Guidewire Software's CEO Discusses F4Q 2012 Results - Earnings Call Transcript
September 4, 2012 11:47 PM ET
Guidewire Software, Inc. (GWRE)
Fiscal Q4 2012 Earnings Call
September 4, 2012 5:00 p.m. EDT
Karen Blasing – CFO
Marcus Ryu – CEO
Thomas Ernst – Deutsche Bank
Sterling Auty – J.P. Morgan
Tom Roderick – Stifel Nicolaus
Brendan Barnicle – Pacific Crest Securities
Ken Wong – Citi
Good day and welcome to the Guideware fourth quarter and fiscal year 2012 earnings conference call. As a reminder, today's conference is being recorded.
At this time, I'd like to turn the conference over to Karen Blasing, Chief Financial Officer. Please go ahead.
Good afternoon and welcome to Guidewire Software's earnings conference call for the fourth quarter and full year fiscal 2012 which ended on July 31. This is Karen Blasing, Chief Financial Officer of Guidewire, and with me on the call is Marcus Ryu, Guidewire's Chief Executive Officer.
A complete disclosure of our results can be found in our press release issued today, as well as in our related Form 8-K furnished to the SEC. To access the press release and the financial details, please see the Investor Relations section of our website at www.guidewire.com. As a reminder, today's call is being recorded and a replay will be available following the conclusion of the call.
During today's call, we will make statements related to our business that may be considered forward-looking under federal securities laws. These statements reflect our views only as of today and should not be reflected upon as representing our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. These risks are summarized in the press release that we issued today. For a further discussion of the material risks and other important factors that could affect our actual results, please refer to our quarterly report for the period ended April 30, 2012 and the final prospectus for our follow-on offering which are on file with the SEC.
Also, during the course of today's call, we will refer to certain non-GAAP financial measures. A reconciliation schedule showing GAAP versus non-GAAP results has been provided in our press release issued after the close of market today.
Finally, at times in our prepared comments or responses to your questions, we may offer incremental metrics to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that this additional detail may be one-time in nature and we may or may not provide an update in the future.
With that, let me turn the call over to Marcus for his prepared remarks, and then I will provide details regarding our fourth quarter and full year results and our outlook for fiscal 2013.
Thanks, Karen; and welcome to all of you. I'm pleased to report that our fourth quarter was a strong finish to a very good year for Guidewire, including revenue and profitability that were again both ahead of our expectation.
Total revenue of $67.6 million grew 33% from a year ago and was $4.6 million above the high end of our guidance. And similar to Q3, all revenue lines this quarter performed well.
As an enterprise, we care most about growing our base of recurring revenue, deriving from multiyear licenses and ongoing maintenance agreements, both of which are built annually and on which we have historically enjoyed extremely high renewal rates. Our full year term license revenue was up 24% year over year and our rolling fourth quarter recurring revenue, which add term license and annual maintenance together, totaled $104 million at the end of fiscal 2012, up 28% from $81.9 million at the end of fiscal 2011.
Our revenue upside flowed to the bottom line to produce non-GAAP operating income of $9.6 million in the quarter, which was also above the high end of guidance, and yielded a 14.3% non-GAAP operating margin. Non-GAAP net income was $0.10 per share, $0.05 above the high end of guidance. We ended the year with 837 employees, up 29% from a year ago.
Though headcount grew considerably during the quarter, with an all-time recruiting high of 68 new employees, we did not reach the even more aggressive headcount growth built into guidance, and this contributed to our earnings upside. We continue to recruit and have aggressive hiring plans across the company.
A primary driver to our overall financial outperformance in the fourth quarter was our services revenue which at $30.8 million was up 60% from a year ago, considerably ahead of plan and reflecting unexpectedly strong growth in the number and scale of our implementation. As we shared in our last two calls, utilization rates are above our long-term target, particularly as our systems integrator partners ramp up their knowledge and credentials in the policy and suite domains as they did with ClaimCenter over the last several years. In the meanwhile, it is important to understand that our professionals services form the foundation for our lifelong, highly referenceable customer relationships, which drives market share gains and which we believe will impose a formidable barrier to entry for new entrants.
Our services are also profitable and provide positive cash flow, and the demand for Guidewire services reflects our current momentum in replacing legacy policy systems, the largest segment of the multibillion-dollar market for insurance core systems software. Our experience suggests that the complexity and criticality of policy replacement leads to this segment being several years behind claims, but upwards of 50% to 75% more valuable per unit premium. So we are very encouraged by the strong demand we are experiencing as exemplified by several strategic sales in the fourth quarter that I'd like to highlight.
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