10q10k10q10k.net

What changed in Guidewire Software, Inc.'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of Guidewire Software, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+357 added−323 removedSource: 10-K (2023-09-18) vs 10-K (2022-09-26)

Top changes in Guidewire Software, Inc.'s 2023 10-K

357 paragraphs added · 323 removed · 260 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

55 edited+8 added−10 removed73 unchanged
Biggest changeWhile 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.
Biggest changeIn 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 .
Our support fees are typically priced as a fixed percentage of the associated license fees. We also offer professional services, both directly and through SI partners, to help our customers deploy, migrate, and utilize our services, products, and platform. A majority of our services revenue is billed monthly on a time and materials basis.
Our support fees are typically priced as a fixed percentage of the associated license fees. We also offer professional services, both directly and through SI partners, to help our customers deploy, migrate, and utilize our platform, services, and products. A majority of our services revenue is billed monthly on a time and materials basis.
Insurers benefit from an optimized division of labor and risk, allowing third parties to manage their infrastructure as they focus on competitively differentiating activities. • Data Driven Decision-Making . Insurers are seeking to explore, visualize, and analyze proprietary and third-party data to optimize decision-making across the insurance lifecycle.
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.
Digital Engagement Table of Contents 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.
Digital Engagement Guidewire Digital Engagement Applications Table of Contents Our Digital Engagement Applications enable insurers to provide digital experiences to customers, agents, vendors, and field personnel through their device of choice.
The shift to cloud-delivered solutions has also required significant focus in improving our ability to manage, secure, and operate our applications since our cloud-based deployments, unlike our self-managed implementations, shift many operational responsibilities to us. Our cloud infrastructure is designed to maximize the security, stability, scalability and efficiency of our applications.
The prioritization of cloud-delivered solutions has also required significant focus in improving our ability to manage, secure, and operate our applications since our cloud-based deployments, unlike our self-managed implementations, shift many operational responsibilities to us. Our cloud infrastructure is designed to maximize the security, stability, scalability and efficiency of our applications.
Additionally, as subscriptions increase as a percentage of total sales, the revenue we can recognize in the initial fiscal quarter and fiscal year of an order is reduced, deferred revenue increases, and our reported revenue growth will be adversely affected in the near term due to the ratable nature of these arrangements.
As subscriptions increase as a percentage of total sales, the revenue we can recognize in the initial fiscal quarter and fiscal year of an order is reduced, deferred revenue increases, and our reported revenue growth will be adversely affected in the near term due to the ratable nature of these arrangements.
The success of our sales efforts relies on continued improvements and enhancements to our current services and products, the introduction of new services and products, efficient operation of our cloud infrastructure, continued development of relevant local content and automated tools for updating content, and successful implementations.
The success of our sales efforts relies on continued improvements and enhancements to our current services and products, the introduction of new services and products, efficient operation of our cloud infrastructure, continued development of relevant local content and automated tools for updating content, and successful implementations and migrations.
To accomplish these objectives, we rely on a combination of patent, trademark, copyright, and trade secret laws in the United States and other jurisdictions, as well as license agreements and other contractual protections. We own or have pending patents and patent applications, which generally apply to our software. Our owned patents have expiration dates starting in 2025.
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 Table of Contents to our software. Our owned patents have expiration dates starting in 2025.
Guidewire InsuranceSuite for Self-Managed Guidewire InsuranceSuite for Self-Managed is comprised of three primary applications (PolicyCenter, BillingCenter, and ClaimCenter) that can be licensed separately or together and can be deployed and updated by our customers and their implementation partners on their premises or in a third-party cloud infrastructure.
Guidewire InsuranceSuite for Self-Managed Table of Contents Guidewire InsuranceSuite for Self-Managed is comprised of three primary applications (PolicyCenter, BillingCenter, and ClaimCenter) that can be licensed separately or together and can be deployed and updated by our customers and their implementation partners on their premises or in a third-party cloud infrastructure.
We gauge progress and efficacy, identify opportunities for change, and pursue solutions through tracking and analyzing data from various sources such as annual talent reviews and our progress toward hiring/promotion goals in our development, diversity and inclusion plans.
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 in our development, diversity and inclusion plans.
We believe insurers that adopt modern core systems can enhance customer experience, operate more efficiently, and introduce innovative services and products more rapidly. We believe the P&C insurance industry is experiencing accelerating change in how insurers engage with, sell to, and manage relationships with consumers and businesses.
We believe insurers Table of Contents that adopt modern core systems can enhance customer experience, operate more efficiently, and introduce innovative services and products more rapidly. We believe the P&C insurance industry is experiencing accelerating change in how insurers engage with, sell to, and manage relationships with consumers and businesses.
Additionally, we provide tools for automation and self-service of routine implementation and deployment tasks to increase our customers’ agility while providing enterprise-grade performance, availability, privacy, and security.
Additionally, we provide tools for automation and self-service of routine implementation and deployment tasks to increase our customers’ agility while providing performance, availability, privacy, and security.
Our current competitors include, but are not limited to, customers’ internally developed proprietary solutions; P&C insurance software vendors such as Duck Creek, EIS Group, Insurity, Majesco, Prima Solutions, RGI, Origami Risk, and Sapiens; and horizontal software vendors such as SAP and Salesforce.
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.
Our sales, marketing, and executive teams work together to cultivate long-term relationships with current and prospective customers in each of the geographies in which we are active. Table of Contents 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.
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.
In response to the COVID-19 pandemic, we expanded our physical, mental, and family health programs and informational outreach through professional development opportunities and personal empowerment, safe and healthy workspaces, wellness initiatives (including physical, emotional, and mental health), fair compensation, benefits, and recognition.
In response to the recent pandemic, we expanded our physical, mental, and family health programs and informational outreach through professional development opportunities and personal empowerment, safe and healthy workspaces, wellness initiatives (including physical, emotional, and mental health), fair compensation, benefits, and recognition.
Table of Contents Information about Segment and Geographic Revenue Information about geographic revenue is set forth in Note 2 “Revenue” and information about segment reporting is set forth in Note 13 “Segment Information” to our consolidated financial statements included in this Annual Report on Form 10-K.
Information about Segment and Geographic Revenue Information about geographic revenue is set forth in Note 2 “Revenue” and information about segment reporting is set forth in Note 13 “Segment Information” to our consolidated financial statements included in this Annual Report on Form 10-K.
Insurers may also apply data and machine learning to automate certain tasks whenever possible, thereby enabling efficiencies, such as straight-through processing, that lessen the burden on subject matter experts. • Innovation . Insurers are under pressure to innovate across their product lifecycle in order to grow their business and improve service quality.
Insurers may also apply data Table of Contents 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.
Sales and Marketing Consistent with our industry focus and the mission-critical needs our services and products address, our sales and marketing efforts are tailored to communicate effectively to senior executives within the P&C insurance industry.
Sales and Marketing Table of Contents Consistent with our industry focus and the mission-critical needs our services and products address, our sales and marketing efforts are tailored to communicate effectively to senior executives within the P&C insurance industry.
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 omni-channel interaction rather than the traditional agent model; • a need for 100% digital engagement capabilities; • a growth in demand for personalized services and products; • an increase in technology and market-driven changes in vehicular risk, including usage and driving habit based insurance; • demand for coverage of emerging risks such as terrorism, cybersecurity, pandemic, and reputational risk; • a wealth of data and desire to harness data to improve and grow business; • advances in the use of data and analytics to better market to and engage with customers, price policies, and manage claims; • development of opportunities to compete or partner with non-traditional players that offer disruptive technology-based value propositions; • established industry leaders are facing increased competition from new entrants in the market, including insurtech companies; and • the introduction and leveraging of new technologies, such as drones, artificial intelligence, the “Internet of Things,” chatbots, and telematics.
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 omni-channel interaction rather than the traditional agent model; • a need for 100% digital engagement capabilities; • a growth in demand for personalized services and products; • an increase in technology and market-driven changes in vehicular risk, including usage and driving habit based insurance; • 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; • 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.
Guidewire InsuranceSuite: Complementary Applications We offer several complementary applications designed to work seamlessly with our core operational services and products, including: Guidewire Rating Management Guidewire Rating Management enables P&C insurers to manage the pricing of their insurance services and products.
Guidewire InsuranceSuite: Complementary Capabilities and Applications We offer several complementary capabilities and applications, some of which are included in the core operational services and products, 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.
We began our principal business operations in 2001. Table of Contents 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.
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.
Item 1. Business Overview and Purpose Guidewire delivers a leading platform that property and casualty (“P&C”) insurers trust to engage, innovate, and grow efficiently. Guidewire’s platform combines core operations, digital engagement, analytics, and artificial intelligence (“AI”) applications delivered as a cloud service or self-managed software. Our core operational services and products are InsuranceSuite Cloud, InsuranceNow, and InsuranceSuite for self-managed installations.
Item 1. Business Overview and Purpose Guidewire delivers a leading platform that property and casualty (“P&C”) insurers trust to engage, innovate, and grow efficiently. Guidewire’s platform combines core operations, digital engagement, analytics, machine learning, and artificial intelligence (“AI”) applications delivered as a cloud service or self-managed software. We began our principal operations in 2001.
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 Guidewire is designed to be the platform insurers trust in order to engage, innovate, and grow efficiently.
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.
Table of Contents Guidewire InsuranceNow Guidewire InsuranceNow is a complete, cloud-based core system for P&C insurers in the United States, offering policy, billing, and claims management functionality, plus pre-integrated document production, analytics, and other capabilities, that increases agility without adding complexity.
Guidewire InsuranceNow Guidewire InsuranceNow is a complete, cloud-based core system for P&C insurers in the United States, delivered via GWCP, offering 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.
As of July 31, 2022, we had 3,376 employees, including 1,668 in global product development and operations (comprised of research and development, cloud operations, and technical support), 755 in professional services, 475 in sales and marketing, and 478 in general and administrative roles. As of July 31, 2022, we had 1,775 employees in the United States and 1,601 employees internationally.
As of July 31, 2023, we had 3,415 employees, including 1,717 in global product development and operations (comprised of research and development, cloud operations, and technical support), 784 in professional services, 463 in sales and marketing, and 451 in general and administrative roles. As of July 31, 2023, we had 1,709 employees in the United States and 1,706 employees internationally.
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 Table of Contents 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.
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.
We rely on a multi-national engineering team, which has grown organically and through acquisitions. Competition The software market that caters to the P&C insurance industry is highly competitive and fragmented.
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. Competition The software market that caters to the P&C insurance industry is highly competitive and fragmented.
The acquisition of HazardHub in August 2021 added approximately 160 customers, many of which are not insurers. Strategic Relationships We have extensive relationships with SI, consulting, technology, and industry partners. Our network of partners has expanded as interest in and adoption of our platform has grown.
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 believe strong customer relationships are a key driver of our success given the long-term nature of our customer engagements and importance of customer references for new sales. We focus on developing and maintaining our customer relationships through customer service and account management. Customers are defined as entities that have placed orders for our services or products.
We focus on developing and maintaining our customer relationships through customer service and account management. Customers are defined as entities that have placed orders for our services or products.
We also rely on several registered and unregistered trademarks, as well as pending applications for such registrations, in order to protect our brand both in the United States and internationally. Our investments in services and partners are designed to ensure customer success by committing additional resources to both cloud-based and self-managed implementation projects.
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.
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 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.
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.
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 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.
In some instances, a parent corporation can have multiple entities, or insurance brands, that place orders for our services or products. As of July 31, 2022, we had approximately 520 customers representing approximately 520 insurance brands, also referred to as insurers, using one or more of our services or products in 38 countries.
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, 2023, we had approximately 580 customers representing approximately 540 insurance brands in 40 countries.
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.
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.
We invest in broad-based development for all of our employees in various ways such as skills-building programs, on-demand learning options, mentoring programs, and leadership development courses. In an effort to create more development opportunities for all employees, we are currently expanding our intern, mentoring, and leadership development programs.
In an effort to create more development opportunities for all employees, we are currently expanding our mentoring and leadership development programs.
These services and products are transactional systems of record that support the entire insurance lifecycle, including insurance product definition, distribution, underwriting, policyholder services, and claims management. Our digital engagement applications enable digital sales, omni-channel service, and enhanced claims experiences for policyholders, agents, vendor partners, and field personnel.
Our core operational services and products are InsuranceSuite Cloud, InsuranceNow, and InsuranceSuite for self-managed installations. These services and products are transactional systems of record that support the entire insurance lifecycle, including insurance product definition, distribution, underwriting, policyholder services, and claims management.
We incorporate a wide variety of communication and training activities to encourage collaboration amongst our colleagues around the world. We measure the program’s efficacy and identify opportunities for improvements through an engagement survey distributed annually, with the last survey completed in May 2022, and periodic pulse surveys to elicit feedback.
We measure the program’s efficacy and identify opportunities for improvements through an engagement survey distributed annually, with the last survey completed in July 2023 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.
These evaluation periods can extend further if a customer purchases multiple services and products or is considering a move to a cloud-based subscription for the first time. Sales to new customers also involve extensive customer due diligence and reference checks.
Because our platform is critical to our new and existing customers’ businesses, their decision-making and product evaluation process is thorough, which often results in an extended sales cycle. These evaluation periods can extend further if a customer purchases multiple services and products or is considering a move to a cloud-based subscription for the first time.
We also partner with leading SI consulting firms, certified on our software, to achieve scalable, cost-effective implementations for our customers. Customer Support We provide support for our subscription customers as part of our subscription services and to our license customers for an annual fee based on a percentage of the license fees.
Customer Support Table of Contents 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.
Our platform combines core operations, digital engagement, analytics, and AI applications, so that insurers can increase revenue, reduce operational costs and losses, improve pricing, and engage with a customer base that increasingly demands mobile and automated forms of self-service and communication.
Products Guidewire 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 cloud platform services, products, and marketplace to better serve our customers.
Labor Relations Our employees in the United States are not represented by a labor union; however, in certain foreign locations, there are workers’ councils that represent our employees. We have not experienced any work stoppages, and we consider our relations with our employees to be good.
Additionally, we have transitioned to 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. 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.
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 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.
Attracting, Developing, and Retaining Employees Our recruiting, development, and retention objectives focus on attracting skilled and engaged employees who contribute the talent and diverse perspectives critical to our innovative, forward-looking, and inclusive workforce. Our recruiting process actively sources diverse talent and is designed to reduce bias, supporting our ability to hire candidates with professional qualifications, personal potential, and differing perspectives.
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 involves attracting skilled and engaged employees who contribute the talent and diverse perspectives critical to our innovative, forward-looking, and inclusive workforce.
We strive to work collaboratively with the councils and associations that represent our workers. Customers We market and sell our services and products to a wide variety of global P&C insurers ranging from some of the largest global insurers to national and regional companies.
Customers We market and sell our services and products to a wide variety of global P&C insurers ranging from some of the largest global insurers to national, 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.
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.
InsuranceSuite Cloud applications can be licensed separately or together and are 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. InsuranceSuite Cloud is hosted on Amazon Web Services (“AWS”) and managed by our internal cloud operations team.
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.
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.
Many of these trends, such as digital engagement capabilities and data analytics, have increased in importance as a result of the COVID-19 pandemic. In response to these trends, changes, challenges, and opportunities, we believe that P&C insurers need a core system that can increase agility and enhance digital engagement and analytics offerings.
Many of these trends, such as digital engagement capabilities and data analytics, have increased in importance as a result of the recent pandemic and the resulting change to a more hybrid world.
We believe these efforts can improve financial performance for insurers through increased lead conversions and lower customer churn. Table of Contents • Cloud-Delivered Solutions .
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 .
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.
To support P&C insurers globally, we have localized, and will continue to localize, our platform for use in a variety of international regulatory, language, and currency environments. 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 current benefit and wellness programs drive engagement that positively impacts our culture, job satisfaction, recruiting, and retention programs.
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.
Our flexible work policies expand our ability to hire and retain talent in geographies where we do not have physical offices. Fostering career progression by encouraging regular professional education empowers our employees to pursue their professional goals, which is critical to developing and retaining our employees.
Our recruiting process actively sources diverse talent and is designed to reduce bias, supporting our ability to hire candidates with professional qualifications, personal potential, and differing perspectives. Our flexible work policies expand our ability to hire and retain talent in geographies where we do not have physical offices.
As of July 31, 2022, the Guidewire Marketplace had over 170 partner-developed integrations that have been validated by us and awarded Ready for Guidewire branding and hundreds of Guidewire-developed resources available for download. We anticipate expanding the reach of the Guidewire Marketplace. Technology We have increased the scope of our platform and business through internal development and acquisitions.
The Guidewire Marketplace also empowers customers pursuing innovation initiatives by providing access to a curated collection of insurtech applications. As of July 31, 2023, the Guidewire Marketplace had over 210 partner-developed integrations that have been awarded Ready for Guidewire validation and hundreds of Guidewire-developed resources available for download.
Guidewire InsuranceSuite Cloud Guidewire InsuranceSuite Cloud is comprised of three primary applications (PolicyCenter Cloud, BillingCenter Cloud, and ClaimCenter Cloud) optimized for our GWCP infrastructure. We offer several complementary applications designed to work seamlessly with these primary applications. InsuranceSuite Cloud is hosted on Amazon Web Services (“AWS”) and managed by our internal cloud operations team.
Core Operational Services and Products We offer the following core operational services and products: Guidewire InsuranceSuite Cloud, Guidewire InsuranceNow, and Guidewire InsuranceSuite for Self-Managed. Guidewire InsuranceSuite Cloud Guidewire InsuranceSuite Cloud is comprised of three primary applications (PolicyCenter Cloud, BillingCenter Cloud, and ClaimCenter Cloud) delivered via GWCP.
Positive Corporate Culture Our employees are critical to our success, and we believe creating a positive, inclusive culture is essential to attracting and retaining engaged employees. Our values of integrity, rationality, and collegiality are the foundation of how we work with one another.
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 Analytics and AI offerings enable insurers to manage data more effectively, gain insights into their business, drive operational efficiencies, and better underwrite new and evolving risks. To support P&C insurers globally, we have localized, and will continue to localize, our platform for use in a variety of international regulatory, language, and currency environments.
Our digital engagement applications enable digital sales, omni-channel 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.
Removed
InsuranceSuite Cloud is a highly configurable and scalable product, delivered as a service and primarily comprised of three core applications (PolicyCenter Cloud, BillingCenter Cloud, and ClaimCenter Cloud) that can be subscribed to separately or together. These applications are built on and optimized for our Guidewire Cloud Platform (“GWCP”) architecture and leverage our in-house Guidewire cloud operations team.
Added
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.
Removed
InsuranceNow is a complete, cloud-based application that offers policy, billing, and claims management functionality to insurers. InsuranceSuite for self-managed installations is comprised of three core applications (PolicyCenter, BillingCenter, and ClaimCenter) that can be licensed separately or together and can be deployed and updated by our customers and their implementation partners.
Added
Sales to new customers also involve extensive customer due diligence and reference checks.
Removed
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.
Added
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.
Removed
We are investing in research and development to accelerate improvements in our cloud platform services, products, and marketplace to better serve our customers. Core Operational Services and Products We offer the following core operational services and products: Guidewire InsuranceSuite Cloud, Guidewire InsuranceNow, and Guidewire InsuranceSuite for Self-Managed.
Added
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 additional resources to both cloud-based and self-managed implementation projects.
Removed
These applications and content help insurers to rapidly innovate and differentiate their businesses by allowing them to leverage capabilities provided by the Guidewire partner ecosystem to meet their business goals. The Guidewire Marketplace also empowers customers pursuing innovation initiatives by providing access to a curated collection of insurtech applications.
Added
Fostering career progression by encouraging regular professional education empowers our employees to pursue their professional goals, which is critical to developing and retaining our employees. We invest in broad-based development for all of our employees in various ways such as skills-building programs, on-demand learning options, mentoring programs, and leadership development courses.
Removed
As of the end of fiscal year 2022, we had seven ERGs including Womens’ Leadership, African Ancestry, LGBTQ+, Asian and Pacific Islander, and LatinX groups. Guidewire Gives Back (“GGB”) is a program focused on investing in local communities where we operate by encouraging employee volunteerism, philanthropy, and social impact investment.
Added
As of the end of fiscal year 2023, we had eight ERGs including Women’s Leadership, African Ancestry, LGBTQ+ and Allies, Asian and Pacific Islander, Latinx and Hispanic, Early Career Professionals, Visible or Invisible Disabilities, and Veterans groups.
Removed
Table of Contents Health and Wellness We believe a healthy, engaged, and high-performing workforce is part of our competitive advantage. We want all of our employees to thrive, and we regularly re-evaluate how to best support our employees’ wellness, health, and safety through benefits and resources.
Added
Our values of integrity, rationality, and collegiality are the foundation of how we work with one Table of Contents another. We incorporate a wide variety of communication and training activities to encourage collaboration amongst our colleagues around the world.
Removed
Additionally, we have announced our intention to transition to a hybrid work environment in which a significant portion of our workforce will work either in-person on a part-time basis or remotely on a permanent basis.
Added
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.
Removed
Our investments in cloud operations are focused on managing the infrastructure for our cloud-based customers in a secure, efficient, and cost-effective manner.
Removed
For example, in the first quarter of fiscal year 2021, we experienced license revenue growth due to a five-year term license renewal under which revenue was recognized upfront, which overshadowed the comparison with our second fiscal quarter of 2021 and created a challenging comparable period for the first quarter of fiscal year 2022.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

102 edited+53 added−23 removed308 unchanged
Biggest changeFactors that may affect our results of operations include: • the impact of economic downturns and related market volatility caused by economic volatility, inflation, or other national and worldwide events on our business and the businesses of our customers, partners, and vendors; • our ability to attract new domestic and international customers and renew existing customers; • seasonal buying patterns of our potential customers and our ability to sell additional software and services to existing customers; • the proportion and timing of subscription sales as opposed to term or perpetual software licenses, and the variations in revenue recognition between these contract types; • changes in contract durations of term software licenses and renewals; • increases in costs related to cloud operations, product development, and services; • our ability to develop and achieve market adoption of cloud-based services, including the impact of our customers transitioning from term software licenses to subscription services; • erosion in services margins or significant fluctuations in services revenue caused by changing customer demand, negotiated professional services billing rates, investments in customer implementation and migration projects, or fixed fee contracts; • our ability to enter into contracts on favorable terms, including terms related to price, payment timing, service levels, acceptance, and product delivery, especially with customers and prospects that possess substantial negotiating leverage and procurement expertise; • the incurrence of penalties or having to renegotiate contract terms for failing to meet certain contractual obligations, including service levels, product development cycles and functionality, and implementation times and objectives; • security and privacy concerns related to employee data, customer data, and systems that are accessed or otherwise used by our hybrid workforce and customers; • future accounting pronouncements or changes in accounting rules and our related accounting policies, interpretations, and controls; • our ability to realize expected benefits from our acquisitions and other strategic business transactions; • reductions in our customers’ budgets for information technology purchases and delays in their purchasing decisions; • employee retention, the ability to hire appropriate personnel, and the timing of hiring personnel and employee related expenses; Table of Contents • the impact of a recession or any other adverse global economic condition on our business, including pandemics, geographic and political conflicts, trade tariffs, trade agreements, and other uncertainties that may cause a delay in entering into or a failure to enter into significant customer agreements or the fulfillment of professional service arrangements; • adverse litigation judgments, dispute-related settlement payments, or litigation-related costs; • fluctuations in foreign currency exchange rates; and • the effects of inflation or deflation in the economies in which we operate and its impact on our revenues given the multi-year term of most customer agreements.
Biggest changeFactors 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 or perpetual 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, 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; Table of Contents • the impact of a recession or any other adverse global economic condition on our business, including pandemics, geographic and political conflicts, trade tariffs, trade agreements, and other uncertainties that may cause a delay in entering into, 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, including Argentina, whose government is limiting the amount of U.S. dollars that can be sent out of the country, and their impact on interest rates, collection timeframes, and our revenue given the multi-year term of most customer agreements.
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, but revenue is recognized ratably over the initial term; • our term license agreements and multi-year term license renewals generally have annual billing arrangements even though revenue is recognized upfront for the entire committed term; • as customers enter into a subscription agreement to migrate from an existing term license agreement or as we invest in certain cloud implementations to assist our customers with their migration to our cloud services, the timing of revenue recognition may be impacted by the allocation of revenue between different performance obligations; • we may enter into agreements with future product delivery requirements, specified terms for product upgrades or functionality, acceptance terms, early termination rights, or unconditional return rights, which may require us to delay revenue recognition for a period of time; and Table of Contents • 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.
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, but revenue is recognized ratably over the initial term; • our term license agreements and multi-year term license renewals generally have annual billing arrangements even though revenue is recognized upfront for the entire committed term; • as customers enter into a subscription agreement to migrate from an existing term license agreement or as we invest in certain cloud implementations to assist our customers with their migration to our cloud services, the timing of revenue recognition may be impacted by the allocation of revenue between different performance obligations; Table of Contents • 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.
If we Table of Contents are unable to successfully establish these new cloud offerings and navigate our business model transition in light of the foregoing risks and uncertainties, our reputation could suffer and our results of operations could be harmed, which may cause our stock price to decline.
If we are unable to successfully establish these new cloud offerings and navigate our business model transition in light of the Table of Contents foregoing risks and uncertainties, our reputation could suffer and our results of operations could be harmed, which may cause our stock price to decline.
A share repurchase program does not obligate us to repurchase any dollar amount or number of shares, and the program may be suspended or discontinued at any time, which may result in a decrease in the price of our common stock. A share repurchase program could affect the price of our common stock, increase volatility, and diminish our cash reserves.
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.
The consequences of such failure could include, and have included, monetary credits for current or future service engagements, reduced fees for additional services or products sales or upon renewals of existing licenses and services, potential reversals of previously recognized revenue, renegotiating existing customer’s contractual terms, and a customer’s refusal to pay their contractually-obligated license, support, or service fees.
The consequences of such failure could include, and have included, monetary credits for current or future service engagements, reduced fees for additional services or products sales or upon renewals of existing services and products, potential reversals of previously recognized revenue, renegotiating existing customer’s contractual terms, and a customer’s refusal to pay their contractually-obligated license, support, or service fees.
While we expect this reliance to decrease over time as our revenue, customer base and subscription services as a percentage of revenue grows, we expect that we will continue to depend upon a relatively small number of customers for a significant portion of our revenue for the foreseeable future.
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.
Additionally, our stakeholders increasingly expect us to have a culture that embraces diversity and inclusion. Our inability to attract and retain diverse and qualified personnel, or delays in hiring required personnel, may seriously harm our business, results of operations, and financial condition.
Additionally, our stakeholders increasingly 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.
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 Table of Contents 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.
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.
Seasonal and other variations may cause significant fluctuations in our revenues, ARR, results of operations and cash flows, may make it challenging for an investor to predict our performance on a quarterly basis and may prevent us from achieving our quarterly or annual forecasts or meeting or exceeding the expectations of research analysts or investors, which in turn may cause our stock price to decline.
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 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. Table of Contents Any one of our executive officers and other key employees could terminate his or her relationship with us at any time.
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.
Our business is subject to the risks of earthquakes, fire, floods, and other natural catastrophic events, and to interruption by man-made problems such as computer viruses. Our customers are P&C insurers that have experienced, and will likely experience in the future, losses from catastrophes or terrorism that may adversely impact their businesses.
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. Table of Contents 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.
We anticipate that over time we will continue to expand the use and collection of personal information as greater amounts of such personal information may be Table of Contents transferred from our customers to us and we recognize that privacy and data security has become a significant issue in the United States, Europe, the U.K., and many other jurisdictions where we operate.
We anticipate that over time we will continue to expand the use and collection of personal information as greater amounts of such personal information may be transferred from our customers to us and we recognize that privacy and data security has become a significant issue in the United States, Europe, the U.K., and many other jurisdictions where we operate.
Demand for our services and products is affected by a number of factors, some of which are beyond our control, including the successful implementation of our services and products, the timing of development and release of product upgrades and new products by us and our competitors, the cost and effort to migrate from self-managed products to subscription services, the ease of integrating our software to third-party software and services, technological advances that reduce the appeal of our services and products, changes in the regulations that our customers must comply with in the jurisdictions in which they operate, and the growth or contraction in the worldwide market for technological solutions for the P&C insurance industry.
Demand for our services and products is affected by a number of factors, some of which are beyond our control, including the successful implementation of our services and products, the timing of development and release of product upgrades, 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 services and products, changes in the regulations that our customers must comply with in the jurisdictions in which they Table of Contents operate, and the growth or contraction in the worldwide market for technological solutions for the P&C insurance industry.
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.
Table of Contents 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.
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.
Table of Contents 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.
Catastrophes can be caused by various events, including, without limitation, hurricanes, tsunamis, floods, windstorms, earthquakes, hail, tornadoes, explosions, severe weather, epidemics, pandemics, and fires. Climate change and other environmental factors are contributing to an increase in erratic weather patterns globally and intensifying the impact of certain types of catastrophes.
Catastrophes can be caused by various events, including, without limitation, hurricanes, tsunamis, floods, windstorms, earthquakes, hail, tornadoes, explosions, 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.
In addition, we may be subject to fines, penalties, and potential litigation if we fail to comply with applicable privacy and/or data security laws, regulations, standards, and other requirements. The costs of compliance with and other burdens imposed by privacy-related laws, regulations, and standards may limit the use and adoption of our services and products and reduce overall demand.
We may be subject to fines, penalties, and potential litigation if we fail to comply with applicable privacy and/or data security laws, regulations, standards, and other requirements. The costs of compliance with and other burdens imposed by privacy-related laws, regulations, and standards may limit the use and adoption of our services and products and reduce overall demand.
Table of Contents 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.
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.
Table of Contents 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.
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.
Additionally, changes in accounting guidance may cause us to experience greater volatility in our quarterly and annual Table of Contents 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.
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.
Furthermore, we may assume greater responsibilities for implementation of subscription services due to our operating and maintaining the cloud environment for our customers. As a result, we may face risks associated with new and complex implementations, the cost of which may differ from original estimates.
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.
Because our customers rely on our services, products, and support to manage a wide range of operations, the incorrect or improper use of our services and products, our failure to properly train customers on how to efficiently and effectively use our services and products, or our Table of Contents failure to properly provide services to our customers may result in negative publicity or legal claims against us.
Because our customers rely on our services, products, and support to manage a wide range of operations, the incorrect or improper use of our services and products, our failure to properly train customers on how to efficiently and effectively use our services and products, or our failure to properly provide services to our customers may result in negative publicity or legal claims against us.
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 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. Table of Contents We have filed, and may in the future file, patent applications related to certain of our innovations.
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 Table of Contents documentation in multiple languages. Many enterprise customers require higher levels of support than smaller customers.
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.
Although we believe our operating activities act as a natural hedge for a substantial portion of our foreign currency exposure at the cash flow or operating income level because we typically collect revenue and incur costs in the currency of the location in which we provide our software and services, our relationships with our customers are long-term in nature so it is difficult to predict if our operating activities will provide a natural hedge in the future.
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.
Our strategy also includes alliances with such companies. For example, we have made several acquisitions in the past, including most recently in August 2021, we acquired HazardHub, Inc., a leading insurtech provider of API-driven property risk insights.
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.
Some of our services and technologies may use “open source” software, which may restrict how we use or distribute our services or require that we release the source code of certain services and products subject to those licenses. Some of our services and technologies may incorporate software licensed under so-called “open source” licenses.
Some of our services and technologies may use “open source” software, which may restrict how we use or distribute our services or require that we release the source code of certain services and products subject to those licenses. Table of Contents Some of our services and technologies may incorporate software licensed under so-called “open source” licenses.
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.
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 Table of Contents results of operations could be significantly impacted.
Additionally, the change in our business model and the timing of our customers’ decision to transition from self-managed licenses to cloud-based subscription services could negatively affect our ability to forecast the timing and amount of our revenues in any period.
Additionally, the change in our business model and the timing of our customers’ decision to transition from self-managed licenses to cloud-based subscription services could negatively affect our ability to forecast the timing and amount of our revenue in any period.
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. Table of Contents As we expand our product portfolio, we may begin to compete with software and service providers we have not competed against previously.
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.
Our growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of new or enhanced services and products or investments in cloud operations.
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 services and products or investments in cloud operations.
These other factors include the percentage of new customers that enter into subscription services agreements as compared to term license agreements, the revenue impact of allocating total contract consideration between license revenue and subscription and support revenue when existing customers transition from term license to subscription services agreements, investments in certain cloud implementations to assist our customers with their migration to our cloud services, continued growth and efficiency of our cloud operations and technical support teams, and the impact on the global economy as a result of the COVID-19 pandemic, inflation, or other global events and disasters.
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 pandemics, inflation, or other global events and disasters.
Our future success depends upon our ability to continue to attract, train, integrate, and retain highly skilled employees, particularly our executive officers, sales and marketing personnel, professional services personnel, cloud operations personnel, and software engineers, especially as we transition to a business model focused on delivering cloud-based offerings.
Table of Contents Our future success depends upon our ability to continue to attract, train, integrate, and retain highly skilled employees, particularly our executive officers, sales and marketing personnel, professional services personnel, cloud operations personnel, and software engineers, especially as we transition to a business model focused on delivering cloud-based offerings.
The license, subscription, and support of our services and products creates the risk of significant liability claims against us. Our license and subscription agreements with our customers contain provisions designed to limit our exposure to potential liability claims.
The license, subscription, and support of our services and products creates the risk of significant liability claims against us. Our license and subscription agreements with our customers contain provisions designed to limit our exposure to potential Table of Contents liability claims.
Incorrect or improper use of our services and products or our failure to properly train customers on how to utilize our services and products could result in customer dissatisfaction and negatively affect our business, results of operations, financial condition, and growth prospects. Our services and products are complex and are deployed in a wide variety of network environments.
Incorrect or improper use of our services and products or our failure to properly train customers on how to utilize our services and products could result in customer dissatisfaction and negatively affect our business, results of operations, financial condition, and growth prospects. Table of Contents Our services and products are complex and are deployed in a wide variety of environments.
As of July 31, 2022, we had outstanding an aggregate principal amount of $400.0 million of our 1.25% Convertible Senior Notes due 2025 (the “Convertible Senior Notes”).
As of July 31, 2023, we had outstanding an aggregate principal amount of $400.0 million of our 1.25% Convertible Senior Notes due 2025 (the “Convertible Senior Notes”).
Our 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.
Table of Contents 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.
A significant natural disaster, such as an earthquake, Table of Contents tsunami, fire, flood, epidemic, or pandemic, such as the COVID-19 pandemic, could have a material adverse impact on our business, results of operations, and financial condition. In addition, our information technology systems are vulnerable to computer viruses, break-ins, and similar disruptions from unauthorized tampering, such as the Log4j vulnerability.
A significant natural disaster, such as an earthquake, tsunami, fire, flood, epidemic, or pandemic could have a material adverse impact on our business, results of operations, and financial condition. In addition, our information technology systems are vulnerable to computer viruses, break-ins, and similar disruptions from unauthorized tampering, such as the Log4j vulnerability.
Past global economic conditions have resulted in the actual or perceived failure or financial difficulties of many Table of Contents 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.
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.
Table of Contents If we fail to develop new services and products, enhance our existing services and products, or migrate our products to the cloud, our business could be adversely affected, especially if our competitors are able to introduce services and products with enhanced functionality in the cloud.
If we fail to develop new services and products, enhance our existing services and products, or migrate our products to the cloud, our business could be adversely affected, especially if our competitors are able to introduce services and products with enhanced functionality in the cloud.
Changes to laws or regulations affecting privacy could impose additional costs and liabilities, including fines, on us and could limit our use of such information to add value for customers, including for example, the California Consumer Privacy Act, the California Privacy Rights Act, which takes substantial effect on January 1, 2023, and the Court of Justice of the EU’s invalidation of the Privacy Shield framework in July 2020.
Changes to laws or regulations affecting privacy could impose additional costs and liabilities, including fines, on us and could limit our use of such information to add value for customers, including for example, the California Consumer Privacy Act, the California Privacy Rights Act, which substantially went into effect on January 1, 2023, and the Court of Justice of the EU’s invalidation of the Privacy Shield framework in July 2020.
Additionally, the COVID-19 pandemic, current global events, and recent economic conditions have increased attrition and decreased the number of available candidates for open positions, which has increased the time to identify and hire new employees.
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.
Additionally, our customers may be unable to pay outstanding invoices or may request amended payment terms due to the economic impacts from these global events and related implementation Table of Contents delays.
Additionally, our customers may be unable to pay outstanding invoices or may request amended payment terms due to the economic impacts from these global events and related implementation delays.
We will be required to implement the revised standard contractual clauses in relation to our customer arrangements within the relevant time frames, which could increase our compliance costs and adversely affect our business.
We are required to implement the revised standard contractual clauses in relation to our customer arrangements within the relevant time frames, which could increase our compliance costs and adversely affect our business.
Additionally, we are incurring significant expenses to develop our cloud services and scale our cloud operations which may result in further erosion of our subscription and support gross margin. These trends, along with other factors, some of which may be beyond our control, may adversely affect our overall gross and operating margins.
Additionally, we are incurring significant expenses to develop our cloud services and scale 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.
Such repurchases may also be made in compliance with Rule 10b5-1 trading plans entered into Table of Contents by us. The timing, pricing, and sizes of repurchases will depend on a number of factors, including the market price of our common stock and general market and economic conditions.
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.
These conditions may make it difficult for our customers and us to forecast and plan future business activities accurately, and could cause our customers to reevaluate their decision to purchase our services and products, which could delay and lengthen our sales cycles or result in cancellations of planned purchases.
These conditions may make it difficult for our customers and us to forecast and plan future business activities accurately, and could cause our customers to reevaluate their decision to purchase our services and products, which could delay and lengthen our sales cycles, delay or increase pricing pressures on services engagements, or result in cancellations of planned purchases.
Further, revenue recognition standards require significant judgment and estimates that impact our reported revenue and results of operations. Additionally, reported revenue has and will vary from the ARR and cash flow associated with each customer agreement.
Further, revenue recognition standards require significant judgment and estimates that impact our reported revenue and results of operations. Additionally, reported revenue has and will vary from the ARR, a non-GAAP metric, and cash flow associated with each customer agreement.
If approved in the future, share repurchases may be made from time to time, in the open market, in privately negotiated transactions and otherwise, at the discretion of management and in accordance with applicable federal securities laws, including Rule 10b-18 of the Exchange Act, and other applicable legal requirements.
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.
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.
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.
Moreover, acts of terrorism or armed conflict or uncertainty in the geopolitical landscape, including as a result of escalation in the ongoing conflict between Russia and Ukraine, could cause disruptions to our business or our customers’ businesses or the economy as a whole.
Moreover, acts of terrorism or armed conflict or uncertainty in the geopolitical landscape, including as a result of escalation in the ongoing conflict between Russia and Ukraine 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.
Among other things, the guidance eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method.
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.
We generally see increased new orders in our fourth fiscal quarter, which is the quarter ended July 31, due to efforts by our sales team to achieve annual incentives. As a result, a significantly higher percentage of our annual license revenue has historically been recognized in our fourth fiscal quarter.
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.
Additionally, we are unable to control the quantity or quality of Table of Contents resources that our SI partners commit to migrating or implementing our services and products, the quality or timeliness of such migrations and implementations, or the effects of the COVID-19 pandemic and other global events on our SI partners.
Additionally, we are unable to control the quantity or quality of resources that our SI partners commit to migrating or implementing our services and products, the quality or timeliness of such migrations and implementations, or the effects of pandemics and other global events on our SI partners.
Additionally, we have announced our intention to transition to a hybrid work environment in which a large portion of our workforce will work either in-person on a part-time basis or remotely on a permanent basis, which brings new challenges to managing our business and workforce.
Additionally, we have transitioned to 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 new challenges to managing our business and workforce.
Bribery Act of 2010 and other anti-corruption regulations, particularly in emerging market countries; • compliance by international staff with accounting practices generally accepted in the United States, including adherence to our accounting policies and internal controls; • import and export license requirements, tariffs, taxes and other trade barriers; • increased financial accounting, tax and reporting burdens and complexities; • weaker protection of intellectual property rights in some countries; • multiple and possibly overlapping tax regimes; • government sanctions that may interfere with our ability to sell into particular countries, such as Russia; • disruption to our operations caused by epidemics or pandemics, such as COVID-19; and • political, social, and economic instability abroad, terrorist attacks, and security concerns in general.
Bribery Act of 2010 and other anti-corruption regulations, particularly in emerging market countries; • compliance by international staff with accounting practices generally accepted in the United States, including adherence to our accounting policies and internal controls; • import and export license requirements, tariffs, taxes and other trade barriers; • increased financial accounting, tax and reporting burdens and complexities; • weaker protection of intellectual property rights in some countries; • multiple and possibly overlapping tax regimes, including certain Organization for Economic Cooperation and Development (“OECD”) proposals, including the implementation of the global minimum tax under the Pillar Two model rules; • government sanctions that may interfere with our ability to sell into particular countries, such as Russia; • disruption to our operations caused by epidemics or pandemics; and • political, social, and economic instability abroad, terrorist attacks, and security concerns in general.
Our sales efforts involve educating our customers about the use and benefits of our services and products, including the technical capabilities of our services and products and the potential cost savings achievable by organizations deploying our services and products.
Our sales efforts involve educating our customers about the use and benefits of our services and products, including the technical capabilities of our services and products, the potential cost savings achievable by organizations deploying our services and products, and the benefits and risks associated with cloud-based services.
If we experience an increase in the percentage of total revenue represented by services revenue, like we did in fiscal year 2018 due to acquisitions and other factors, such increase could reduce our overall gross and operating margins.
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.
We prepare our consolidated financial statements to conform to United States Generally Accepted Accounting Principles (“GAAP”). These accounting principles are subject to interpretation by the SEC, Financial Accounting Standards Board (“FASB”), and various bodies formed to interpret and create accounting rules and regulations.
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.
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 GAAP may vary from key metrics used to measure our business.
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.
Risks Related to Data Security and Privacy, Intellectual Property, and Information Technology If our products or cloud-based services experience data security breaches or there is unauthorized access to our customers’ data, we may lose current or future customers and our reputation and business may be harmed.
Risks Related to Data Security and Privacy, Intellectual Property, and Information Technology If our products or cloud-based services experience cybersecurity breaches, there is unauthorized access to our customers’ data, or unauthorized use of our services or any of these events are perceived to happen, we may lose current or future customers and our reputation and business may be harmed.
If our security measures are breached or unauthorized access to customer data is otherwise obtained, our cloud services may be perceived as not being secure, customers may reduce the use of or stop using our services, we may incur significant liabilities, and our reputation could be harmed.
If our security measures are breached, unauthorized access to our or our customers’ data, or unauthorized use of our services or any of these events are perceived to happen, our cloud services may be perceived as not being secure, customers may reduce the use of or stop using our services, we may incur significant liabilities, and our reputation could be harmed.
Recently, for example, various parts of the United States have suffered extensive damage due to hurricanes, droughts, floods, severe heat and cold events, fires, and other natural disasters, Germany and other parts of Europe have experienced flooding, and Australia has experienced extensive damage due to fires and flooding.
Recently, for example, various parts of the United States have suffered extensive damage due to hurricanes, droughts, floods, severe heat and cold events, fires, and other natural disasters, the island of Maui in Hawaii has experienced severe fires, Turkey and Syria have experienced severe earthquakes, Germany, Pakistan, and other parts of Europe have experienced flooding, Canada has experienced fires, and Australia has experienced extensive damage due to fires and flooding.
Widespread restrictions on travel and in-person meetings have affected and could continue to affect services delivery, delay implementations, and interrupt sales activity. We cannot predict the duration or the extent of adverse impacts from the COVID-19 pandemic and other global events on our business, results of operations, and financial condition.
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. Failure to manage our expanding operations effectively could harm our business.
Further, our services revenue was 26%, 25%, and 28% of total revenue for fiscal years 2022, 2021, and 2020, respectively. Our services revenue produces lower gross margin than either our license revenue or our subscription and support Table of Contents revenue. The gross margin of our services revenue was negative for fiscal years 2022, 2021, and 2020.
Further, our services revenue was 23% and 26% of total revenue for fiscal years 2023 and 2022, respectively. Our services revenue produces lower gross margin than either our license revenue or our subscription and support revenue. The gross margin Table of Contents of our services revenue was negative in both fiscal years 2023 and 2022.
Starting on January 1, 2021, as a result of Brexit, the U.K. has brought the GDPR into domestic U.K. law with the Data Protection Act 2018 (“U.K. GDPR”), which will remain in force. The U.K.
Table of Contents Since January 1, 2021, as a result of Brexit, the U.K. has brought the GDPR into domestic U.K. law with the Data Protection Act 2018 (“U.K. GDPR”), which remains in force.
In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for convertible instruments.
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.
Additionally, these forum selection clauses may limit our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers or employees, which may discourage the filing of lawsuits against us and our directors, officers and employees, even though an action, if successful, might benefit our stockholders.
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.
Additionally, seasonal patterns may be affected by the timing of particularly large transactions and the large number of renewals that occur in the first fiscal quarter.
Additionally, seasonal patterns may be affected by the timing of particularly large transactions and the number of renewals in a given quarter.
Our future effective tax rates and the value of our deferred tax assets could be adversely affected by changes in, interpretations of, and Table of Contents guidance regarding tax laws, including impacts of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), the Coronavirus Aid, Relief, Economic Security Act of 2020, and the Inflation Reduction Act of 2022.
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 “Tax Act”), 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.
We may be unable to attract and retain suitably qualified individuals who are capable of meeting our growing technical, operational, and managerial requirements, including managing employees and contractors remotely or in a hybrid environment, which has increased in connection with the COVID-19 pandemic and its associated workplace-related ramifications, or we may be required to pay increased compensation in order to do so.
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.
We cannot guarantee that any share repurchase program will be fully consummated or it will enhance stockholder value, and share repurchases could affect the price of our common stock. In October 2020, our board of directors authorized and approved a share repurchase program of up to $200 million of our outstanding common stock.
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 and we entered into an accelerated share repurchase (“ASR”) agreement to repurchase an aggregate $200.0 million of our common stock.
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.
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.
Our current international operations and our plans to expand our international operations subject us to a variety of risks, including: • increased management, travel, infrastructure, and legal compliance costs associated with having multiple international operations; • unique terms and conditions in contract negotiations imposed by customers in foreign countries; • longer payment cycles and difficulties in enforcing contracts and collecting accounts receivable; • the need to localize our contracts and our services and products for international customers; • lack of familiarity with and unexpected changes in foreign regulatory requirements; • increased exposure to fluctuations in currency exchange rates, especially on revenue and ARR; • highly inflationary international economies, such as Argentina; • geographic and political conflicts, such as that between Russia and Ukraine; • the burdens and costs of complying with a wide variety of foreign laws and legal standards, including the General Data Protection Regulation in the European Union (“EU”) and the U.K.; • compliance with the U.S.
Our current international operations and our plans to expand our international operations subject us to a variety of risks, including: • increased management, travel, infrastructure, legal, and compliance costs associated with having multiple international operations; • unique terms and conditions in contract negotiations imposed by customers in foreign countries; • longer payment cycles and difficulties in enforcing contracts and collecting accounts receivable; • the need to localize our contracts and our services and products for international customers; • lack of familiarity with and unexpected changes in foreign regulatory requirements; • increased exposure to fluctuations in currency exchange rates, especially on revenue and ARR; • highly inflationary international economies, such as Argentina which has placed controls on sending U.S. dollars outside of the country and resulted in extended collection periods; • geographic and political conflicts, such as that between Russia and Ukraine and the escalating tensions in the South China Sea; • 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.; • compliance with the U.S.
We are in the early stages of re-architecting our existing services and products and developing new services and products in an effort to offer customers greater choices on how they utilize our software.
We are continually updating our existing services and products and developing new services and products in an effort to offer customers greater choices on how they utilize our software.
We have been required to, and may continue to be required to, reduce the average selling price of our services and products in response to these pressures. If we are unable to avoid reducing our average selling prices, our results of operations could be harmed.
We have been required to, and may continue to be required to, reduce the average selling price and ARR of our services and products, along with agreeing to steeper ramps that delay reaching fully-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.
Revenue mix, as well as declines in our subscription and support gross margin or our services gross margin, could adversely affect our overall gross margin and profitability. Our subscription and support revenue was 42%, 34%, and 27% of total revenue for fiscal years 2022, 2021, and 2020, respectively.
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 48% and 42% of total revenue for fiscal years 2023 and 2022, respectively. Our subscription and support revenue produces lower gross margins than our license revenue.
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.
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 Table of Contents have an adverse effect on our stock price. We do business in Argentina, which is experiencing extremely high inflation and currency fluctuations.
It is critical to our success for us to anticipate changes in technology, industry standards, and customer requirements and to successfully introduce new, enhanced, and competitive services and products to meet our customers’ and prospective customers’ needs on a timely basis. We have invested and intend to increase investments in research and development and cloud operations to meet these challenges.
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 services and products to meet our customers’ and prospective customers’ needs on a timely basis.
Acquisitions and alliances may result in unforeseen operating difficulties and expenditures, be dilutive to earnings, and may not result in the benefits anticipated by such corporate activity.
Acquisitions and alliances, such as our strategic partnerships with One 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.

… 98 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

3 edited+1 added−1 removed0 unchanged
Biggest changeIn the future, we may expand our facilities or add new facilities as we add employees and enter new geographic markets, and we believe that suitable additional or alternative space will be available as needed to accommodate any such growth. We expect to incur additional expenses in connection with such new or expanded facilities.
Biggest changeWe are evaluating our real estate strategy as it relates to the anticipated needs of a hybrid workforce. In the future, we may expand our facilities or add new facilities as we add employees and enter new geographic markets, and we believe that suitable additional or alternative space will be available as needed to accommodate any such growth.
As of July 31, 2022, we also lease facilities for our sales, services, development, operations and administrative activities in various locations in the United States and around the world, including in the Americas, Europe, and Asia-Pacific. We believe that our facilities are suitable to meet our current needs.
As of July 31, 2023, 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.
Item 2. Properties Our corporate headquarters in San Mateo, California consists of approximately 189,000 square feet of space leased through December 2029. Our European headquarters in Dublin, Ireland consists of approximately 85,000 square feet of space leased through March 2032.
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.
Removed
We are evaluating our real estate strategy as it relates to the impact of the COVID-19 pandemic and anticipated needs of a hybrid workforce.
Added
We expect to incur additional expenses in connection with such new or expanded facilities.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+3 added−0 removed2 unchanged
Biggest changeData for the NASDAQ Composite Total Return Index and S&P Software & Services Select Industry Index assume reinvestment of dividends. 7/31/2017 7/31/2018 7/31/2019 7/31/2020 7/31/2021 7/31/2022 Guidewire Software, Inc. $ 100.00 $ 119.46 $ 141.46 $ 163.05 $ 159.65 $ 107.71 NASDAQ Composite-Total Return Index $ 100.00 $ 122.13 $ 131.59 $ 174.72 $ 240.30 $ 204.37 S&P Software & Services Select Industry Index $ 100.00 $ 129.31 $ 156.77 $ 185.57 $ 274.61 $ 193.87 Table of Contents Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities None.
Biggest changeData for the NASDAQ Composite Total Return Index and S&P Software & Services Select Industry Index assume reinvestment of dividends. 7/31/2018 7/31/2019 7/31/2020 7/31/2021 7/31/2022 7/31/2023 Guidewire Software, Inc. $ 100.00 $ 118.42 $ 136.50 $ 133.64 $ 90.16 $ 98.40 NASDAQ Composite-Total Return Index $ 100.00 $ 107.74 $ 143.06 $ 196.76 $ 167.33 $ 195.47 S&P Software & Services Select Industry Index $ 100.00 $ 121.23 $ 143.51 $ 212.36 $ 149.92 $ 177.57 Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities None.
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.
Table of Contents Performance Graph This performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933 or the Exchange Act.
The following graph shows a comparison of the cumulative total return for our common stock, the NASDAQ Composite-Total Return Index and S&P Software & Services Select Industry Index for the period from July 31, 2017 through July 31, 2022. Such returns are based on historical results and are not intended to suggest future performance.
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, 2018 through July 31, 2023. Such returns are based on historical results and are not intended to suggest future performance.
As of July 31, 2022, we had 38 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.
As of July 31, 2023, we had 37 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.
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 29, 2022, the last reported sale price of our common stock on the New York Stock Exchange for fiscal year 2022 was $77.72 per share.
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, 2023, the last reported sale price of our common stock on the New York Stock Exchange for fiscal year 2023 was $84.82 per share.
Added
Purchases of Equity Securities by the Issuer The following table summarizes our repurchase of equity securities during the fiscal quarter ended July 31, 2023: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Approximate Dollar Value (in millions) of Shares That May Yet Be Purchased Under the Plans or Programs (1) May 1, 2023 – May 31, 2023 278,442 $78.94 278,442 $162 June 1, 2023 – June 30, 2023 286,297 $72.80 286,297 $141 July 1, 2023 – July 31, 2023 39,875 $75.05 39,875 $138 Total 604,614 604,614 (1) On September 22, 2022, we announced that our board of directors authorized and approved a share repurchase program of up to $400 million of our outstanding stock.
Added
We began repurchasing shares under this program during the first quarter of fiscal year 2023. As of July 31, 2023, we had $138 million remaining for future share repurchases under the share repurchase program.
Added
The share repurchase program does not obligate us to repurchase any dollar amount or number of shares, and the program may be modified, suspended, or discontinued at any time. There is no stated expiration date for the program.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

87 edited+32 added−29 removed81 unchanged
Biggest changeThe 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, 2022 2021 Gross profit reconciliation: GAAP gross profit $ 352,220 $ 368,213 Non-GAAP adjustments: Stock-based compensation 38,257 33,810 Amortization of intangibles 7,659 13,175 COVID-19 Canada Emergency Wage Subsidy benefit (1) — (1,975) Non-GAAP gross profit $ 398,136 $ 413,223 Income (loss) from operations reconciliation: GAAP income (loss) from operations $ (199,447) $ (105,584) Non-GAAP adjustments: Stock-based compensation 137,011 115,009 Amortization of intangibles 14,081 19,965 COVID-19 Canada Emergency Wage Subsidy benefit (1) — (3,396) Acquisition consideration holdback (2) $ 3,067 — Non-GAAP income (loss) from operations $ (45,288) $ 25,994 Net income (loss) reconciliation: GAAP net income (loss) $ (180,431) $ (66,507) Non-GAAP adjustments: Stock-based compensation 137,011 115,009 Amortization of intangibles 14,081 19,965 COVID-19 Canada Emergency Wage Subsidy benefit (1) — (3,396) Acquisition consideration holdback (2) 3,067 — Amortization of debt discount and issuance costs 14,391 13,617 Changes in fair value of strategic investments (1,538) — Tax impact of non-GAAP adjustments (29,105) (37,379) Non-GAAP net income (loss) $ (42,524) $ 41,309 Tax provision (benefit) reconciliation: GAAP tax provision (benefit) $ (49,284) $ (37,774) Non-GAAP adjustments: Table of Contents Stock-based compensation 37,826 (20,979) Amortization of intangibles 3,936 (4,220) COVID-19 Canada Emergency Wage Subsidy benefit (1) — (135) Acquisition consideration holdback (2) 847 — Amortization of debt discount and issuance costs 4,049 (2,555) Changes in fair value of strategic investments (471) — Tax impact of non-GAAP adjustments (17,082) 65,268 Non-GAAP tax provision (benefit) $ (20,179) $ (395) Net income (loss) per share reconciliation: GAAP net income (loss) per share – diluted $ (2.16) $ (0.79) Non-GAAP adjustments: Stock-based compensation 1.63 1.39 Amortization of intangibles 0.16 0.25 COVID-19 Canada Emergency Wage Subsidy benefit (1) — (0.04) Acquisition consideration holdback (2) 0.03 — Amortization of debt discount and issuance costs 0.17 0.16 Changes in fair value of strategic investments 0.01 — Tax impact of non-GAAP adjustments (0.35) (0.45) Non-GAAP dilutive shares excluded from GAAP net income (loss) per share calculation — (0.03) Non-GAAP net income (loss) per share – diluted $ (0.51) $ 0.49 Shares used in computing Non-GAAP income (loss) per share amounts: GAAP weighted average shares – diluted 83,569,517 83,577,375 Non-GAAP dilutive shares excluded from GAAP income (loss) per share calculation — 805,747 Pro forma weighted average shares – diluted 83,569,517 84,383,122 (1) Effective the second quarter of fiscal year 2021, the COVID-19 Canada Emergency Wage Subsidy benefit has been included as a non-GAAP adjustment.
Biggest changeThe 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, 2023 2022 Gross profit reconciliation: GAAP gross profit $ 458,211 $ 377,176 Non-GAAP adjustments: Stock-based compensation 33,793 34,892 Amortization of intangibles 3,360 7,659 Non-GAAP gross profit $ 495,364 $ 419,727 Income (loss) from operations reconciliation: GAAP income (loss) from operations $ (149,490) $ (199,447) Non-GAAP adjustments: Stock-based compensation 142,842 137,011 Amortization of intangibles 6,888 14,081 Acquisition consideration holdback 2,939 3,067 Net impact of assignment of lease agreement (1) 8,502 — Non-GAAP income (loss) from operations $ 11,681 $ (45,288) Net income (loss) reconciliation: GAAP net income (loss) $ (111,855) $ (180,431) Non-GAAP adjustments: Stock-based compensation 142,842 137,011 Amortization of intangibles 6,888 14,081 Acquisition consideration holdback 2,939 3,067 Amortization of debt discount and issuance costs 1,703 14,391 Changes in fair value of strategic investments 802 (1,538) Net impact of assignment of lease agreement (1) 8,502 — Tax impact of non-GAAP adjustments (22,611) (29,105) Non-GAAP net income (loss) $ 29,210 $ (42,524) Tax provision (benefit) reconciliation: GAAP tax provision (benefit) $ (22,239) $ (49,284) Non-GAAP adjustments: Stock-based compensation 92,849 37,826 Table of Contents Amortization of intangibles 4,677 3,936 Acquisition consideration holdback 1,924 847 Amortization of debt discount and issuance costs 1,105 4,049 Changes in fair value of strategic investments (103) (471) Net impact of assignment of lease agreement (1) 3,196 — Tax impact of non-GAAP adjustments (81,037) (17,082) Non-GAAP tax provision (benefit) $ 372 $ (20,179) Net income (loss) per share reconciliation: GAAP net income (loss) per share – diluted $ (1.36) $ (2.16) Non-GAAP adjustments: Stock-based compensation 1.74 1.63 Amortization of intangibles 0.08 0.16 Acquisition consideration holdback 0.04 0.03 Amortization of debt discount and issuance costs 0.02 0.17 Changes in fair value of strategic investments 0.01 0.01 Net impact of assignment of lease agreement (1) 0.10 — Tax impact of non-GAAP adjustments (0.28) (0.35) Non-GAAP net income (loss) per share – diluted $ 0.35 $ (0.51) Shares used in computing Non-GAAP income (loss) per share amounts: GAAP weighted average shares – diluted 82,176,629 83,569,517 Non-GAAP dilutive shares excluded from GAAP income (loss) per share calculation 466,516 — Pro forma weighted average shares – diluted 82,643,145 83,569,517 (1) During the third quarter of fiscal year 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.
InsuranceSuite Cloud is a highly configurable and scalable product, delivered as a service and primarily comprised of three core applications (PolicyCenter Cloud, BillingCenter Cloud, and ClaimCenter Cloud) that can be subscribed to separately or together. These applications are built on and optimized for our Guidewire Cloud Platform (“GWCP”) architecture and leverage our in-house Guidewire cloud operations team.
InsuranceSuite Cloud is 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.
Table of Contents Table of Contents 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.
Table of Contents 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.
Our Analytics and AI offerings enable insurers to manage data more effectively, gain insights into their business, drive operational efficiencies, and underwrite new and evolving risks. To support P&C insurers globally, we have localized, and will continue to localize, our platform for use in a variety of international regulatory, language, and currency environments.
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 platform for use in a variety of international regulatory, language, and currency environments.
We expect license gross margin will fluctuate based on changes in revenue due to the timing of delivery of new multi-year term licenses and the execution of multi-year term license renewals, as cost of license revenue is expected to be relatively consistent from period to period in the future.
We expect license gross margin to fluctuate based on changes in revenue due to the timing of delivery of new multi-year term licenses and the execution of multi-year term license renewals, as cost of license revenue is expected to be relatively consistent from period to period in the future.
A decrease in orders in a given period could negatively affect our revenues and ARR in future periods, particularly if experienced on a sustained basis, because a substantial proportion of our new software subscription services orders is recognized as revenue over time.
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.
The success of our sales efforts relies on continued improvements and enhancements to our current services and products, the introduction of new services and products, efficient operation of our cloud infrastructure, continued development of relevant local content and automated tools for updating content, and successful implementations.
The success of our sales efforts relies on continued improvements and enhancements to our current services and products, the introduction of new services and products, efficient operation of our cloud infrastructure, continued development of relevant local content and automated tools for updating content, and successful implementations and migrations.
In response to these and other risks we might face, we continue to invest in many areas of our business, including product development, cloud operations, cybersecurity, implementation services, and sales and marketing.
In response to these and other risks we might face, we continue to invest in many areas of our business, including product development, cloud operations, cybersecurity, implementation and migration services, and sales and marketing.
Off-Balance Sheet Arrangements Through July 31, 2022, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Off-Balance Sheet Arrangements Through July 31, 2023, 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.
As such, these general overhead expenses are reflected in cost of revenue and each functional operating expense. Effective as of the beginning of fiscal year 2023, we are revising our allocation methodology to more closely reflect the way our business is managed and to be more comparable to other companies in our industry.
As such, these general overhead expenses are reflected in cost of revenue and each functional operating expense. Effective as of the beginning of fiscal year 2023, we revised our allocation methodology to more closely reflect the way our business is managed and to be more comparable to other companies in our industry.
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 Table of Contents approximately five years.
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.
As we continue to expand into new markets and develop new services and products, we have, and may continue to, enter into contracts with lower average billing rates, make investments in customer implementation and migration engagements, and enter into fixed price contracts, which may impact services revenue and services margins.
As we continue to expand into new markets and develop new services and products, we have, and may continue to, enter into contracts with lower average billing rates, make investments in customer implementation and migration engagements, and enter into fixed price contracts, which may impact services revenue and services margin.
Due to the seasonal nature of our business, the impact of new subscription orders in the fourth fiscal quarter, our historically largest quarter for new orders, is not fully reflected in revenues until the following fiscal year.
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.
In particular, we typically use more cash during the first fiscal quarter, which ends October 31, as we generally pay cash bonuses to our employees for the prior fiscal year and seasonally higher sales commissions from increased customer orders booked in our fourth fiscal quarter of the prior year.
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.
The largest components of our operating expenses are personnel costs for our employees and, to a lesser extent, professional services. In each case, personnel costs include salaries, bonuses, commissions, benefits, and stock-based compensation. We allocate overhead such as information technology support, information security, facilities, and other administrative costs to all functional departments based on headcount.
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.
Management’s Discussion and Analysis of Financial Condition and Results of Operations located in our 10-K for the fiscal year ended July 31, 2021, filed on September 24, 2021, for the discussion of the comparison of the fiscal year ended July 31, 2021 to the fiscal year ended July 31, 2020, the earliest of the three fiscal years presented in the consolidated financial statements.
Management’s Discussion and Analysis of Financial Condition and Results of Operations located in our 10-K for the fiscal year ended July 31, 2022, filed on September 26, 2022, for the discussion of the comparison of the fiscal year ended July 31, 2022 to the fiscal year ended July 31, 2021, the earliest of the three fiscal years presented in the consolidated financial statements.
Management’s Discussion and Analysis of Financial Condition and Results of Operations located in our Form 10-K for the fiscal year ended July 31, 2021, filed on September 24, 2021, for reference to discussion of the fiscal year ended July 31, 2020, the earliest of the three fiscal years presented.
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, 2022, filed on September 26, 2022, for reference to discussion of the fiscal year ended July 31, 2021, the earliest of the three fiscal years presented.
Table of Contents We sell our cloud-delivered offerings through subscription services and our self-managed products through term licenses. We generally price our services and products based on the amount of DWP that will be managed by our platform. Our subscription, term license, and support fees are typically invoiced annually in advance.
Table of Contents We sell our cloud-delivered offerings through subscription services and our self-managed products through term licenses. We generally price our services and products based on the amount of Direct Written Premium (“DWP”) that will be managed by our platform. Our subscription, term license, and support fees are typically invoiced annually in advance.
This means that as we increase arrangements with multiple performance obligations that include services at discounted rates, more of the total contract value will be recognized as services revenue, but our reported ARR amount will not be impacted. In fiscal year 2022, the recurring license and support or subscription contract value recognized as services revenue was $28.9 million.
This means that as we increase arrangements with multiple performance obligations that include services at discounted rates, more of the total contract value will be recognized as services revenue, but our reported ARR amount will not be impacted. In fiscal year 2023, the recurring license and support or subscription contract value recognized as services revenue was $29.6 million.
In instances where we have primary responsibility for the delivery of services, subcontractor fees are expensed as cost of services revenue. In each case, personnel costs include salaries, bonuses, benefits, and stock-based compensation. We allocate overhead such as information technology support, information security, facilities, and other administrative costs to all functional departments based on headcount.
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 a result, we expect the increase in subscription orders as a percentage of total new sales and customers migrating from term licenses to subscription services will continue to reduce the growth in, or result in lower, support revenue in the future.
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.
Our business and financial results since the third quarter of fiscal year 2020 have been impacted due to these disruptions, which has effected our annual recurring revenue (“ARR”) growth rates, services revenue and margins, operating cash flow and expenses, potentially higher employee attrition, challenges in hiring necessary personnel, and the change in fair value of strategic investments.
Our business and financial results since the third quarter of fiscal year 2020 have been impacted due to these disruptions, which has affected our ARR growth rates, services revenue and margins, operating cash flow and expenses, potentially higher employee attrition, challenges in hiring and onboarding necessary personnel, and the change in fair value of strategic investments.
As a result, general overhead expenses are reflected in cost of revenue and each functional operating expense. Effective as of the beginning of fiscal year 2023, we are revising our allocation methodology to more closely reflect the way our business is managed and to be more comparable to other companies in our industry.
As such, these general overhead expenses are reflected in cost of revenue and each functional operating expense. Effective as of the beginning of fiscal year 2023, we revised our allocation methodology to more closely reflect the way our business is managed and to be more comparable to other companies in our industry.
Table of Contents Commitments and Contractual Obligations Our estimated future obligations consist of leases, royalties, purchase obligations, debt, and taxes as of July 31, 2022. Refer to Note 9 “Commitments and Contingencies” and Note 11 “Income Taxes” to our consolidated financial statements included in this Annual Report on Form 10-K for more information.
Table of Contents Commitments and Contractual Obligations Our estimated future obligations consist of leases, royalties, purchase obligations, debt, and taxes as of July 31, 2023. Refer to Note 8 “Leases,” Note 9 “Commitments and Contingencies,” and Note 11 “Income Taxes” to our consolidated financial statements included in this Annual Report on Form 10-K for more information.
ARR growth rates and revenue, especially services revenue, continued to be impacted in fiscal year 2022 as a result of these challenges. Additionally, in recent quarters, inflation has reached levels that have not been seen for decades, which is impacting the global economy and magnifying the impact of these and other disruptions.
Our sales cycles, ARR growth rates and revenue, especially services revenue, continued to be impacted as a result of these disruptions and challenges. Additionally, in recent quarters, inflation has reached levels that have not been seen for decades, which is impacting the global economy and magnifying the impact of these disruptions.
Overview Guidewire delivers a leading platform that property and casualty (“P&C”) insurers trust to engage, innovate, and grow efficiently. Guidewire’s platform combines core operations, digital engagement, analytics, and artificial intelligence (“AI”) applications delivered as a cloud service or self-managed software.
Overview Guidewire delivers a leading platform that property and casualty (“P&C”) insurers trust to engage, innovate, and grow efficiently. Guidewire’s platform combines core operations, digital engagement, analytics, machine learning and AI applications delivered as a cloud service or self-managed software.
Our investments primarily consist of corporate debt securities, U.S. government and agency debt securities, commercial paper, asset-backed securities, and non-U.S. government securities, which include state, municipal and foreign government securities. As of July 31, 2022, approximately $44.9 million of our cash and cash equivalents were domiciled in foreign jurisdictions.
Our investments primarily consist of corporate debt securities, U.S. government and agency debt securities, commercial paper, asset-backed securities, and non-U.S. government securities, which include state, municipal and foreign government securities. As of July 31, 2023, approximately $55.6 million of our cash and cash equivalents were domiciled in foreign jurisdictions.
Our customers may be unable to pay or may request amended payment terms for their outstanding invoices due to the economic impacts from COVID-19 and inflation, and we may need to increase our accounts receivable allowances.
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.
As of July 31, 2022, we had unrecognized tax benefits of $11.8 million that, if recognized, would affect our effective tax rate, as certain unrecognized tax benefits have a valuation allowance. The effective tax rate could differ from the statutory U.S.
As of July 31, 2023, we had unrecognized tax benefits of $12.9 million that, if recognized, would affect our effective tax rate, as certain unrecognized tax benefits have a valuation allowance. The effective tax rate could differ from the statutory U.S.
Liquidity and Capital Resources Our principal sources of liquidity are as follows (in thousands): July 31, 2022 July 31, 2021 Cash, cash equivalents, and investments $ 1,163,675 $ 1,346,591 Working capital $ 915,185 $ 1,054,971 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.
Liquidity and Capital Resources Our principal sources of liquidity are as follows (in thousands): July 31, 2023 July 31, 2022 Cash, cash equivalents, and investments $ 927,467 $ 1,163,675 Working capital $ 726,342 $ 915,185 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.
The $1.8 million decrease in our cost of license revenue was primarily due to a decrease in amortization of acquired intangible assets of $1.5 million due to certain acquired intangible assets being fully amortized and lower personnel costs associated with the development of online training curriculum included with the latest releases of InsuranceSuite of $0.8 million.
The $2.3 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 $1.7 million, royalties of $0.4 million, and amortization of intangibles of $0.1 million due to certain acquired intangible assets being fully amortized.
We will continue to evaluate the nature and extent of the impact of COVID-19 on our business. Table of Contents 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.
Table of Contents 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.
The change will result in facilities expenses, information technology infrastructure and software expenses, and information security infrastructure and software expenses being Table of Contents allocated to all functional departments based on headcount, while the remaining expenses will be recorded within general and administrative expenses.
The change resulted in facilities expenses, information technology infrastructure and software expenses, and information security infrastructure and software expenses being Table of Contents allocated to all functional departments based on headcount, while other previously allocated expenses are recorded within general and administrative expenses.
For a further discussion of our operating cash flows, see “Liquidity and Capital Resources – Cash Flows.” Fiscal years ended July 31, 2022 2021 (in thousands) Net cash provided by (used in) operating activities $ (37,940) $ 111,587 Purchases of property and equipment (9,510) (19,008) Capitalized software development costs (12,266) (9,846) Free cash flow $ (59,716) $ 82,733 Table of Contents Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with GAAP.
For a further discussion of our operating cash flows, see “Liquidity and Capital Resources – Cash Flows.” Fiscal years ended July 31, 2023 2022 (in thousands) Net cash provided by (used in) operating activities $ 38,395 $ (37,940) Purchases of property and equipment (5,821) (9,510) Capitalized software development costs (11,606) (12,266) Free cash flow $ 20,968 $ (59,716) Table of Contents Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with GAAP.
Subscription revenue is recognized ratably over the term of the arrangement, Table of Contents 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 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.
The change will result in facilities expenses, information technology infrastructure and software expenses, and information security infrastructure and software expenses being allocated to all functional departments based on headcount, while the remaining expenses will be recorded within general and administrative expenses.
The change resulted in facilities expenses, information technology infrastructure and software expenses, and information security infrastructure and software expenses being allocated to all functional departments based on headcount, while other previously allocated expenses are recorded within general and administrative expenses.
During the fiscal year ended July 31, 2022, we repurchased 322,545 shares of common stock at an average price of $116.11 per share for an aggregate Table of Contents purchase price of $37.5 million.
During the fiscal year ended July 31, 2022, we repurchased 322,545 shares of common stock at an average price of $116.11 per share for an aggregate purchase price of $37.5 million under a previous authorized and approved share repurchase program.
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, 2022 2021 Net cash provided by (used in) operating activities $ (37,940) $ 111,587 Net cash provided by (used in) investing activities $ 312,212 $ 64,191 Net cash provided by (used in) financing activities $ (37,335) $ (159,387) Cash Flows from Operating Activities Net cash used in operating activities increased by $149.5 million in fiscal year 2022 as compared to fiscal year 2021.
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, 2023 2022 Net cash provided by (used in) operating activities $ 38,395 $ (37,940) Net cash provided by (used in) investing activities $ 12,712 $ 312,212 Net cash provided by (used in) financing activities $ (261,579) $ (37,335) Cash Flows from Operating Activities Net cash provided by operating activities increased by $76.3 million in fiscal year 2023 as compared to fiscal year 2022.
The increase is primarily driven by an increase in the number and size of subscription implementation and migration projects, but services revenue overall continues to be impacted by contracts with lower average services billing rates and increased investments in customer implementations, including fixed fee or capped arrangements, to accelerate customer transition to the cloud.
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 increased investments in customer implementations, including fixed fee or capped arrangements, to accelerate customer transition to the cloud.
In these arrangements when a project extends longer than originally anticipated, the average billing rate we recognize may decrease, which can result in revenue adjustments and lower gross profit. We expect some level of variability in our services revenue in future periods. As we successfully leverage our SI partners to lead more implementations, our services revenue could decrease.
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. We expect some level of variability in our services revenue in future periods.
The increase in operating cash used was primarily attributable to a $110.9 million increase in net loss after excluding the impact of non-cash charges such as deferred taxes, stock-based compensation expense, depreciation and amortization expense, and other non-cash items along with an increase of $38.6 million in cash used by working capital activities.
The increase in operating cash provided was primarily attributable to an $81.0 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, partially offset by an increase of $4.7 million in cash used by working capital activities.
Subscription agreements contain optional annual renewals commencing upon the expiration of the initial contract term. A majority of our subscription customers are billed annually in advance. In some arrangements with multiple performance obligations, a portion of recurring subscription contract value may be allocated to license revenue or services revenue for revenue recognition purposes.
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 Table of Contents license revenue or services revenue for revenue recognition purposes.
The expected impact is an increase in general and administrative expenses and a decrease in cost of revenue and other operating expense categories. Prior period amounts will be re-classified to reflect the revised methodology in our future consolidated financial statements and accompanying notes.
The effect of this change is an increase in general and administrative expenses and a decrease in cost of revenue and other operating expense categories. Prior period amounts have been re-classified to reflect the revised methodology in our prior year consolidated financial statements and accompanying notes for comparability purposes.
The expected impact is an increase general and administrative expenses and a decrease in cost of revenue and other operating expense categories. Prior period amounts will be re-classified to reflect the revised methodology in our future consolidated financial statements and accompanying notes.
The effect of this change is an increase in general and administrative expenses and a decrease in cost of revenue and other operating expense categories. Prior period amounts have been re-classified to reflect the revised methodology in our prior year consolidated financial statements and accompanying notes for comparability purposes.
Federal income tax rate of 21% mainly due to state taxes, tax deficiencies related to stock-based compensation, research and development credits, foreign earnings taxed in the U.S., change in valuation allowance and certain non-deductible expenses, including, but not limited to, executive compensation limitation. Comparison of the Fiscal Years Ended July 31, 2021 and 2020 Refer to Item 7.
Federal income tax rate of 21% primarily due to state taxes, tax deficiencies related to stock-based compensation, research and development credits, foreign earnings taxed in the U.S., release of uncertain tax positions, a change in valuation allowance and certain non-deductible expenses, including, but not limited to, executive compensation limitation.
Perpetual license revenue may potentially be volatile across periods due to the large amount of perpetual revenue that may be generated from a single customer order. Services Revenue Services revenue increased $23.2 million, compared to the prior year.
We also expect perpetual license revenue to potentially be volatile across quarters due to the large amount of perpetual revenue that may be generated from a single customer order. Services Revenue Services revenue was flat compared to the prior year.
Our support fees are typically priced as a fixed percentage of the associated term license fees. We generally invoice support annually in advance. License A substantial majority of our license revenue consists of term license fees.
Our support fees are typically priced as a fixed percentage of the associated term license fees. We generally invoice support annually in advance. Support related to subscription arrangements is included in subscription revenue, as support is not quoted or priced separately from the subscription services. License A substantial majority of our license revenue consists of term license fees.
Fiscal years ended July 31, 2022 2021 Change Amount Amount ($) (%) (In thousands, except percentages) Provision for (benefit from) income taxes $ (49,284) $ (37,774) $ (11,510) 30 % Effective tax rate 21 % 36 % We recognized an income tax benefit of $49.3 million for fiscal year 2022 compared to an income tax benefit of $37.8 million for fiscal year 2021.
Fiscal years ended July 31, 2023 2022 Change Amount Amount ($) (%) (In thousands, except percentages) Provision for (benefit from) income taxes $ (22,239) $ (49,284) $ 27,045 (55) % Effective tax rate 17 % 21 % We recognized an income tax benefit of $22.2 million for fiscal year 2023 compared to an income tax benefit of $49.3 million for fiscal year 2022.
The impact on term license revenue from contracts with an initial term of greater than two years or a renewal term of greater than one year was $2.5 million during fiscal year 2022 compared with $24.4 million in the prior year.
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 $7.6 million during fiscal year 2023, as compared to $2.5 million in the prior year.
Perpetual license revenue decreased by $0.3 million, compared to the prior year, and accounted for less than 1% of total revenue in fiscal year 2022. We expect perpetual license revenue to continue to represent a small percentage of our total revenue.
Perpetual license revenue accounted for less than 1% of total revenue in fiscal year 2023. We expect perpetual license revenue to continue to represent a small percentage of our total license revenue.
We had 696 cloud operations and technical support employees and 755 professional service employees at July 31, 2022 compared to 600 cloud operations and technical support employees and 657 professional services employees at July 31, 2021.
We had 648 cloud operations and technical support employees and 784 professional service employees as of July 31, 2023 compared to 696 cloud operations and technical support employees and 755 professional services employees as of July 31, 2022.
Cash Flows from Financing Activities Net cash used in financing activities decreased by $122.1 million in fiscal year 2022 as compared to fiscal year 2021.
Cash Flows from Financing Activities Net cash used in financing activities increased by $224.2 million in fiscal year 2023 as compared to fiscal year 2022.
General and Administrative Our general and administrative expenses include executive, finance, human resources, legal, and corporate development and strategy functions, and primarily consist of personnel costs, as well as professional services.
General and Administrative Our general and administrative expenses include executive, finance, human resources, information technology, information security, legal, 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.
We measure ARR on a constant currency basis during the fiscal year and revalue ARR at year end to current currency rates. ARR grew in fiscal year 2022 by 14%, or 17% on a constant currency basis.
As of July 31, 2023, ARR was $763 million, or $761 million based on currency exchange rates as of July 31, 2022. We measure ARR on a constant currency basis during the fiscal year and revalue ARR at year end to current currency rates. ARR grew in fiscal year 2023 by 15%, or 15% on a constant currency basis.
These increases were partially offset by a decrease of $3.7 million in professional services. Our general and administrative headcount was 478 as of July 31, 2022 compared with 406 as of July 31, 2021. General and administrative headcount includes personnel in information technology, information security, facilities, and recruiting whose expenses are allocated across all functional departments.
These increases were partially offset by decreases in facilities costs of $8.0 million and professional services costs of $1.5 million. Our general and administrative headcount was 451 as of July 31, 2023, as compared to 478 as of July 31, 2022. General and administrative headcount includes facilities personnel whose expenses are allocated across all functional departments.
The increase in cash provided by investing activities was primarily due to decreased net purchases of available-for-sale securities of $293.9 million and lower capital expenditures and capitalized software development costs of $7.1 million. These were offset by $43.8 million paid as purchase consideration for the acquisition of HazardHub and a $9.2 million net increase in amounts paid for strategic investments.
The decrease in cash provided by investing activities was primarily due to a decrease in net cash provided from available-for-sale securities transactions of $348.3 million, partially offset by lower capital expenditures and capitalized software development costs of $4.3 million, decreased business acquisition costs of $43.8 million as HazardHub was acquired in fiscal year 2022, and a $0.7 million net decrease in amounts paid for strategic investments.
Also, the pandemic’s global economic impact could affect our customers’ DWP, which could ultimately impact our revenue as we generally price our services and products based on the amount of DWP that will be managed by our platform. Additionally, we may be required to record impairment related to our operating lease assets, investments, long-lived assets, or goodwill.
Also, the global economic impact of these disruptions could affect our customers’ DWP, which could ultimately impact our revenue as we generally price our services and products based on the amount of DWP that will be managed by our platform.
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.
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. Table of Contents Sales and Marketing Our sales and marketing expenses primarily consist of personnel costs for our sales and marketing employees.
These increases were partially offset by a decrease of $0.4 million due to certain acquired intangible assets being fully amortized. Our sales and marketing headcount was 475 as of July 31, 2022 compared with 426 as of July 31, 2021.
These increases were partially offset by decreases in amortization of intangibles of $2.9 million due to certain acquired intangible assets being fully amortized, professional services costs of $0.5 million, and cloud hosting costs of $0.3 million. Our sales and marketing headcount was 463 as of July 31, 2023, as compared to 475 as of July 31, 2022.
Share Repurchase Program In October 2020, our board of directors authorized and approved a share repurchase program of up to $200.0 million of our outstanding common stock. The share repurchase program was completed in the second quarter of fiscal year 2022.
Share Repurchase Program Table of Contents 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.
Free cash flow in fiscal year 2022 was impacted by payments of $69.1 million related to our fiscal year 2021 corporate bonus and accrued vacation balances in countries in which we adopted a non-accrual vacation policy, which was $47.8 million higher than the bonus payment during fiscal year 2021.
Free cash flow in fiscal year 2023 was impacted by severance payments of $2.9 million. Free cash flow in fiscal year 2022 was impacted by payments of $18.1 million related to settling accrued vacation balances in countries in which we adopted a non-accrual vacation policy.
The decrease in cash used was primarily because our authorized share repurchase program was completed in the second quarter of fiscal year 2022, which resulted in our repurchase of $123.9 million less of our common stock during fiscal year 2022 compared to the same period a year ago, and a decrease in proceeds from option exercises of $1.8 million.
The increase in cash used was primarily because of our authorized share repurchase programs which resulted in our repurchase of $224.3 million more of our common stock during fiscal year 2023 compared to the same period a year ago, partially offset by an increase in proceeds from option exercises of $0.1 million.
Interest expense for fiscal years 2022 and 2021 consist of non-cash interest expense related to the amortization of debt discount and issuance costs of $14.4 million and $13.6 million, respectively, and stated interest of $5.0 million in both periods.
Interest expense for the 12 months ended July 31, 2022 consists of stated interest of $5.0 million and non-cash interest expense of $14.4 million related to the amortization of debt discount and issuance costs.
The increase in our income tax benefit for fiscal year 2022 was primarily due to an increase in pre-tax net loss, an increase in research and development credits, and a decrease in valuation allowance, partially offset by decreases in tax benefits such as tax deductions from stock-based compensation, the tax impact from the tax status change of certain foreign subsidiaries from prior year, and the release of uncertain tax positions from the prior year.
The decrease in our income tax benefit for fiscal year 2023 was primarily due to a decrease in pre-tax net loss, an increase in tax deficiencies related to stock-based compensation, certain non-deductible expenses, including executive compensation limitation, and an increase in foreign earnings taxed in the U.S., partially offset by an increase in research and development tax credits and the release of uncertain tax positions.
Other Income (Expense) Fiscal years ended July 31, 2022 2021 Change Amount Amount ($) (%) (In thousands, except percentages) Interest income $ 6,277 $ 7,395 $ (1,118) (15) % Interest expense $ (19,446) $ (18,711) $ (735) 4 % Other income (expense), net $ (17,099) $ 12,619 $ (29,718) (236) % Interest Income Interest income represents interest earned on our cash, cash equivalents, and investments.
Other Income (Expense) Fiscal years ended July 31, 2023 2022 Change Amount Amount ($) (%) (In thousands, except percentages) Interest income $ 24,389 $ 6,277 $ 18,112 289 % Interest expense $ (6,716) $ (19,446) $ 12,730 (65) % Other income (expense), net $ (2,277) $ (17,099) $ 14,822 (87) % Interest Income Interest income represents interest earned on our cash, cash equivalents, and investments.
These increases were partially offset by a decrease in amortization of acquired intangible assets of $4.1 million and a decrease in professional services of $0.6 million. Due to our continued investment in cloud-based operations, increase in new cloud-based customers, and increased usage from existing cloud-based customers, the costs to provide our subscription and support services increased.
Due to our continued investment in cloud-based operations, increase in new cloud-based customers, and increased usage from existing cloud-based customers, the costs to provide our subscription and support services increased.
We expect challenges related to COVID-19, inflation, and our ability to hire additional services professionals will also continue to negatively impact services revenue.
As we successfully leverage our SI partners to lead more implementations and migrations, our services revenue could decrease. We expect challenges related to global events including inflation and our ability to hire additional services professionals will also continue to negatively impact services revenue.
Fiscal years ended July 31, 2022 2021 Change % of total % of total Amount revenue Amount revenue ($) (%) (in thousands, except percentages) Revenue: Subscription and support: Subscription $ 259,232 32 % $ 168,649 23 % $ 90,583 54 % Support 84,476 10 83,709 11 767 1 License: Term license 258,441 32 303,309 41 (44,868) (15) Perpetual license 190 — 483 — (293) (61) Services 210,275 26 187,117 25 23,158 12 Total revenue $ 812,614 100 % $ 743,267 100 % $ 69,347 9 % Subscription and Support We anticipate subscriptions will continue to represent a majority of new arrangements, including customers migrating from existing term license arrangements to subscription services, in future periods.
Fiscal years ended July 31, 2023 2022 Change % of total % of total Amount revenue Amount revenue ($) (%) (in thousands, except percentages) Revenue: Subscription and support: Subscription $ 352,145 39 % $ 259,232 32 % $ 92,913 36 % Support 77,522 9 84,476 10 (6,954) (8) License: Term license 265,389 29 258,441 32 6,948 3 Perpetual license 204 — 190 — 14 7 Services 210,081 23 210,275 26 (194) — Total revenue $ 905,341 100 % $ 812,614 100 % $ 92,727 11 % Subscription and Support We anticipate subscriptions will continue to represent a majority of new arrangements, including customers migrating from existing term license arrangements to subscription services, in future periods.
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.
Earnings from our non-U.S. activities are subject to local country income tax and may also be subject to U.S. income tax.
Overall, we expect gross margins to decline in the short-term primarily due to the mix between license revenue and subscription and support revenue. Table of Contents Operating Expenses Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses.
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. Table of Contents Operating Expenses Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses.
These decreases were partially offset by an increase in royalties of $0.5 million. We continue to anticipate lower cost of license revenue over time as our term license customers transition to cloud subscription agreements.
We continue to anticipate lower cost of license revenue over time as our term license customers transition to cloud subscription agreements. The $6.3 million increase in cost of services revenue was primarily due to increases in personnel expenses of $8.0 million associated with an increase in headcount, and software subscriptions of $0.8 million.
Fiscal years ended July 31, 2022 As a % of Total Revenue 2021 As a % of Total Revenue (in thousands except percentages) Revenue: Subscription and support $ 343,708 42 % $ 252,358 34 % License 258,631 32 303,792 41 Services 210,275 26 187,117 25 Total revenue 812,614 100 743,267 100 Cost of revenue: Subscription and support 213,275 26 164,983 22 License 8,754 1 10,569 1 Services 238,365 29 199,502 27 Total cost of revenue 460,394 56 375,054 50 Gross profit: Subscription and support 130,433 16 87,375 12 License 249,877 31 293,223 39 Services (28,090) (3) (12,385) (2) Total gross profit 352,220 44 368,213 49 Operating expenses: Research and development 249,665 31 219,494 30 Sales and marketing 194,611 24 160,544 22 General and administrative 107,391 13 93,759 13 Total operating expenses 551,667 68 473,797 65 Income (loss) from operations (199,447) (24) (105,584) (16) Interest income 6,277 1 7,395 1 Interest expense (19,446) (2) (18,711) (3) Other income (expense), net (17,099) (2) 12,619 2 Income (loss) before provision for (benefit from) income taxes (229,715) (27) (104,281) (16) Provision for (benefit from) income taxes (49,284) (6) (37,774) (7) Net income (loss) $ (180,431) (21) % $ (66,507) (9) % Comparison of the Fiscal Years Ended July 31, 2022 and 2021 Revenue We derive our revenue primarily from delivering cloud-based services, licensing our software applications, providing support, and delivering professional services.
Fiscal years ended July 31, 2023 As a % of Total Revenue 2022 As a % of Total Revenue (in thousands except percentages) Revenue: Subscription and support $ 429,667 48 % $ 343,708 42 % License 265,593 29 258,631 32 Services 210,081 23 210,275 26 Total revenue 905,341 100 812,614 100 Cost of revenue: Subscription and support 210,507 23 202,832 25 License 6,488 1 8,754 1 Services 230,135 25 223,852 28 Total cost of revenue 447,130 49 435,438 54 Gross profit: Subscription and support 219,160 25 140,876 17 License 259,105 28 249,877 31 Services (20,054) (2) (13,577) (2) Total gross profit 458,211 51 377,176 46 Operating expenses: Research and development 249,746 27 229,230 28 Sales and marketing 188,224 21 182,620 22 General and administrative 169,731 19 164,773 20 Total operating expenses 607,701 67 576,623 70 Income (loss) from operations (149,490) (16) (199,447) (24) Interest income 24,389 3 6,277 1 Interest expense (6,716) (1) (19,446) (2) Other income (expense), net (2,277) — (17,099) (2) Income (loss) before provision for (benefit from) income taxes (134,094) (14) (229,715) (27) Provision for (benefit from) income taxes (22,239) (3) (49,284) (8) Net income (loss) $ (111,855) (11) % $ (180,431) (19) % Comparison of the Fiscal Years Ended July 31, 2023 and 2022 Revenue We derive our revenue primarily from delivering cloud-based services, licensing our software applications, providing support, and delivering professional services.
Support related to subscription arrangements is included in subscription revenue, as support is not quoted or priced separately from the subscription services.
Table of Contents Support revenue decreased by $7.0 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.
In addition to the impact of revising our allocation methodology mentioned above, we expect that our general and administrative expenses will increase in absolute dollars as we continue to invest in personnel, corporate infrastructure, and systems required to support our strategic initiatives, grow our business, and meet our compliance and reporting obligations.
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.
Table of Contents Subscription revenue increased by $90.6 million, compared to the prior year, primarily due to the impact of cloud transition and new subscription agreements for InsuranceSuite Cloud entered into and provisioned since July 31, 2021. Support revenue was relatively flat compared to the prior year.
Subscription revenue increased by $92.9 million compared to the prior year primarily due to the impact of cloud transition agreements and new subscription agreements entered into and provisioned since July 31, 2022, and the renewal or extension of subscription services at the fully ramped annual fees after the initial committed term.
The $30.2 million increase in research and development expenses was primarily due to increases of $21.7 million in personnel costs associated with higher headcount, $4.3 million in cloud infrastructure costs for our development environments, $3.1 million in acquisition consideration holdback costs recognized over a service period relating to the HazardHub acquisition, and $1.2 million in software subscription costs.
The $20.5 million increase in research and development expenses was primarily due to increases in personnel costs of $25.2 million associated with higher headcount and software subscription costs of $1.0 million. These increases were partially offset by decreases in cloud hosting costs of $3.5 million and professional services of $2.2 million.
Gross profit was impacted by a decrease in term license revenue due to the impact of multi-year term license arrangements entered into in fiscal year 2022 being significantly lower than the impact of multi-year term license arrangements in the same period a year ago and, to a lesser extent, a decrease in services gross profit due to the investments that we are making in our customers' transition to subscription services.
Gross profit was impacted by an increase in subscription and support gross profit due to the increase in subscription revenue and cloud operations efficiencies, partially offset by a decrease in services gross profit due to the investments that we are making in our customers' transition to subscription services.
Term license revenue decreased by $44.9 million, compared to the prior year, primarily due to the impact of multi-year term license renewals and new deals in the same period a year ago, and, to a lesser extent, term license customers migrating to subscription services.
Term license revenue increased by $6.9 million compared to the prior year primarily due to an increase in new deals and the impact of renewals of $10.9 million, which was partially offset by decreases due to agreements that migrated from a term license to a subscription service in the prior year of $4.0 million.
However, as we gain efficiencies and increase the number of cloud customers, we expect subscription gross margins to improve over the next several years. In addition, the impact of our investment in customer migrations and implementations, challenges related to COVID-19, and inflation may continue to negatively impact services gross margin going forward.
We expect subscription and support gross margin to improve over the next several years as we gain 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.
Gross margin was primarily impacted by the increase as a percentage of total revenue of subscription and support revenue, which has a lower gross margin compared to license revenue. We expect subscription and support gross margins will fluctuate as our subscription revenue increases and we continue to invest in our cloud operations.
Gross margin was primarily impacted by the increase in subscription and support revenue at a higher margin due to cloud operations efficiencies, partially offset by lower services margin due to the investments that we are making in our customers' transition to subscription services.

… 68 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+0 added−0 removed10 unchanged
Biggest changeFor the periods ended July 31, 2022 and 2021, we recorded a foreign currency loss of $17.2 million and a foreign currency gain of $9.0 million, respectively, in other income (expense) in our consolidated statements of operations. We will continue to experience fluctuations in foreign currency exchange rates.
Biggest changeFor the periods ended July 31, 2023 and 2022, we recorded a foreign currency loss of $1.8 million and $17.2 million, respectively, in other income (expense) in our consolidated statements of operations. We will continue to experience fluctuations in foreign currency exchange rates.
Foreign Currency Exchange Risk Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Australian Dollar, British Pound, Canadian Dollar, Euro, Indian Rupee, and Polish Zloty, the currency of the locations within which we have significant operations.
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.
Fair Value of Financial Instrument s 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.
Fair Value of Financial Instrument s 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 Table of Contents derivative financial instruments for speculative or trading purposes.
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 Table of Contents which we are invested.
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.
A hypothetical 100 basis point increase in interest rates is estimated to result in a decrease of $3.6 million and $5.2 million in the market value of our available-for-sale securities as of July 31, 2022 and 2021, respectively. Any realized gains or losses resulting from such interest rate changes would only occur if we sold the investments prior to maturity.
A hypothetical 100 basis point increase in interest rates is estimated to result in a decrease of $3.0 million and $3.6 million in the market value of our available-for-sale securities as of July 31, 2023 and 2022, respectively. Any realized gains or losses resulting from such interest rate changes would only occur if we sold the investments prior to maturity.
If a hypothetical ten percent change in foreign exchange rates were to occur in the future, the resulting transaction gain or loss is estimated to be approximately $27.4 million. As our international operations grow, we will continue to assess our approach to managing our risk relating to fluctuations in currency rates.
If a hypothetical ten percent change in foreign exchange rates were to occur in the future, the resulting transaction gain or loss is estimated to be approximately $28.8 million. As our international operations grow, we will continue to assess our approach to managing our risk relating to fluctuations in currency rates.
However, this current position does not preclude our adoption of specific hedging strategies in the future. Our strategic investments in privately held securities are in various classes of equity and convertible debt.
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.
Our cash, cash equivalents, and investments as of July 31, 2022 and 2021 were $1,163.7 million and $1,346.6 million, respectively, primarily consisting of cash, money market funds, corporate debt securities, U.S. government and agency debt securities, commercial paper, asset-backed securities and non-U.S. government securities, which include state, municipal, and foreign government securities.
Our cash, cash equivalents, and investments as of July 31, 2023 and 2022 were $927.5 million and $1,163.7 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.

Other GWRE 10-K year-over-year comparisons