Guidewire(US:GWRE)2024-12-05 23:13Part I – Financial Information Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements for the quarterly period ended October 31, 2024, encompassing key financial statements and their accompanying notes Condensed Consolidated Financial Statements The company reported increased total assets and revenue, achieving net income and improved operating cash flow for the quarter ended October 31, 2024 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Oct 31, 2024 | July 31, 2024 | | :--- | :--- | :--- | | Total current assets | $1,637,292 | $1,295,534 | | Total assets | $2,596,697 | $2,226,294 | | Total current liabilities | $615,237 | $837,635 | | Total liabilities | $1,328,668 | $883,562 | | Total stockholders' equity | $1,268,029 | $1,342,732 | Condensed Consolidated Statement of Operations Highlights (in thousands) | Account | Three Months Ended Oct 31, 2024 | Three Months Ended Oct 31, 2023 | | :--- | :--- | :--- | | Total revenue | $262,901 | $207,407 | | Subscription and support | $169,742 | $127,627 | | Total gross profit | $158,392 | $112,292 | | Income (loss) from operations | $(4,720) | $(33,781) | | Net income (loss) | $9,139 | $(27,071) | | Diluted EPS | $0.11 | $(0.33) | Condensed Consolidated Statement of Cash Flows Highlights (in thousands) | Account | Three Months Ended Oct 31, 2024 | Three Months Ended Oct 31, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(62,305) | $(72,083) | | Net cash provided by (used in) investing activities | $(77,601) | $(27,793) | | Net cash provided by (used in) financing activities | $415,507 | $0 | Notes to Condensed Consolidated Financial Statements These notes detail the company's accounting policies, revenue recognition, and significant financial transactions including debt issuances and a new credit facility - The company operates as a single reportable segment, providing a technology platform for the property and casualty insurance industry3034 Revenue by Product Type (in thousands) | Product Type | Q1 FY2025 (ended Oct 31, 2024) | Q1 FY2024 (ended Oct 31, 2023) | | :--- | :--- | :--- | | Subscription | $152,858 | $109,597 | | Support | $16,884 | $18,030 | | Term license | $37,370 | $33,977 | | Services | $55,789 | $45,755 | | Total revenue | $262,901 | $207,407 | - As of October 31, 2024, the company had approximately $2.0 billion in remaining performance obligations, which will be recognized as revenue in future periods54 - In October 2024, the company issued $690.0 million of 1.25% Convertible Senior Notes due 2029 and retired $120.9 million of its 2025 notes for $200.5 million in cash7778 - Subsequent to the quarter end, on December 2, 2024, the company entered into a new $300.0 million senior secured revolving credit facility maturing in December 2029102 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial performance, highlighting revenue growth, improved gross margins, and the impact of its cloud transition strategy - Annual Recurring Revenue (ARR) was $874 million as of October 31, 2024, up from $864 million as of July 31, 2024, measured on a constant currency basis136 Free Cash Flow (in thousands) | Metric | Three Months Ended Oct 31, 2024 | Three Months Ended Oct 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(62,305) | $(72,083) | | Purchases of property and equipment | (843) | (998) | | Capitalized software development costs | (4,233) | (3,692) | | Free cash flow | $(67,381) | $(76,773) | - Total revenue increased 27% YoY, primarily driven by a $43.3 million (39%) increase in subscription revenue from new cloud transition agreements and renewals155157 - Total gross margin improved to 60% from 54% in the prior-year period, driven by higher subscription revenue and improved cloud operations efficiencies173174 - Total operating expenses increased 12% YoY to $163.1 million, primarily due to higher personnel costs in R&D and Sales & Marketing to support business growth179 Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks include interest rate sensitivity on its investment portfolio and foreign currency exchange rate fluctuations - The company's primary market risk exposures are interest rate sensitivity and foreign currency exchange risk224 - As of October 31, 2024, a hypothetical 1% increase in interest rates is estimated to decrease the market value of available-for-sale securities by $3.8 million225 - A hypothetical 10% change in foreign currency exchange rates is estimated to result in a transaction gain or loss of approximately $45.0 million, highlighting the impact of operating in currencies like the Australian Dollar, British Pound, Canadian Dollar, Euro, Indian Rupee, and Polish Zloty226 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of October 31, 2024, with no material changes in internal control over financial reporting - Management concluded that as of October 31, 2024, the company's disclosure controls and procedures were effective230 - No changes were identified in the company's internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, its internal controls232 Part II – Other Information Legal Proceedings The company states that it is not currently involved in any legal proceeding that is likely to have a material adverse effect on its business or financial position - The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business or financial position236 Risk Factors This section outlines material risks to the company's business, including market fluctuations, cloud model acceptance, customer concentration, and AI-related challenges - Key business risks include potential significant fluctuations in quarterly results, reliance on the market for cloud services, dependence on a small number of large P&C insurance customers, and lengthy sales cycles238 - The company faces risks related to its business model focused on cloud-based offerings, as ratable revenue recognition may negatively impact short-term reported revenue growth compared to term licenses248250 - The development and use of AI technologies present risks including potential for unforeseen defects, uncertain intellectual property rights, and potential for reputational harm or legal liability from flawed AI-generated content275276280 - Cybersecurity breaches are a significant risk, as the company's products involve storing and processing critical customer data, potentially leading to litigation, reputational harm, and loss of customers337338 Other Information This section discloses that several executive officers, including the CEO, CFO, and President, adopted Rule 10b5-1 trading plans on October 15, 2024, with sales scheduled to occur periodically from January 15, 2025, through late 2025 - During the quarter, several officers and directors, including the CEO Mike Rosenbaum and CFO Jeff Cooper, adopted Rule 10b5-1 trading arrangements for future sales of company stock453 Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO, and documents related to the company's new credit agreement and convertible notes