 2022
Subscription and
support
License
Services
Total
United States
$
229,177 $
151,464 $
135,783 $
516,424
Canada
55,633
17,145
27,232
100,010
Other Americas
4,608
3,094
2,682
10,384
Total Americas
289,418
171,703
165,697
626,818
Total EMEA
32,153
53,248
33,018
118,419
Total APAC
22,137
33,680
11,560
67,377
Total revenue
$
343,708 $
258,631 $
210,275 $
812,614
No country or region other than those listed above accounted for more than 10% of revenue during the fiscal years ended July 31, 2024, 2023, and
2022.
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Customer Contract – Related Balance Sheet Amounts
Amounts related to customer contract-related arrangements are included on the consolidated balance sheets as follows (in thousands):
July 31, 2024
July 31, 2023
Unbilled accounts receivable, net
$
91,188 $
98,864
Contract costs, net
$
54,689 $
47,254
Deferred revenue, net
$
285,483 $
212,911
Unbilled accounts receivable
The unbilled accounts receivable, net decreased by $7.7 million primarily due to the impact of current year billings on multi-year term license
arrangements under which billings occur later than revenue recognition and, to a lesser extent, due to subscription orders with ramped billing schedules.
As of July 31, 2024 and 2023, there was no allowance for credit losses associated with unbilled accounts receivable.
Contract costs
The current portion of contract costs of $17.7 million and $15.9 million is included in prepaid and other current assets on the Company’s
consolidated balance sheets as of July 31, 2024 and 2023, respectively. The non-current portion of contract costs of $37.0 million and $31.3 million is
included in other assets on the Company’s consolidated balance sheets as of July 31, 2024 and 2023, respectively. The Company amortized $17.8 million,
$18.0 million, and $14.5 million of contract costs during the fiscal years ended July 31, 2024, 2023, and 2022, respectively.
Deferred revenue
During the fiscal year ended July 31, 2024, the Company recognized revenue of $201.3 million related to the Company’s deferred revenue balance as
of July 31, 2023.
Remaining Performance Obligations
The aggregate amount of consideration allocated to remaining performance obligations either not satisfied or partially satisfied, was approximately
$2.0 billion as of July 31, 2024. 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):
July 31, 2024
Amortized Cost
Unrealized Gains
Unrealized Losses
Estimated Fair Value
Asset-backed securities
$
58,812 $
116 $
(61) $
58,867
Certificates of deposit
46,900
—
—
46,900
Commercial paper
138,598
—
—
138,598
Corporate bonds
245,817
564
(107)
246,274
Foreign government bonds
5,590
21
(15)
5,596
Money market funds
360,881
—
—
360,881
U.S. Government agency securities
33,499
12
(12)
33,499
U.S. Government bonds
89,928
72
(117)
89,883
Total
$
980,025 $
785 $
(312) $
980,498
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July 31, 2023
Amortized Cost
Unrealized Gains
Unrealized Losses
Estimated Fair Value
Asset-backed securities
$
43,573 $
18 $
(234) $
43,357
Certificates of deposit
34,395
—
—
34,395
Commercial paper
150,254
—
—
150,254
Corporate bonds
200,691
41
(1,590)
199,142
Foreign government bonds
14,559
—
(203)
14,356
Money market funds
229,721
—
—
229,721
U.S. Government agency securities
84,180
9
(151)
84,038
U.S. Government bonds
87,064
1
(1,230)
85,835
Total
$
844,437 $
69 $
(3,408) $
841,098
The Company does not consider any portion of the unrealized losses at July 31, 2024 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).
The following table summarizes the contractual maturities of the Company’s available-for-sale investments measured at fair value (in thousands):
July 31, 2024
Less Than 12 Months
12 Months or Greater
Total
Asset-backed securities
$
18,826 $
40,041 $
58,867
Certificates of deposit
46,900
—
46,900
Commercial paper
138,598
—
138,598
Corporate bonds
177,081
69,193
246,274
Foreign government bonds
3,756
1,840
5,596
Money market funds
360,881
—
360,881
U.S. Government agency securities
32,605
894
33,499
U.S. Government bonds
75,966
13,917
89,883
Total
$
854,613 $
125,885 $
980,498
Fair Value Measurement
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):
July 31, 2024
Level 1
Level 2
Level 3
Total
Cash equivalents:
Commercial paper
$
— $
38,156 $
— $
38,156
Money market funds
360,881
—
—
360,881
Total cash equivalents
360,881
38,156
—
399,037
Short-term investments:
Asset-backed securities
—
18,826
—
18,826
Certificates of deposit
—
46,900
—
46,900
Commercial paper
—
100,442
—
100,442
Corporate bonds
—
177,081
—
177,081
Foreign government bonds
—
3,756
—
3,756
U.S. Government agency securities
—
32,605
—
32,605
U.S. Government bonds
—
75,966
—
75,966
Total short-term investments
—
455,576
—
455,576
Long-term investments:
Asset-backed securities
—
40,041
—
40,041
Corporate bonds
—
69,193
—
69,193
Foreign government bonds
—
1,840
—
1,840
U.S. Government agency securities
—
894
—
894
U.S. Government bonds
—
13,917
—
13,917
Total long-term investments
—
125,885
—
125,885
Total
$
360,881 $
619,617 $
— $
980,498
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July 31, 2023
Level 1
Level 2
Level 3
Total
Cash equivalents:
Commercial paper
$
— $
61,296 $
— $
61,296
Money market funds
229,721
—
—
229,721
U.S. Government agency securities
—
8,478
—
8,478
U.S. Government bonds
—
15,949
—
15,949
Total cash equivalents
229,721
85,723
—
315,444
Short-term investments:
Asset-backed securities
—
2,705
—
2,705
Certificates of deposit
—
34,395
—
34,395
Commercial paper
—
88,958
—
88,958
Corporate bonds
—
156,396
—
156,396
Foreign government bonds
—
10,717
—
10,717
U.S. Government agency securities
—
69,101
—
69,101
U.S. Government bonds
—
34,600
—
34,600
Total short-term investments
—
396,872
—
396,872
Long-term investments:
Asset-backed securities
—
40,652
—
40,652
Corporate bonds
—
42,746
—
42,746
Foreign government bonds
—
3,639
—
3,639
U.S. Government agency securities
—
6,459
—
6,459
U.S. Government bonds
—
35,286
—
35,286
Total long-term investments
—
128,782
—
128,782
Total
$
229,721 $
611,377 $
— $
841,098
Convertible Senior Notes
The fair value of the Convertible Senior Notes was $528.0 million and $388.2 million at July 31, 2024 and 2023, 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). For further information on the Convertible Senior Notes, see
Note 6.
4. Balance Sheet Components
Accounts Receivables, Net
Accounts receivable, net consists of the following (in thousands):
July 31, 2024
July 31, 2023
Accounts receivable
$
137,985 $
151,252
Allowance for credit losses and revenue reserves
(646)
(218)
Accounts receivable, net
$
137,339 $
151,034
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
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July 31, 2024
July 31, 2023
Prepaid expenses
$
25,791 $
21,761
Contract costs
17,739
15,918
Deferred costs
6,259
6,753
Deposits and other receivables
17,807
17,700
Prepaid expenses and other current assets
$
67,596 $
62,132
Property and Equipment, Net
Property and equipment consist of the following (in thousands):
July 31, 2024
July 31, 2023
Computer hardware
$
14,182 $
13,880
Purchased software
5,267
4,671
Capitalized software development costs
66,153
52,163
Equipment and machinery
3,936
3,432
Furniture and fixtures
7,009
6,302
Leasehold improvements
24,596
23,110
Total property and equipment
121,143
103,558
Less accumulated depreciation
(65,734)
(49,059)
Property and equipment, net
$
55,409 $
54,499
As of July 31, 2024 and 2023, no property and equipment was pledged as collateral. Depreciation expense, excluding the amortization of capitalized
software development costs, was $6.9 million, $36.3 million and $14.0 million for the fiscal years ended July 31, 2024, 2023, and 2022, respectively.
Depreciation expense for the fiscal year ended July 31, 2023 includes $26.9 million of accelerated depreciation expense, recorded from the date the lease
was assigned through the date that the lease term ended related to the assignment to an unrelated third party of the Company’s previous office headquarters,
which was recognized in general and administrative expenses on the consolidated statements of operations. Refer to Note 7 “Leases” for information about
the lease assignment of the previous office headquarters.
The Company recognized amortization of capitalized software development costs in cost of subscription and support revenue on the consolidated
statements of operations of $11.6 million, $9.9 million, and $6.3 million during the fiscal years ended July 31, 2024, 2023, and 2022, respectively.
Goodwill and Intangible Assets, Net
There were no significant changes in the carrying amount of goodwill from July 31, 2023 to July 31, 2024.
The Company’s intangible assets are amortized over their estimated useful lives. Intangible assets consist of the following (in thousands):
July 31, 2024
July 31, 2023
Remaining
Weighted-
Average Useful
Life (in years)
Cost
Accumulated
Amortization
Net Book Value
Cost
Accumulated
Amortization
Net Book Value
Acquired technology
2.1
$
9,700 $
5,726 $
3,974 $
9,700 $
3,786 $
5,914
Customer contracts and related
relationships
1.7
23,100
18,694
4,406
23,100
15,674
7,426
Partner relationships
0.7
200
185
15
200
163
37
Trademarks
3.5
3,400
2,790
610
3,400
2,304
1,096
Total
2.0
$
36,400 $
27,395 $
9,005 $
36,400 $
21,927 $
14,473
Amortization expense was $5.5 million, $6.9 million, and $14.1 million during the years ended July 31, 2024, 2023, and 2022, respectively. The
future amortization expense for existing intangible assets as of July 31, 2024, based on their current useful lives, is as follows (in thousands):
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Fiscal year ending July 31,
2025
$
5,026
2026
3,572
2027
272
2028
129
2029
6
Total future amortization expense
$
9,005
Other Assets
Other assets consist of the following (in thousands):
July 31, 2024
July 31, 2023
Prepaid expenses
$
3,213 $
3,111
Contract costs
36,950
31,337
Deferred costs
4,691
3,664
Strategic investments
22,401
27,772
Other
—
2,073
Other assets
$
67,255 $
67,957
The Company’s other assets include strategic 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), which are recorded using the measurement alternative at cost less impairment and adjusts cost for subsequent observable changes in fair
value, and an investment in a limited partnership, which is recorded using the net asset value practical expedient (Level 3) in accordance with ASC 820.
Changes in fair value are recorded in other income (expense) on the consolidated statements of operations.
During fiscal year 2024, one of the Company’s investees was acquired by a privately held limited partnership. As a result, the Company received
$12.1 million in consideration for its equity interest in the investee, composed of $6.5 million cash and $5.6 million of an ownership interest in the
privately held limited partnership, and recognized a $1.8 million gain in excess of cost as a component of other income (expense), net in the consolidated
statements of operations.
The Company invested $1.3 million, $10.8 million, and $12.3 million in new strategic investments during the fiscal years ended July 31, 2024, 2023,
and 2022, respectively.
The following table summarizes the unrealized and realized gains (losses) on strategic investments (in thousands):
Fiscal years ended July 31,
2024
2023
2022
Unrealized gains (losses), net, recognized on privately held equity securities measured
using net asset value
$
(1,957) $
— $
—
Unrealized gains (losses) recognized upon conversion of convertible debt investment
—
—
1,545
Impairments of strategic investments using the measurement alternative
—
(802)
—
Unrealized gains (losses), net
(1,957)
(802)
1,545
Realized gains (losses), net on sales of strategic investments
1,803
—
—
Gains (losses) on strategic investments, net
$
(154) $
(802) $
1,545
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The following table summarizes the carrying amount of the Company’s strategic investments (in thousands):
July 31, 2024
July 31, 2023
Equity investments using the measurement alternative
$
18,740 $
27,772
Equity investment using net asset value
$
3,661 $
—
Accrued Employee Compensation
Accrued employee compensation consists of the following (in thousands):
July 31, 2024
July 31, 2023
Bonus
$
70,847 $
64,048
Commission
8,128
10,108
Vacation
6,934
6,429
Salaries, payroll taxes, and benefits
23,175
23,395
Accrued employee compensation
$
109,084 $
103,980
Other Current Liabilities
Other current liabilities consist of the following (in thousands):
July 31, 2024
July 31, 2023
Lease liabilities
$
9,295 $
8,433
Accrued royalties
7,872
6,301
Accrued taxes
6,492
4,158
Other
8,925
8,839
Other current liabilities
$
32,584 $
27,731
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5. 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. For options to purchase common stock and Stock Awards, the Company uses the treasury stock method for calculating diluted
earnings per share in all periods presented. Effective August 1, 2022, the Company adopted ASU 2020-06 which requires the use of the if-converted
method for the Convertible Senior Notes. During fiscal year 2022, the Company used the treasury stock method for the Convertible Senior Notes.
The following table sets forth the computation of the Company’s basic and diluted net income (loss) per share for the fiscal years ended July 31,
2024, 2023, and 2022 (in thousands, except share and per share amounts):
Fiscal years ended July 31,
2024
2023
2022
Numerator:
Net income (loss)
$
(6,103) $
(111,855) $
(180,431)
Net income (loss) per share:
Basic and diluted
$
(0.07) $
(1.36) $
(2.16)
Denominator:
Weighted average shares used in computing net income (loss) per share:
Basic and diluted
82,291,483
82,176,629
83,569,517
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:
Fiscal years ended July 31,
2024
2023
2022
Stock options
182,082
11,978
24,206
Stock awards
3,763,725
2,352,203
1,836,455
Convertible senior notes
3,516,480
3,516,480
33,417
In fiscal years ended July 31, 2024 and 2023, the average market price of the Company’s common stock did not exceed the conversion price using
the if-converted method. Except for the first quarter in fiscal year 2022, the average market price of the Company’s common stock did not exceed the
conversion price using the treasury stock method.
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6. 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 March 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 and unamortized debt issuance costs of the Convertible Senior Notes was as follows (in thousands):
July 31, 2024
July 31, 2023
Principal
$
400,000 $
400,000
Less unamortized:
Debt issuance costs
1,097
2,829
Net carrying amount
$
398,903 $
397,171
The effective interest rate of the Convertible Senior Notes after the adoption of ASU 2020-06 on August 1, 2022 is 1.69%. Prior to the adoption of
ASU 2020-06, the effective interest rate of the Convertible Senior Notes was 5.53%.
The following table sets forth the interest expense recognized related to the Convertible Senior Notes (in thousands):
Fiscal years ended July 31,
2024
2023
2022
Contractual interest expense
$
5,000 $
5,000 $
5,000
Amortization of debt discount
—
—
12,945
Amortization of debt issuance costs
1,732
1,703
1,446
Total
$
6,732 $
6,703 $
19,391
Effective August 1, 2022, the Company adopted ASU 2020-06 using the modified retrospective method which resulted in the accounting for the Convertible Senior Notes as a single liability
and no longer required the liability and equity components to be accounted for separately. The prior periods have not been retrospectively adjusted and continue to be reported under the
accounting standards in effect for each respective period.
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The if-converted value exceeded the outstanding principal of the Convertible Senior Notes by $6.8 million as of July 31, 2024, and did not exceed the
outstanding principal of the Convertible Senior Notes as of July 31, 2023.
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.
7. 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.
In February 2023, the Company assigned (“the Lease Assignment”) the remaining lease term of its previous headquarters and concurrently entered into
a sublease for office space in San Mateo, California with the same third party for its worldwide headquarters. As a result of the Lease Assignment, the
Company recognized an $8.5 million loss in general and administrative operating expenses during the fiscal year ended July 31, 2023 on the consolidated
statements of operations. The loss is comprised of an $18.4 million gain from the de-recognition of the operating lease asset of $56.9 million, the de-
recognition of the lease liability of $75.5 million, and other expenses related to the Lease Assignment of $0.2 million, offset by accelerated depreciation
expense related to property and equipment, primarily consisting of leasehold improvements, at the previous headquarters of $26.9 million. In fiscal year
2023 upon lease commencement of the new worldwide headquarters, the Company recognized a $27.1 million operating lease asset and $19.6 million lease
liability.
Components of operating lease costs were as follows (in thousands):
Fiscal years ended July 31,
2024
2023
2022
Operating lease costs
$
12,537 $
12,192 $
15,992
Variable lease costs
2,344
4,353
5,496
Sublease income
—
(898)
(1,451)
Net operating lease costs
$
14,881 $
15,647 $
20,037
Lease expense for leases with an initial term of 12 months or less is excluded from the table above and was $0.8 million, $0.9 million and $0.9 million in each of the fiscal years ended July 31,
2024, 2023, and 2022, respectively.
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Future operating lease payments as of July 31, 2024 were as follows (in thousands):
Fiscal year ending July 31,
2025
$
10,861
2026
11,120
2027
10,022
2028
4,102
2029
3,928
Thereafter
8,464
Total future lease payments
48,497
Less imputed interest
(4,481)
Total lease liability balance
$
44,016
Supplemental information related to leases was as follows (in thousands, except for lease term and discount rate):
As of July 31,
2024
2023
Operating lease assets
$
43,750
$
52,373
Current portion of lease liabilities
9,295
8,433
Non-current portion of lease liabilities
34,721
42,972
Total lease liabilities
$
44,016
$
51,405
Weighted average remaining lease term (years)
5.3
6.2
Weighted average discount rate
4.0 %
3.9 %
Supplemental cash and non-cash information related to operating leases was as follows (in thousands):
Fiscal years ended July 31,
2024
2023
2022
Cash payments for operating leases
$
11,561 $
12,569 $
19,120
Operating lease assets obtained in exchange for operating lease liabilities
$
2,621 $
(36,981) $
5,867
8. Commitments and Contingencies
The Company’s contractual obligations and commitments as of July 31, 2024 are as follows (in thousands):
Purchase
Commitments
Debt
Total
Fiscal Year Ending July 31,
2025
$
169,512 $
405,000 $
574,512
2026
154,779
—
154,779
2027
145,981
—
145,981
2028
34,863
—
34,863
2029 and thereafter
2
—
2
Total
$
505,137 $
405,000 $
910,137
Purchase commitments represent royalty obligations and 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. During fiscal year 2023, the
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Company entered into an agreement with a cloud infrastructure services provider for a total obligation of $600 million over a five-year period. Purchase commitments do not include lease
obligations (refer to Note 7).
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, 2024 and 2023, 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.
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, 2024 and 2023. 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.
9. 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):
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Fiscal years ended July 31,
2024
2023
2022
Stock-based compensation expense
$
146,700 $
143,566 $
138,156
Net impact of deferred stock-based compensation
(240)
(724)
(1,145)
Total stock-based compensation expense
$
146,460 $
142,842 $
137,011
Stock-based compensation expense is included in the following categories:
Cost of subscription and support revenue
$
13,425 $
14,073 $
13,222
Cost of license revenue
186
463
692
Cost of services revenue
19,013
19,257
20,978
Research and development
40,213
39,865
33,446
Sales and marketing
34,590
29,925
31,281
General and administrative
39,033
39,259
37,392
Total stock-based compensation expense
146,460
142,842
137,011
Tax benefit from stock-based compensation
37,670
22,566
26,151
Total stock-based compensation, net of tax effect
$
108,790 $
120,276 $
110,860
Total unrecognized stock-based compensation expense related to the Company’s stock options and Stock Awards as of July 31, 2024 is as follows:
Unrecognized Expense
(in thousands)
Weighted Average Expected
Recognition Period
(in years)
Stock Options
$
237
0.2
Stock Awards
238,305
2.2
Total unrecognized stock-based compensation expense
$
238,542
Stock Awards
A summary of the Company’s Stock Awards activity under the Company’s equity incentive plans is as follows:
Stock Awards Outstanding
Number of Stock
Awards
Weighted Average
Grant Date Fair Value
Aggregate Intrinsic
Value
(in thousands)
Balance as of July 31, 2021
2,394,968 $
107.15 $
275,900
Granted
1,942,391 $
112.83
Released
(1,202,125) $
107.29 $
118,669
Canceled
(349,881) $
111.80
Balance as of July 31, 2022
2,785,353 $
110.47 $
216,478
Granted
2,287,778 $
66.36
Released
(1,391,162) $
100.92 $
97,324
Canceled
(267,263) $
99.31
Balance as of July 31, 2023
3,414,706 $
85.68 $
289,635
Granted
1,639,400 $
93.63
Released
(1,569,451) $
91.48 $
168,144
Canceled
(282,589) $
89.22
Balance as of July 31, 2024
3,202,066 $
86.60 $
480,534
Expected to vest as of July 31, 2024
3,202,066 $
86.60 $
480,534
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Aggregate intrinsic value at each period end represents the total market value of Stock Awards at the Company’s closing stock price of $150.07, $84.82, and $77.72 on July 31, 2024, 2023, and
2022, respectively. Aggregate intrinsic value for released Stock Awards represents the total market value of released Stock Awards at date of release.
In September 2023, certain executive officers were granted Stock Awards that vest in September 2026, subject to continued service until such time,
with the opportunity to increase the number of vested awards based on Company financial performance and, for a select number of awards, the market
performance of the Company’s common stock. The fair value of the awards will be recognized over the performance period and may increase or decrease
depending on the estimated attainment of Company financial performance criteria. The Company determined the fair value of the portion of the award
subject to the market performance of the Company’s common stock using a Monte Carlo simulation model, which included the following assumptions:
Performance Period
September 13, 2023 to September 13, 2026
3-year Historical Volatility
35.0%
3-year Risk Free Rate
4.5%
For the portion of the award subject to the market performance of the Company’s common stock, stock-based compensation expense is recognized
over the requisite service period regardless of whether or not the market condition is ultimately satisfied, subject to continued service over the period.
Prior to fiscal year 2024, certain executives and employees of the Company received PSUs, which 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 Company recognized stock-based compensation related to PSUs of $16.2 million, $15.0 million, and $14.7 million during the fiscal years ended
July 31, 2024, 2023, and 2022, respectively.
Stock Options
A summary of stock option activity under the Company’s equity incentive plans is as follows:
Number of Stock
Options Outstanding
Weighted Average
Exercise Price
Weighted Average
Remaining Contractual
Life
(in years)
Aggregate Intrinsic
Value
(in thousands)
Balance as of July 31, 2021
25,278 $
17.39
5.0 $
2,472
Granted
60,900 $
71.67
Exercised
(10,472) $
11.10
$
1,047
Canceled
— $
—
Balance as of July 31, 2022
75,706 $
61.93
8.7 $
1,196
Granted
121,168 $
66.76
Exercised
(6,582) $
34.60
$
255
Canceled
(2,720) $
69.60
Balance as of July 31, 2023
187,572 $
65.90
8.8 $
3,549
Granted
— $
—
Exercised
(15,517) $
67.98
$
1,061
Canceled
(5,217) $
68.39
Balance as of July 31, 2024
166,838
7.9 $
14,088
Vested and expected to vest as of July 31, 2024
166,838 $
65.63
7.9 $
14,088
Exercisable as of July 31, 2024
50,779 $
63.07
7.2 $
4,418
Aggregate intrinsic value at each fiscal year end represents the difference between the Company’s closing stock price of $150.07, $84.82, and $77.72 on July 31, 2024, 2023, and 2022,
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
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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:
Fiscal years ended July 31,
2024
2023
2022
Expected term (in years)
*
6.0
6.0
Risk-free interest rate
*
2.9% - 4.2%
3.0% - 3.6%
Expected volatility
*
32.1% - 33.1%
31.8% - 31.9%
Expected dividend yield
*
—%
—%
Common Stock Reserved for Issuance
As of July 31, 2024 and 2023, 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, 83,025,637 and 81,440,669 shares of common stock were issued and outstanding, respectively. As of July 31, 2024 and 2023, the Company had
reserved shares of common stock for future issuance as follows:
July 31, 2024
July 31, 2023
Exercise of stock options to purchase common stock
166,838
187,572
Vesting of stock awards
3,202,066
3,414,706
Shares available under stock plans
5,450,102
2,996,441
Total common stock reserved for issuance
8,819,006
6,598,719
Equity Incentive Plans
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. On
December 20, 2022, the Company’s stockholders approved the amendment and restatement of the 2020 Stock Plan to increase the total number of shares of
common stock available for issuance under the 2020 Stock Plan by 1,780,000. On December 19, 2023, the Company’s stockholders approved the
amendment and restatement of the 2020 Stock Plan to increase the total number of shares of common stock available for issuance under the 2020 Stock
Plan by 3,800,000.
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, as amended.
Share Repurchase Program
*No options were granted during fiscal year ended July 31, 2024.
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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 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. As of July 31, 2024, $138.2 million remained available to purchase under the authorized and approved share repurchase program.
In September 2022, the Company entered into an accelerated share repurchase (“ASR”) agreement with a large financial institution whereupon the
Company provided them with a prepayment of $200.0 million and received an initial delivery of 2,581,478 shares of the Company’s common stock. Under
the terms of the ASR, the total number of shares delivered and average price paid per share was determined at the settlement date based on the volume
weighted average price over the term of the ASR, less an agreed upon discount. The ASR was settled in full with the delivery of an additional 648,001
shares of common stock during the third quarter of fiscal year 2023, which resulted in total repurchases under the ASR of 3,229,479 shares of common
stock at an average purchase price of $61.93 per share.
During the fiscal year ended July 31, 2024, the Company did not repurchase any shares of common stock. During the fiscal year ended July 31, 2023,
the Company repurchased 4,041,284 shares of common stock at an average price of $64.78 per share, for an aggregate purchase price of $261.8 million,
which includes the shares repurchased under the ASR agreement. 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 under a previous share repurchase program.
10. Income Taxes
The Company recognized an income tax benefit of $20.7 million for fiscal year 2024 compared to an income tax benefit of $22.2 million for fiscal
year 2023. The decrease in the Company’s income tax benefit for fiscal year 2024 was primarily due to a decrease in pre-tax net loss, offset by an increase
in tax deductions related to stock-based compensation, the foreign derived intangible income deduction, and an increase in research and development tax
credits.
The effective tax rate could differ from the statutory U.S. Federal income tax rate of 21% mainly due to state taxes, permanent differences for stock-
based compensation including excess tax benefits, research and development credits, foreign earnings taxed in the United States, the foreign derived
intangible income deduction, a 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):
Fiscal years ended July 31,
2024
2023
2022
Domestic
$
(44,280) $
(150,628) $
(239,601)
International
17,442
16,534
9,886
Income (loss) before provision for (benefit from) income taxes
$
(26,838) $
(134,094) $
(229,715)
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The provision for (benefit from) income taxes consisted of the following (in thousands):
Fiscal years ended July 31,
2024
2023
2022
Current:
U.S. Federal
$
738 $
555 $
1,937
State
1,710
564
43
Foreign
3,563
3,904
1,852
Total current
6,011
5,023
3,832
Deferred:
U.S. Federal
(22,856)
(23,372)
(48,775)
State
(3,396)
(3,808)
(5,656)
Foreign
(494)
(82)
1,315
Total deferred
(26,746)
(27,262)
(53,116)
Total provision for (benefit from) income taxes
$
(20,735) $
(22,239) $
(49,284)
Differences between income taxes calculated using the statutory federal income tax rate of 21% and the provision for income taxes are as follows (in
thousands):
Fiscal years ended July 31,
2024
2023
2022
Statutory federal income tax
$
(5,634) $
(28,159) $
(48,240)
State taxes, net of federal benefit
(1,702)
(3,253)
(5,613)
Stock-based compensation
(4,415)
9,902
2,912
Non-deductible officers' compensation
4,996
2,783
4,484
Foreign income taxed at different rates
(960)
(55)
(365)
Research tax credits
(12,067)
(7,817)
(6,820)
Base erosion and anti-abuse tax
(3,091)
(935)
349
Foreign earnings taxed in the U.S.
2,390
2,199
1,201
Non-deductible acquisition costs
30
617
744
Permanent differences and others
1,254
1,576
476
Change in valuation allowance
491
903
1,588
Foreign derived intangible income
(2,027)
—
—
Total provision for (benefit from) income taxes
$
(20,735) $
(22,239) $
(49,284)
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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,
2024
2023
Accruals and reserves
$
27,636 $
24,899
Stock-based compensation
9,077
8,389
Deferred revenue
711
1,188
Capitalized research and development
110,502
59,332
Lease liabilities
9,908
11,555
Convertible debt
919
2,344
Net operating loss carryforwards
49,864
85,573
Tax credits
145,934
127,209
Total deferred tax assets
354,551
320,489
Less valuation allowance
65,791
59,356
Net deferred tax assets
288,760
261,133
Less deferred tax liabilities:
Intangible assets
12,682
10,915
Operating lease assets
9,130
10,927
Property and equipment
184
576
Unremitted foreign earnings
851
931
Capitalized commissions
15,022
13,084
Total deferred tax liabilities
37,869
36,433
Total net deferred tax assets
$
250,891 $
224,700
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 $65.8 million and $59.4 million remained
as of July 31, 2024 and 2023, respectively, primarily related to California, U.S. Federal, and Canada deferred tax assets. The increase of $6.4 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.
As of July 31, 2024, the Company had U.S. Federal, California, and other states net operating loss (“NOL”) carryforwards of $157.8 million, $61.9
million and $173.9 million, respectively. The U.S. Federal and California NOL carryforwards will start to expire in 2029 and 2025, respectively.
As of July 31, 2024, the Company had research and development tax credit (“R&D credit”) carryforwards of the following (in thousands):
U.S. Federal
$
82,470
California
62,878
Total R&D credit carryforwards
$
145,348
U.S. Federal R&D credit carryforwards available at July 31, 2024 will expire starting in 2025. 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, 2024, the Company has recorded a provisional estimate for foreign withholding taxes on undistributed earnings from foreign
subsidiaries of $0.9 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.
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Beginning in the Company's fiscal year 2023, the Tax Cuts and Jobs Act of 2017 eliminates the right to deduct research and development
expenditures for tax purposes in the period the expenses were incurred and instead requires all U.S. and foreign research and development expenditures to
be amortized over five and fifteen tax years, respectively. Congress has considered legislation that would defer the amortization requirement to later years,
but as of July 31, 2024, the requirement has not been modified. Accordingly, the Company has capitalized research and development expenses for tax
purposes in fiscal years 2024 and 2023.
Unrecognized Tax Benefits
Activity related to unrecognized tax benefits is as follows (in thousands):
Fiscal years ended July 31,
2024
2023
2022
Unrecognized tax benefits - beginning of period
$
20,518 $
18,786 $
17,138
Gross increases - prior period tax positions
231
1
147
Gross decreases - prior period tax positions
(2,664)
(982)
—
Gross increases - current period tax positions
3,435
2,713
1,501
Unrecognized tax benefits - end of period
$
21,520 $
20,518 $
18,786
During the year ended July 31, 2024, the Company’s unrecognized tax benefits increased by $1.0 million. As of July 31, 2024, the Company had
unrecognized tax benefits of $13.1 million that, if recognized, would affect the Company’s effective tax rate. 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, 2024, the total interest and
penalties related to unrecognized tax benefits was not material.
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 2024.
Table of Contents
11. 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 $14.1 million, $13.3 million, and $13.1
million for the fiscal years ended July 31, 2024, 2023, and 2022, respectively.
Table of Contents
12. 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):
July 31, 2024
July 31, 2023
Americas
$
69,004 $
72,089
EMEA
26,192
29,792
APAC
3,963
4,991
Total
$
99,159 $
106,872
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, 2024, using the criteria set forth in Internal
Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. 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, 2024.
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, 2024 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
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
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 2024
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, 2024, 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
EXHIBIT INDEX
The exhibits listed below are filed or incorporated by reference as part of this Annual Report on Form 10-K.
Exhibit
Number
Description
Incorporated by
Reference From
Form
Incorporated
by Reference
From
Exhibit
Number
Date Filed
3.1
Amended and Restated Certificate of Incorporation
8-K
3.1
December 21, 2022
3.2
Amended and Restated Bylaws
8-K
3.2
December 21, 2022
4.1
Form of Common Stock Certificate of Guidewire Software,
Inc.
S-1/A
4.1
January 9, 2012
4.2
Indenture between Guidewire Software, Inc. and U.S. Bank
National Association, dated as of March 13, 2018
8-K
4.1
March 13, 2018
4.3
First Supplemental Indenture between Guidewire Software,
Inc. and U.S. Bank National Association, dated as of
March 13, 2018
8-K
4.2
March 13, 2018
4.4
Form of 1.25% Convertible Senior Note Due March 15,
2025
8-K
4.3
March 13, 2018
4.5
Description of Guidewire Software, Inc.’s Securities
Registered Pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended
Filed herewith
—
—
10.1#
Guidewire Software, Inc. 2011 Stock Plan and Forms of
Agreements thereunder
S-1/A
10.5
December 13, 2011
10.2#
Guidewire Software, Inc. Form of Performance-Based
Restricted Stock Unit Award Agreement under the 2011
Stock Plan
10-Q
10.9
December 2, 2015
10.3#
Guidewire Software, Inc. Forms of Notice of Restricted
Stock Unit Award and Restricted Stock Unit Award
Agreement (Performance-Based) under the 2011 Stock Plan
10-Q
10.5
March 5, 2020
10.4#
Guidewire Software, Inc. Form of Restricted Stock Unit
Award Agreement (Global Time-Based) under the 2011
Stock Plan
10-Q
10.2
March 5, 2020
10.5#
Guidewire Software, Inc. Form of Restricted Stock Unit
Award Agreement (U.S. Time-Based) under the 2011 Stock
Plan
10-Q
10.1
March 5, 2020
10.6#
Guidewire Software, Inc. Form of Restricted Stock Unit
Award Agreement (U.S. Time-Based, Executives) under the
2011 Stock Plan
10-Q
10.3
March 5, 2020
10.7#
Guidewire Software, Inc. Long Term Incentive Plan and
Form of Notice and Restricted Stock Unit Award
Agreement thereunder
10-Q
10.4
March 5, 2020
10.8#
Amended and Restated 2020 Stock Plan and forms of
agreement thereunder
10-Q
10.1
December 8, 2023
10.9#
Form of Restricted Stock Unit Award Agreement for
Company Employees under the Guidewire Software, Inc.
Amended and Restated 2020 Stock Plan
10-K
10.9
September 18, 2023
10.10#
Form of Global Restricted Stock Unit Award Agreement for
Company Employees under the Guidewire Software, Inc.
Amended and Restated 2020 Stock Plan
10-K
10.10
September 18, 2023
10.11#
Form of Stock Option Agreement under the Guidewire
Software, Inc. Amended and Restated 2020 Stock Plan
10-K
10.11
September 18, 2023
Table of Contents
10.12#
Form of Global Stock Option Agreement under the
Guidewire Software, Inc. Amended and Restated 2020
Stock Plan
10-K
10.12
September 18, 2023
10.13#
Form of Restricted Stock Award Agreement under the
Guidewire Software, Inc. Amended and Restated 2020
Stock Plan
10-K
10.13
September 18, 2023
10.14#
Form of Performance-Based Restricted Stock Award
Agreement under the Guidewire Software, Inc. Amended
and Restated 2020 Stock Plan
10-K
10.14
September 18, 2023
10.15#
Guidewire Software, Inc. Senior Executive Incentive Bonus
Plan
S-1/A
10.12
December 13, 2011
10.16#
Guidewire Software, Inc. Form of Executive Agreement
10-K
10.16
September 18, 2023
10.17#
Executive Agreement between Guidewire Software, Inc.
and Michael Rosenbaum, dated as of August 3, 2019
8-K
10.1
August 5, 2019
10.18#
First Amendment to Executive Agreement between
Guidewire Software, Inc. and Mike Rosenbaum, dated as of
November 4, 2020
10-Q
10.1
December 9, 2020
10.19#
Executive Agreement between Guidewire Software, Inc.
and John Mullen, dated as of February 3, 2022
10-Q
10.1
June 7, 2022
10.20#
Form of Indemnification Agreement for directors and
executive officers
S-1/A
10.1
October 28, 2011
10.21
Guidewire Software, Inc. Form of Capped Call
Confirmation
8-K
10.1
March 13, 2018
10.22
Lease Agreement between Bay Meadows Station 2
Investors, LLC and Guidewire Software, Inc. dated as of
December 18, 2017
10-K
10.11
September 19, 2018
10.23
Assignment of Lease, dated as of February 11, 2023, by and
between Guidewire Software, Inc. and Roblox Corporation
8-K
10.1
March 3, 2023
10.24
Sublease, dated as of February 11, 2023, by and between
Roblox Corporation and Guidewire Software, Inc.
8-K
10.2
March 3, 2023
21.1
Subsidiaries of the Registrant
Filed herewith
—
—
23.1
Consent of KPMG LLP, Independent Registered Public
Accounting Firm
Filed herewith
—
—
31.1
Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act
Filed herewith
—
—
31.2
Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act
Filed herewith
—
—
32.1*
Certification of the Chief Executive Officer and the Chief
Financial Officer pursuant to Section 906 of the Sarbanes-
Oxley Act
Furnished herewith
—
—
101.INS
Inline XBRL Instance Document
Filed herewith
—
—
101.SCH
Inline XBRL Taxonomy Extension Schema Document
Filed herewith
—
—
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase
Document
Filed herewith
—
—
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase
Document
Filed herewith
—
—
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase
Document
Filed herewith
—
—
Table of Contents
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase
Document
Filed herewith
—
—
104
Cover Page Interactive Data File (formatted as inline XBRL
with applicable taxonomy extension information contained
in Exhibits 101)
Filed herewith
—
—
#
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
Signatures
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.
Date: September 16, 2024
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
Title
Date
/s/ MIKE ROSENBAUM
Chief Executive Officer and Director (Principal Executive Officer)
September 16, 2024
Mike Rosenbaum
/s/ JEFF COOPER
Chief Financial Officer (Principal Financial and Accounting Officer)
September 16, 2024
Jeff Cooper
/s/ MICHAEL KELLER
Director (Chairman of the Board)
September 16, 2024
Michael Keller
/s/ DAVID BAUER
Director
September 16, 2024
David Bauer
/s/ MARGARET DILLON
Director
September 16, 2024
Margaret Dillon
/s/ PAUL LAVIN
Director
September 16, 2024
Paul Lavin
/s/ CATHERINE P. LEGO
Director
September 16, 2024
Catherine P. Lego
/s/ RAJANI RAMANATHAN
Director
September 16, 2024
Rajani Ramanathan
/s/ MARCUS S. RYU
Director
September 16, 2024
Marcus S. Ryu
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, 2024, 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.
DESCRIPTION OF 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, 2024.
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 when, as and if 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, rights and terms of redemption (including sinking fund provisions), 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 the board of directors, chairperson of the board of directors, chief executive officer or president (in the absence of a chief executive officer)
or the corporate secretary at the written request of one or more holders of record of at least twenty percent (20%) of all then outstanding shares of capital
stock of the Company entitled to vote at such meeting, but a special meeting may not be called by any other person or persons. These restrictions may delay
the ability of our stockholders to force consideration of a proposal, 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. Each director shall be elected to hold office for a one-year term expiring at the next annual meeting of
stockholders, subject to any limitations set forth in our amended and restated bylaws. 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 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. 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 our amended and restated 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.
Exhibit 21.1
Subsidiaries of the Registrant
Subsidiary
Country or Jurisdiction
Guidewire Software Pty Ltd.
Australia
Guidewire Servicios de Software Services do Brazil Ltda
Brazil
Guidewire Software Canada ULC
Canada
Guidewire Software Denmark ApS
Denmark
Guidewire Software France S.A.S
France
Guidewire Software GmbH
Germany
Guidewire Software Solutions India Private Limited
India
Guidewire Software (Ireland) Limited.
Ireland
Guidewire Software (Italy) S.r.l.
Italy
Guidewire Software Japan K.K.
Japan
Guidewire Software (Malaysia) Sdn. BHD
Malaysia
Guidewire Software (Mexico) S. de R.L. de C.V
Mexico
Guidewire Software Poland Sp. z o.o.
Poland
Guidewire Software Spain, S.L.
Spain
Guidewire Software (Switzerland) GmbH
Switzerland
Guidewire Software (UK) Limited
United Kingdom
Cyence LLC
United States (Delaware)
EagleEye Analytics, LLC
United States (Delaware)
HazardHub LLC
United States (Delaware)
Guidewire International Holdings, Inc.
United States (Delaware)
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statements (333-277769, 333-270321, 333-253968, 333-230132, 333-223478, 333-216530,
333-209906, 333-202541, 333-194290, 333-187004, and 333-479799) on Form S-8 of Guidewire Software, Inc. of our report dated September 16, 2024,
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 16, 2024
Exhibit 31.1
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
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 registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
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 16, 2024
By:
/s/ MIKE ROSENBAUM
Mike Rosenbaum
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
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
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 registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
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 16, 2024
By:
/s/ JEFF COOPER
Jeff Cooper
Chief Financial Officer
(Principal Financial and Accounting Officer)
Exhibit 32.1
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
In connection with the Annual Report on Form 10-K of Guidewire Software, Inc. for the year ended July 31, 2024 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 16, 2024
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, 2024 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 16, 2024
By:
/s/ JEFF COOPER
Jeff Cooper
Chief Financial Officer
(Principal Financial and Accounting Officer)