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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark one)
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JanuaryOctober 31, 20182023
OR
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             .
Commission file number: 001-35394
 ______________________________________________________________
Guidewire Software, Inc.
(Exact name of registrant as specified in its charter)
 ______________________________________________________________
Delaware36-4468504
(State or other jurisdiction of
Incorporation or organization)		(I.R.S. Employer
Identification No.)
Delaware
970 Park Pl, Suite 200
San Mateo, California
36-446850494403
(State or other jurisdiction of
Incorporation or organization)
(I.R.S. Employer
Identification No.)
1001 E. Hillsdale Blvd., Suite 800
Foster City, California
94404
(Address of principal executive offices)(Zip Code)
 
(650) 357-9100
(Registrant’s telephone number, including area code)
 ______________________________________________________________
N/A
(Former name, former address and former fiscal year, if changed since last report)
 ______________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par valueGWRENew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes x☒    No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes x☒     No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Large accelerated filerxAccelerated filer¨
Non-accelerated filer
¨ (do not check if a smaller reporting company)

Smaller reporting company        ¨
Emerging growth company¨☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐     No x☒
On February 28, 2018,November 30, 2023, the registrant had 77,281,30281,930,546 shares of common stock issued and outstanding.


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Guidewire Software, Inc.
Index



Part I – Financial Information
Item 1.
Financial Statements (unaudited):
3
Condensed Consolidated Balance Sheets as of JanuaryOctober 31, 20182023 and July 31, 20172023
3
Condensed Consolidated Statements of Operations for the Three and Six Months Ended JanuaryOctober 31, 20182023 and 20172022
4
Condensed Consolidated Statements of Comprehensive LossIncome (Loss) for the Three and Six Months Ended JanuaryOctober 31, 20182023 and 20172022
5
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended October 31, 2023 and 2022
6
Condensed Consolidated Statements of Cash Flows for the SixThree Months Ended JanuaryOctober 31, 20182023 and 20172022
67
Notes to Condensed Consolidated Financial Statements
79
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
2719
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
4334
Item 4.
Controls and Procedures
4335
4536
Item 1.
Legal Proceedings
36
Item 1A.
Risk Factors
36
Item 1.5.
Legal ProceedingsOther Information
4560
Item 1A.    6.
Risk FactorsExhibits
4561
Item 6.
Exhibits
62
6362



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FORWARD-LOOKING STATEMENTS


The section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section andas well as other parts of this Quarterly Report on Form 10-Q and certain information incorporated herein by reference contain forward-looking statements within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”) which are subject to risks and uncertainties. The forward-looking statements may include statements concerning, among other things, our business strategy (including anticipated trends and developments in, and management plans for, our business and the markets in which we operate), financial results, results of operations, revenues,revenue, gross margins, operating expenses, services, products, projected costs and capital expenditures, research and development programs, sales and marketing initiatives, and competition. In some cases, you can identify these statements by forward-looking words, such as “will,” “may,” “might,” “should,” “could,” “estimate,” “expect,” “suggest,” “believe,” “anticipate,” “intend,” “plan”“plan,” and “continue,” the negative or plural of these words and other comparable terminology. Actual events or results may differ materially from those expressed or implied by these statements due to various factors, including but not limited to the matters discussed below, in the section titled “Item“Part II – Other Information – Item 1A. Risk Factors,” and elsewhere in this Quarterly Report on Form 10-Q. Many of the forward-looking statements are located in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Examples of forward-looking statements include statements regarding:

growth prospects of the property & casualty (“P&C”) insurance industry and our company;
the developing market for subscription services and uncertainties attendant on emerging sales and delivery models;
trends in future sales, including the mix of licensing and subscription models and seasonality;
our competitive environment and changes thereto;
competitive attributes of our software applications and delivery models;
challenges to further increase sales outside of the United States;
our research and development investment and efforts;
expenses to be incurred, and benefits to be achieved from our acquisitions;
our gross and operating margins and factors that affect such margins;
our provision for tax liabilities and other critical accounting estimates;
the impact of new accounting standards and any contractual changes we have made in anticipation of such changes;
our exposure to market risks, including geographical and political events that may negatively impact our customers; and
our ability to satisfy future liquidity requirements.

Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on information available to us as of the filing date of this Quarterly Report on Form 10-Q and our current expectations about future events, which are inherently subject to change and involve risks and uncertainties. You should not place undue reliance on these forward-looking statements.

We do not undertake any obligation to update any forward-looking statements in this reportQuarterly Report on Form 10-Q or in any of our other communications, except as required by law. All such forward-looking statements should be read as of the time the statements were made and with the recognition that these forward-looking statements may not be complete or accurate at a later date.

SUMMARY OF MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS
The principal risks and uncertainties affecting our business include the following:
•growth prospects of the property and casualty (“P&C”) insurance industry and our company;
•the developing market for subscription services and uncertainties attendant on emerging sales and delivery models, including the migration of our existing term license customers to cloud-based offerings on a subscription basis or failure to meet stipulated service levels with our subscription services;
•trends in and timing of future sales, including the mix between license and subscription revenue and seasonality;
•our competitive environment and changes thereto;
•competitive attributes of our software applications and delivery models;
•change in our revenue mix resulting in potential declines in our subscription and support gross margin or our services gross margin;
•our reliance on orders from a relatively small number of customers in the P&C insurance industry for a substantial portion of our revenue and Annual Recurring Revenue (“ARR”);
•our gross and operating margins and factors that affect such margins, including costs related to operating, securing, and enhancing our subscription services;
•the timing and number of professional services engagements and the billing rates and utilization of our professional services employees and contractors;
•challenges to further increase sales both in the United States and internationally;
•potential failure of any of our established services or products to satisfy customer demands or to maintain market acceptance;
•our sales and implementation cycles are lengthy and variable, depend upon factors outside our control, and could cause us to expend significant time and resources prior to generating revenue;
•our large customers have substantial negotiating leverage, which may require that we agree to terms and conditions that result in increased cost of revenue, decreased revenue, and lower average selling prices and gross margins;

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•our business depends on customers renewing and expanding their license, support, and subscription contracts for our services and products;
•potential inability to develop, introduce, market and localize new and enhanced versions of our services and products;
•effectiveness of our research and development and cloud operations investment and efforts;
•our ability to comply with current and evolving local and foreign data privacy laws, including the General Data Protection Regulation in the European Union (“EU”) and in the United Kingdom (“U.K.”) and the California Consumer Privacy Act, the California Privacy Rights Act, and regulations in various other jurisdictions in the United States and abroad, and maintain the security of our customers’ data, our cloud-based services or products, and the related costs and liabilities that we may incur;
•retaining existing and hiring new personnel;
•expenses to be incurred, and benefits to be achieved, from our acquisitions;
•the political economies in which we operate internationally (including, without limitation, Argentina, whose government is limiting the amount of U.S. dollars that can be sent out of the country) and the associated impact on interest rates, collection timeframes, and our revenue given the multi-year term for many of our international customer agreements;
•our provision for tax liabilities, judgments related to revenue recognition, and other critical accounting estimates;
•the timing and amount of any share repurchases by us;
•the impact of new or revised regulations, laws, including tax laws in jurisdictions in which we operate, and accounting standards;
•our ability to apply accounting guidance that requires management to make estimates and assumptions and to adapt to and interpret the requirements of new guidance, or to clearly explain to stockholders how new guidance affects reporting of our results of operations;
•our exposure to market risks, including geographical and political events such as the ongoing wars between Israel and Hamas and between Russia and Ukraine, supply chain disruptions, and inflation, that may negatively impact our customers, partners, and vendors or our business operations;
•data privacy concerns could result in regulatory changes and impose additional costs and liabilities on us and limit our use of information;
•the effect of uncertainties related to the recent global pandemic and any mutations or related strains of harmful viruses on the U.S. and global economies, our business, our employees, results of operations, financial condition, demand for our products, sales and implementation cycles, and the health of our customers’ and partners’ businesses;
•data security breaches of our cloud-based services or products or unauthorized access to our customers’ or employees’ data;
•our stock price may be volatile, which could result in securities class action litigation against us;
•our ability to successfully defend litigation brought against us; and
•our ability to satisfy future liquidity requirements.

The summary risk factors described above should be read together with the text of the Risk Factors included in Item 1A of Part II of this Quarterly Report on Form 10-Q and the other information set forth in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and related notes thereto, as well as in other documents that we file with the U.S. Securities and Exchange Commission (the “SEC”). Additional risks and uncertainties beyond those summarized above or discussed elsewhere in this Quarterly Report on Form 10-Q may apply to our business, activities, or operations as currently conducted or as we may conduct them in the future or in the markets in which we operate or may in the future operate.

_____________


Unless the context requires otherwise, we are referring to Guidewire Software, Inc., together with its subsidiaries, when we use the terms “Guidewire,” the “Company,” “we,” “our”“our,” or “us.”




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PART I – Financial Information
 
ITEM 1.Financial Statements (unaudited)
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ITEM 1.Financial Statements (unaudited)
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
 January 31,
2018		 July 31,
2017
    
ASSETS   
CURRENT ASSETS:   
Cash and cash equivalents$205,287
 $263,176
Short-term investments299,891
 310,027
Accounts receivable100,046
 79,433
Prepaid expenses and other current assets33,714
 26,604
Total current assets638,938
 679,240
Long-term investments64,273
 114,585
Property and equipment, net16,205
 14,376
Intangible assets, net110,671
 71,315
Deferred tax assets, net89,701
 37,430
Goodwill343,248
 141,851
Other assets20,658
 20,104
TOTAL ASSETS$1,283,694
 $1,078,901
LIABILITIES AND STOCKHOLDERS’ EQUITY   
CURRENT LIABILITIES:   
Accounts payable$18,570
 $13,416
Accrued employee compensation33,681
 48,882
Deferred revenues, current109,047
 91,243
Other current liabilities11,431
 10,075
Total current liabilities172,729
 163,616
Deferred revenues, non-current21,845
 19,892
Other liabilities1,631
 2,112
Total liabilities196,205
 185,620
STOCKHOLDERS’ EQUITY:   
Common stock8
 8
Additional paid-in capital993,559
 830,014
Accumulated other comprehensive loss(4,778) (5,796)
Retained earnings98,700
 69,055
Total stockholders’ equity1,087,489
 893,281
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$1,283,694
 $1,078,901
October 31,
2023		July 31,
2023
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$301,419 $401,813 
Short-term investments411,528 396,872 
Accounts receivable, net of allowances of $346 and $218, respectively93,083 151,034 
Unbilled accounts receivable, net109,231 87,752 
Prepaid expenses and other current assets61,537 62,132 
Total current assets976,798 1,099,603 
Long-term investments140,644 128,782 
Unbilled accounts receivable, net6,883 11,112 
Property and equipment, net55,280 54,499 
Operating lease assets50,402 52,373 
Intangible assets, net13,106 14,473 
Goodwill372,214 372,214 
Deferred tax assets, net239,822 226,875 
Other assets64,448 67,957 
TOTAL ASSETS$1,919,597 $2,027,888 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable$19,210 $34,627 
Accrued employee compensation46,686 103,980 
Deferred revenue, net171,103 206,923 
Other current liabilities25,376 27,731 
Total current liabilities262,375 373,261 
Lease liabilities40,872 42,972 
Convertible senior notes, net397,601 397,171 
Deferred revenue, net3,915 5,988 
Other liabilities9,185 9,030 
Total liabilities713,948 828,422 
STOCKHOLDERS’ EQUITY:
Common stock8 8 
Additional paid-in capital1,867,467 1,831,267 
Accumulated other comprehensive income (loss)(16,805)(13,859)
Retained earnings (accumulated deficit)(645,021)(617,950)
Total stockholders’ equity1,205,649 1,199,466 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$1,919,597 $2,027,888 
See accompanying Notes to Condensed Consolidated Financial Statements.

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GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands except shares and per share amounts)
 Three Months Ended
October 31,
 20232022
Revenue:
Subscription and support$127,627 $99,068 
License34,025 40,952 
Services45,755 55,262 
Total revenue207,407 195,282 
Cost of revenue:
Subscription and support48,054 55,691 
License1,219 1,873 
Services45,842 65,566 
Total cost of revenue95,115 123,130 
Gross profit:
Subscription and support79,573 43,377 
License32,806 39,079 
Services(87)(10,304)
Total gross profit112,292 72,152 
Operating expenses:
Research and development62,469 58,170 
Sales and marketing44,581 46,468 
General and administrative39,023 42,067 
Total operating expenses146,073 146,705 
Income (loss) from operations(33,781)(74,553)
Interest income10,613 4,638 
Interest expense(1,683)(1,674)
Other income (expense), net(13,742)(13,824)
Income (loss) before provision for (benefit from) income taxes(38,593)(85,413)
Provision for (benefit from) income taxes(11,522)(16,095)
Net income (loss)$(27,071)$(69,318)
Net income (loss) per share:
Basic and diluted$(0.33)$(0.83)
Shares used in computing net income (loss) per share:
Basic and diluted81,690,912 83,320,967 

 Three Months Ended January 31, Six Months Ended January 31,
 2018 2017 2018 2017
Revenues:       
License and other$84,221
 $64,075
 $114,314
 $102,796
Maintenance19,110
 16,582
 38,040
 33,114
Services60,457
 34,964
 119,605
 73,838
Total revenues163,788
 115,621
 271,959
 209,748
Cost of revenues:       
License and other9,040
 2,781
 15,755
 5,211
Maintenance3,593
 3,079
 7,060
 6,404
Services55,136
 34,951
 107,848
 71,215
Total cost of revenues67,769
 40,811
 130,663
 82,830
Gross profit:       
License and other75,181
 61,294
 98,559
 97,585
Maintenance15,517
 13,503
 30,980
 26,710
Services5,321
 13
 11,757
 2,623
Total gross profit96,019
 74,810
 141,296
 126,918
Operating expenses:       
Research and development43,657
 30,025
 79,368
 60,775
Sales and marketing31,961
 23,520
 55,571
 49,020
General and administrative21,066
 13,060
 39,737
 27,220
Total operating expenses96,684
 66,605
 174,676
 137,015
Income (loss) from operations(665) 8,205
 (33,380) (10,097)
Interest income1,566
 1,544
 3,474
 2,886
Other income (expense), net1,658
 335
 1,396
 (346)
Income (loss) before income taxes2,559
 10,084
 (28,510) (7,557)
Provision for (benefit from) income taxes48,114
 6,110
 25,959
 (3,673)
Net income (loss)$(45,555) $3,974
 $(54,469) $(3,884)
Net income (loss) per share:       
Basic$(0.59) $0.05
 $(0.72) $(0.05)
Diluted$(0.59) $0.05
 $(0.72) $(0.05)
Shares used in computing net income (loss) per share:       
Basic76,859,040
 73,738,810
 76,023,237
 73,516,140
Diluted76,859,040
 74,793,240
 76,023,237
 73,516,140

See accompanying Notes to Condensed Consolidated Financial Statements.

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GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)


 Three Months Ended
October 31,
 20232022
Net income (loss)$(27,071)$(69,318)
Other comprehensive income (loss):
Foreign currency translation adjustments(3,507)(2,701)
Unrealized gains (losses) on available-for-sale securities1,024 (1,644)
Tax benefit (expense) on unrealized gains (losses) on available-for-sale securities(173)443 
Reclassification adjustment for realized gains (losses) included in net income (loss)(290)(216)
Total other comprehensive income (loss)(2,946)(4,118)
Comprehensive income (loss)$(30,017)$(73,436)
 Three Months Ended January 31, Six Months Ended January 31,
 2018 2017 2018 2017
Net income (loss)$(45,555) $3,974
 $(54,469) $(3,884)
Other comprehensive income (loss):       
Foreign currency translation adjustments2,124
 14
 1,428
 (837)
Unrealized losses on available-for-sale securities, net of tax benefit of $122 and $141 for the three months ended January 31, 2018 and 2017, respectively; $167 and $275 for the six months ended January 31, 2018 and 2017, respectively(335) (205) (425) (401)
Reclassification adjustment for realized losses (gains) included in net loss—
 (32) 15
 (59)
Other comprehensive income (loss)1,789
 (223) 1,018
 (1,297)
Comprehensive income (loss)$(43,766) $3,751
 $(53,451) $(5,181)


See accompanying Notes to Condensed Consolidated Financial Statements

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GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSCHANGES IN STOCKHOLDERS’ EQUITY
(unaudited, in thousands)thousands except share amounts)
 Common stockAdditional
paid-in
capital		Accumulated
other
comprehensive income (loss)		Retained earnings (accumulated deficit)Total
stockholders’
equity
 SharesAmount
Balance as of July 31, 202381,440,669 $8 $1,831,267 $(13,859)$(617,950)$1,199,466 
Net income (loss)— — — — (27,071)(27,071)
Issuance of common stock upon exercise of stock options42 — 1 — — 1 
Issuance of common stock upon vesting of restricted stock units ("RSUs")489,783 — — — — — 
Stock-based compensation— — 36,199 — — 36,199 
Foreign currency translation adjustment— — — (3,507)— (3,507)
Unrealized gain (loss) on available-for-sale securities, net of tax— — — 851 — 851 
Reclassification adjustment for realized gain (loss) on available-for-sale securities, included in net income (loss)— — — (290)— (290)
Balance as of October 31, 202381,930,494 $8 $1,867,467 $(16,805)$(645,021)$1,205,649 
  Six Months Ended January 31,
  2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $(54,469) $(3,884)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 16,315
 6,383
Stock-based compensation 44,655
 36,464
Deferred income tax 24,287
 (5,617)
Amortization of premium on available-for-sale securities, and other non-cash items 361
 868
Changes in operating assets and liabilities:    
Accounts receivable (16,345) (823)
Prepaid expenses and other assets (3,139) (3,689)
Accounts payable 4,834
 (1,715)
Accrued employee compensation (17,547) (15,084)
Other liabilities 804
 (615)
Deferred revenues 16,690
 17,361
Net cash provided by operating activities 16,446
 29,649
CASH FLOWS FROM INVESTING ACTIVITIES:    
Purchases of available-for-sale securities (110,820) (291,611)
Sales of available-for-sale securities 170,316
 298,671
Purchases of property and equipment (4,620) (2,617)
Capitalized software development costs (769) —
Acquisitions of business, net of acquired cash (130,376) (33,534)
Net cash used in investing activities (76,269) (29,091)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Proceeds from issuance of common stock upon exercise of stock options 727
 2,034
Net cash provided by financing activities 727
 2,034
Effect of foreign exchange rate changes on cash and cash equivalents 1,207
 (811)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (57,889) 1,781
CASH AND CASH EQUIVALENTS—Beginning of period 263,176
 223,582
CASH AND CASH EQUIVALENTS—End of period $205,287
 $225,363
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:    
Cash paid for income taxes, net of tax refunds $1,677
 $2,256
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:    
Accruals for purchase of property and equipment $1,497
 $521


 Common stockAdditional
paid-in
capital		Accumulated
other
comprehensive income (loss)		Retained earnings (accumulated deficit)Total
stockholders’
equity
 SharesAmount
Balance as of July 31, 202284,084,209 $8 $1,755,476 $(19,845)$(283,982)$1,451,657 
Net income (loss)— — — — (69,318)(69,318)
Issuance of common stock upon vesting of RSUs373,380 — — — — — 
Stock-based compensation— — 35,249 — — 35,249 
Repurchase and retirement of common stock(2,581,478)— (40,000)— (160,000)(200,000)
Foreign currency translation adjustment— — — (2,701)— (2,701)
Unrealized gain (loss) on available-for-sale securities, net of tax— — — (1,201)— (1,201)
Reclassification adjustment for realized gain (loss) on available-for-sale securities, included in net income (loss)— — — (216)— (216)
Adoption of Accounting Standards Update ("ASU") 2020-06— — (68,003)— 39,694 (28,309)
Balance as of October 31, 202281,876,111 $8 $1,682,722 $(23,963)$(473,606)$1,185,161 
See accompanying Notes to Condensed Consolidated Financial Statements.

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GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 Three Months Ended October 31,
 20232022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)$(27,071)$(69,318)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization5,442 7,623 
Amortization of debt issuance costs430 423 
Amortization of contract costs4,064 4,490 
Stock-based compensation36,097 35,096 
Changes to allowance for credit losses and revenue reserves128 (72)
Deferred income tax(13,220)(18,035)
Amortization of premium (accretion of discount) on available-for-sale securities, net(2,927)98 
Other non-cash items affecting net income (loss)(29)34 
Changes in operating assets and liabilities:
Accounts receivable57,193 55,245 
Unbilled accounts receivable(17,250)(20,659)
Prepaid expenses and other assets(6,560)(839)
Operating lease assets1,971 3,768 
Accounts payable(16,982)847 
Accrued employee compensation(54,576)(45,548)
Deferred revenue(37,893)(33,575)
Lease liabilities(1,601)(4,441)
Other liabilities701 (2,572)
Net cash provided by (used in) operating activities(72,083)(87,435)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities(160,239)(169,232)
Maturities and sales of available-for-sale securities137,386 119,291 
Purchases of property and equipment(998)(604)
Capitalized software development costs(3,692)(3,697)
Acquisition of strategic investments(250)(181)
Net cash provided by (used in) investing activities(27,793)(54,423)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase and retirement of common stock— (200,000)
Net cash provided by (used in) financing activities— (200,000)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash(4,303)(2,992)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH(104,179)(344,850)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—Beginning of period406,790 614,686 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—End of period$302,611 $269,836 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest$2,500 $2,500 
Cash paid for income taxes, net of tax refunds$883 $1,314 
Accruals for purchase of property and equipment$2,805 $632 
Accruals for capitalized software development costs$278 $257 
7
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See accompanying Notes to Condensed Consolidated Financial Statements.
8
Table of Contents
GUIDEWIRE SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.1. The Company and Summary of Significant Accounting Policies and Estimates
Business

Company
Guidewire Software, Inc., a Delaware corporation, was incorporated on September 20, 2001. Guidewire Software, Inc., together with its subsidiaries (the “Company”), provides a technology platform which consists of three key elements:combines core transaction processing, data management andoperations, digital engagement, analytics, and digital engagement.machine learning and artificial intelligence (“AI”) applications. The Company’s technology platform supports core insurance operations, including underwriting, and policy administration, claim management, and billing, enables newbilling; insights into data that can improve business decision makingmaking; and supports digital sales, service, and claims experiences for policyholders, agents, and other key stakeholders. The Company’s customers are primarily insurance carriers for property and casualty (“P&C”) insurance.insurance carriers.
Basis of Presentation and Consolidation
The accompanyingCompany’s condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The condensed consolidated financial statements and accompanying notes include the Company and its wholly-owned subsidiaries and reflect all adjustments (all of which are normal and recurring in nature) that, in the opinion of management, are necessary for a fair presentation of the interim periods presented. All inter-companyintercompany balances and transactions have been eliminated in consolidation. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”)GAAP have been condensed or omitted under the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).SEC.
These condensed consolidated financial statements should be read in conjunction with the Company’s financial statements and related notes, together with management’s discussion and analysis of financial condition and results of operations, presented in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2017. 2023.
Use of Estimates
In preparing the condensed consolidated financial statements and related disclosures in conformity with GAAP and pursuant to the rules and regulations of the SEC, the Company must make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ materially from these estimates.
Significant Accounting Policies
There have been no changes in the Company’s significant accounting policies from those that were disclosed in the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended July 31, 20172023, except for those disclosed herein.
Restricted Cash
Unearned acquisition consideration holdback subject to service conditions is held in escrow and considered restricted cash. At October 31, 2023, restricted cash in the amount of $1.2 million was included in the Company’s Annual Report on Form 10-K filed with the SEC on September 19, 2017, except changes to the income taxesprepaid expenses and stock-based compensation policies resulting fromother current assets in the adoption of Accounting Standards Update (“ASU”) 2016-09 during the first quarter of fiscal year 2018.
Use of Estimates
The preparation of the accompanying condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions about future events that affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Significant items subject to such estimates include, but are not limited to, revenue recognition, the useful lives of property and equipment and intangible assets, allowance for doubtful accounts, valuation allowance for deferred tax assets, stock-based compensation, annual bonus attainment, income tax uncertainties, valuation of goodwill and intangible assets, and contingencies. These estimates and assumptions are based on management’s best estimates and judgment. Management regularly evaluates its estimates and assumptions using historical experience and other factors; however, actual results could differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of cash and highly liquid investments with remaining maturities of 90 days or less at the date of purchase. Cash equivalents primarily consist of commercial paper and money market funds.
Investments

 Management determines the appropriate classification of investments at the time of purchase based upon management’s intent with regard to such investments. All investments are classified as available-for-sale. 

The Company classifies investments as short-term when they have remaining contractual maturities of one year or less from the balance sheet date, and as long-term when the investments have remaining contractual maturities of more than one year from the balance sheet date. All investments are recorded at fair value with unrealized holding gains and losses included in accumulated other comprehensive loss.

sheet.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents, investments, accounts receivable, and unbilled accounts receivable. The Company maintains its cash, cash equivalents, and investments with high qualityhigh-quality financial institutions. The Company is exposed to credit risk for cash held in financial institutions in the event of a default to the extent that such amounts recorded onin the condensed consolidated balance sheetsheets are in excess of amounts that are insured by the Federal Deposit Insurance Corporation.
No customer individuallyaccounted for 10% or more of the Company's revenue in the three months ended October 31, 2023 and 2022. One customer accounted for 10% or more of the Company's accounts receivable as of October 31, 2023 and no customer accounted for 10% or more of the Company’s revenues for the three months and six months ended January 31, 2018 and 2017. No customer individually accounted for 10% or more of the Company’s total accounts receivable as of January 31, 2018. One customer individually accounted for 11% of the Company’s total accounts receivable as of July 31, 2017.
Revenue Recognition
The Company enters into arrangements to deliver multiple products or services (multiple-elements). For a substantial majority of its sales, the Company applies software revenue recognition rules and allocates the total revenues among elements based on vendor-specific objective evidence (“VSOE”) of the fair value of each element. The Company recognizes revenue on a net basis excluding indirect taxes, such as sales tax and value added tax collected from customers and remitted to government authorities.
Revenues are derived from three sources:
(i)License fees related to term (or time-based) licenses, software license subscriptions and cloud-based subscriptions (collectively referred to as “subscriptions”), and perpetual software licenses;
(ii)Maintenance fees associated with term or perpetual licenses relate to email and phone support, bug fixes and unspecified software updates, and upgrades released when, and if, available during the maintenance term; and
(iii)Services fees from professional services related to the implementation of the Company’s software, reimbursable travel and training expenses.
Revenues are recognized when all of the following criteria are met:
Persuasive evidence of an arrangement exists. Evidence of an arrangement consists of a written contract signed by both the customer and management prior to the end of the period.
Delivery or performance has occurred. The Company’s software is delivered electronically to the customer. Delivery is considered to have occurred when the Company provides the customer access to the software along with login credentials.
Fees are fixed or determinable. The Company assesses whether a fee is fixed or determinable at the outset of the arrangement, primarily based on the payment terms associated with the transaction. Fees from term licenses are invoiced in advance in annual or quarterly installments over the term of the agreement beginning on the effective date of the license and represent extended payment terms. A significant majority are invoiced annually. As a result, term license fees are not considered to be fixed and determinable until they become due or payment is received. Perpetual license fees are generally due between 30 and 60 days from delivery of software. We offer extended payment terms in limited cases. 
Collectability is probable or reasonably assured. Collectability is assessed on a customer-by-customer basis, based primarily on creditworthiness as determined by credit checks and analysis, as well as customer payment history. Payment terms generally range from 30 to 90 days from invoice date. If it is determined prior to revenue recognition that collection of an arrangement fee is not probable, revenues are deferred until collection becomes probable or reasonably assured, or cash is collected, assuming all other revenue recognition criteria are satisfied.
VSOE of fair value does not exist for the Company’s software licenses; therefore, the Company allocates revenues to software licenses using the residual method. Under the residual method, the amount recognized for license fees is the difference between the total fixed and determinable fees and the VSOE of fair value for the undelivered elements under the arrangement.
The VSOE of fair value for elements of an arrangement is based upon the normal pricing and discounting practices for those elements when sold separately. VSOE of fair value for maintenance is established using the stated maintenance renewal rate in the customer’s contract. For term licenses with duration of one year or less, no VSOE of fair value for maintenance exists. VSOE of fair value for services is established if a substantial majority of historical stand-alone selling prices for a service fall within a reasonably narrow price range.
If the undelivered elements are all service elements and VSOE of fair value does not exist for one or more service element, the total arrangement fee is recognized ratably over the longest service period starting at software delivery, assuming all the related services have been made available to the customer.

The Company’s subscriptions are recognized ratably over the term of the arrangement typically upon provisioning the products.
As noted above, the Company generally invoices fees for licenses and maintenance to its customers in annual or, in certain cases, quarterly installments payable in advance. Deferred revenues represent amounts, which are billed to or collected from creditworthy customers for which one or more of the revenue recognition criteria have not been met. The deferred revenues balance does not represent the total contract value of annual or multi-year, non-cancellable arrangements.

Substantially all of the Company’s professional services engagements are billed on a time and materials basis. Services are typically not considered to be essential to the functionality of the software, and the related revenues and costs are recognized in the period incurred.
In select situations, the Company will contract its professional services on a fixed fee basis. In these situations, if reliable estimates of total project costs are available, the Company recognizes services revenues on a proportional performance basis as the performance obligations are completed by using the ratio of labor hours to date as an input measure compared to total estimated labor hours for the consulting services.    
In the limited cases where professional services are deemed to be essential to the functionality of the software, the arrangement is accounted for using contract accounting until the essential services are complete. If reliable estimates of total project costs can be made, the Company applies the percentage-of-completion method whereby revenue recognition is measured based on the ratio of service billings to date compared to total estimated service billings for the consulting services. Service billings approximate labor hours as an input measure since they are generally billed monthly on a time and material basis. The fees related to the maintenance are recognized over the period the maintenance is provided.

If reliable estimates of total project costs cannot be made, the zero gross margin or the completed contract method is applied to revenues and direct costs. Under the zero gross margin method, revenues recognized are limited to the direct costs incurred for the professional services. Under the completed contract method, revenues and direct costs are deferred until the project is complete. When the zero gross margin method is applied for lack of reliable project estimates and subsequently project estimates become reliable, the Company switches to the percentage-of-completion method, resulting in a cumulative effect adjustment for deferred license revenues to the extent of progress toward completion, and the related portion of the deferred professional service margin is recognized in full as revenues.

Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement carrying amounts of existing assets and liabilities by using enacted tax rates in effect for the year in which the difference is expected to reverse. All deferred tax assets and liabilities are classified as non-current on its condensed consolidated balance sheets. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance against deferred tax assets is recorded when it is more likely than not that some portion or all of such deferred tax assets will not be realized and is based on the positive and negative evidence about the future including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.
The effective tax rate in any given financial statement period may differ materially from the statutory rate. These differences may be caused by changes in tax regulations and resulting changes in the deferred tax valuation allowance, changes in the mix and level of income or losses or changes in the expected outcome of tax audits.
The Company records interest and penalties related to unrecognized tax benefits as income tax expense in its condensed consolidated statement of operations.
Stock-Based Compensation

The Company accounts for stock-based compensation using the fair value method, which requires the Company to measure the stock-based compensation based on the grant-date fair value of the awards and recognize the compensation expense over the requisite service period. The Company recognizes compensation expense net of actual forfeitures. To date, the Company has granted stock options, restricted stock awards (“RSAs”), time-based restricted stock units (“RSUs”), performance-based restricted stock units (“PSUs”), and restricted stock units that may be earned subject to the Company’s total shareholder return ranking relative to the software companies in the S&P Software and Services Select Industry Index (“S&P Index”) for a specified performance period or specified performance periods, service periods, and in select cases, subject to certain performance conditions (“TSR PSUs”). RSAs, RSUs, PSUs, and TSR PSUs are collectively referred to as “Stock Awards”.

The fair value of the Company’s RSAs, RSUs, and PSUs equal the market value of the Company’s common stock on the date of grant. These awards are subject to time-based vesting, which generally occurs over a period of four years. The Company recognizes compensation expense for awards which contain only service conditions on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards. The Company recognizes the compensation cost for awards that contain either a performance condition, market conditions, or both using the graded vesting method.
The fair value of the Company’s TSR PSUs are estimated at the grant date using a Monte Carlo simulation method. The assumptions utilized in this simulation require judgments and estimates. Changes in these inputs and assumptions could affect the measurement of the estimated fair value of the related compensation expense. Compensation expense associated with these TSR PSUs will be recognized over the vesting period regardless of whether the market condition is ultimately satisfied; however, the expense will be reversed if a grantee terminates prior to satisfying the requisite service period. For TSR PSUs containing an additional performance condition, a portion of the expense may fluctuate depending on the achievement of the performance conditions. All TSR PSUs will vest at the end of a three-year period.
Business Combinations

The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. Goodwill is calculated as the difference between the acquisition-date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. The Company’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and subject to refinement and, as a result, actual results may differ from estimates. During the measurement period, which may be up to one year from the acquisition date, if new information is obtained about facts and circumstances that existed as of the acquisition date, the Company may record adjustments to the fair value of these assets and liabilities, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, subsequent adjustments, if any, are recorded to the Company’s consolidated statements of operations.

Software Development Costs

For qualifying costs incurred for computer software developed for internal use, the Company begins to capitalize its costs to develop software when preliminary development efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed, and the software will be used as intended. These capitalized costs are amortized to expense over the estimated useful life of the related asset, generally estimated to be three years. Costs incurred prior to meeting these capitalization criteria and costs incurred for training and maintenance are expensed as incurred and recorded in research and development expense on the Company’s consolidated statements of operations. Capitalized software development costs are recorded in property and equipment on the Company’s condensed consolidated balance sheet.
Impairment of Long-Lived Assets, Intangible Assets and Goodwill
The Company evaluates its long-lived assets, consisting of property and equipment and intangible assets, for indicators of possible impairment when events or changes in circumstances indicate that the carrying amount of certain assets may not be recoverable. Impairment exists if the carrying amounts of such assets exceed the estimates of future net undiscounted cash flows expected to be generated by such assets. Should impairment exist, the impairment loss would be measured based on the excess carrying value of the assets over the estimated fair value of the assets. The Company has not written down any of its long-lived assets as a result of impairment during the periods presented.
The Company tests goodwill for impairment annually, during the fourth quarter of each fiscal year and in the interim whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company evaluates qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. In performing the qualitative assessment, the Company considers events and circumstances, including but not limited to, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, changes in management or key personnel, changes in strategy, changes in customers, changes in the composition or carrying amount of a reporting unit’s net assets, and changes in the price of the Company’s common stock. If, after assessing the totality of events or circumstances, the Company determines that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then the two-step goodwill impairment test is not performed. There have been no goodwill impairments during the periods presented.
Recently Adopted Accounting Pronouncements


Share-Based Payment Accounting (Topic 718): Improvements on Employee Share-Based Payment Accounting
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company adopted ASU No. 2016-09 on August 1, 2017. For the three and six months ended January 31, 2018, the provision for income taxes included tax benefits of $0.8 million and $5.2 million, respectively, in tax effects related to settled stock-based awards.2023.
Recent Accounting Pronouncements Not Yet Adopted
Income Statement, Reporting Comprehensive Income (Topic 220): Reclassification of Certain Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB issued ASU No. 2018-02, Income Statement, Reporting Comprehensive Income (Topic 220): Reclassification of Certain Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”), which allows a reclassification of stranded tax effects from accumulated other comprehensive income to retained earnings, as a result of the Tax Cuts and Jobs Act (“Tax Act”). ASU 2018-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of adopting the new standard for its 2019 fiscal year and subsequent periods.
Revenue from Contracts with Customers (Topic 606): Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which provides guidance for revenue recognition. This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets. This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance.
In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which deferred the effective date of this standard. As a result, the ASU and related amendments will be effective for the Company for its fiscal year beginning August 1, 2018, including interim periods within that fiscal year.
In March 2016, the FASB issued ASU No. 2016-08, Principal Versus Agent Consideration (or Reporting Revenue Gross versus Net), ASU No. 2016-10, Identifying Performance Obligations and Licensing in April 2016, and ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients in May 2016. These amendments clarified certain aspects of Topic 606 and have the same effective date as ASU 2014-09.
The Company will adopt these ASUs (collectively, Topic 606) on August 1, 2018. Topic 606 permits two methods of adoption: retrospectively to each prior reporting period presented (the “Full Retrospective Method”), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the “Modified Retrospective Method”). The Company currently intends to apply the Modified Retrospective Method.
The Company has evaluated the potential impact of Topic 606 on its revenue recognition policy and practices and has concluded that Topic 606 will impact the pattern of its revenue recognition associated with its term software licenses, software subscriptions, and to a lesser extent, cloud-based subscriptions. The Company’s term licenses require payments to be made annually or quarterly in advance and are subject to extended payment terms. Currently, revenues associated with the payment for term software licenses are recognized in the earlier of the period in which the payments are due or are actually made. Under Topic 606, the Company will be required to recognize the revenue associated with such payments not when they are made or due, but when control of the software license is transferred to the customer, which occurs at or near the time a contract with a customer is executed. As a result, under Topic 606, all contractually obligated payments under a term license that the Company reasonably expects to collect would be recognized upon delivery. In conjunction with its evaluation of this new standard, the Company began revising its contracting practices and amending existing agreements with certain customers primarily by shortening the initial, non-refundable term of its licenses. Since fiscal 2016, a substantial majority of new contracts feature a two-year initial term with subsequent one-year auto renewal options.
The Company currently anticipates that the impact of Topic 606 on its cloud-based subscriptions, will be more modest than for term licenses and will impact, primarily, those subscriptions that contractually provide for increasing annual subscription payments during the term of the arrangement.
The Company continues to evaluate the other potential impacts that Topic 606 will have on its consolidated financial statements, internal controls, business processes, and information technology systems including, for example, how to account for commission expenses, and the accounting for new cloud-based subscription offerings, including new revenue models acquired from recent acquisitions.

Share-Based Payment Accounting (Topic 718): Scope of Modification Accounting

In May 2017, the FASB issued ASU No. 2017-09, Scope of Modification Accounting (Topic 718) (“ASU 2017-09”), which amends the scope of modification accounting for share-based payment arrangements. ASU 2017-09 provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The new standard is effective for annual periods beginning after December 15, 2017 and interim periods within those years. Early adoption is permitted. The standard will be effective for the Company beginning August 1, 2018. The Company is currently evaluating the impact this update will have on its consolidated financial statements.
Leases (Topic 842): Accounting for Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The standard will be effective for the Company beginning August 1, 2019. The Company is currently evaluating the impact this update will have on its consolidated financial statements.

Financial Instruments (Topic 825): Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments (Topic 825) (“ASU 2016-01”), which impacts certain aspects of recognition, measurement, and presentation and disclosure of financial instruments. The standard will be effective for the Company beginning August 1, 2018. ASU 2016-01 generally requires certain equity investments to be measured at fair value with changes in fair value recognized in net income, and certain other requirements.  The Company is currently evaluating the effect the updated standard will have on its consolidated financial statements and related disclosures.

Other recentRecent accounting pronouncements that are or will be applicable to the Company did not, or are not expected to have a material impact on the Company'sits present or future financial statements.

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2. Revenue
Disaggregation of Revenue
Revenue by service or product type is as follows (in thousands):
Three Months Ended
October 31,
20232022
Subscription and support
Subscription$109,597 $78,977 
Support18,030 20,091 
License
Term license33,977 40,889 
Perpetual license48 63 
Services45,755 55,262 
 Total revenue$207,407 $195,282 
Revenue by service or product type and by geography is as follows (in thousands):
Three Months Ended October 31, 2023
Subscription and supportLicenseServicesTotal
United States$86,751 $12,731 $31,001 $130,483 
Canada18,442 2,918 2,194 23,554 
Other Americas1,490 322 562 2,374 
Total Americas106,683 15,971 33,757 156,411 
Total EMEA13,938 9,365 9,614 32,917 
Total APAC7,006 8,689 2,384 18,079 
Total revenue$127,627 $34,025 $45,755 $207,407 

Three Months Ended October 31, 2022
Subscription and supportLicenseServicesTotal
United States$67,081 $17,509 $38,525 $123,115 
Canada16,051 3,693 6,052 25,796 
Other Americas1,475 320 422 2,217 
Total Americas84,607 21,522 44,999 151,128 
Total EMEA8,928 10,425 7,894 27,247 
Total APAC5,533 9,005 2,369 16,907 
Total revenue$99,068 $40,952 $55,262 $195,282 
2.Fair Value of Financial Instruments
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No country or region, other than those presented above, accounted for more than 10% of total revenue during the three months ended October 31, 2023 and 2022.
Customer Contract –Related Balance Sheet Amounts
Amounts related to customer contract-related arrangements are included on the condensed consolidated balance sheets as follows (in thousands):
October 31, 2023July 31, 2023
Unbilled accounts receivable, net$116,114 $98,864 
Contract costs, net$45,186 $47,254 
Deferred revenue, net$175,018 $212,911 
As of October 31, 2023 and July 31, 2023, there was no allowance for credit losses associated with unbilled accounts receivable.
Contract costs
The current portion of contract costs of $15.6 million and $15.9 million is included in prepaid and other current assets in the Company’s condensed consolidated balance sheets as of October 31, 2023 and July 31, 2023, respectively. The non-current portion of contract costs of $29.6 million and $31.3 million is included in other assets in the Company’s condensed consolidated balance sheets as of October 31, 2023 and July 31, 2023, respectively. The Company amortized $4.1 million and $4.5 million of contract costs during the three months ended October 31, 2023 and 2022, respectively.
Deferred revenue
During the three months ended October 31, 2023, the Company recognized revenue of approximately $94.9 million related to the Company’s deferred revenue balance reported as of July 31, 2023.
Remaining Performance Obligations
The aggregate amount of consideration allocated to remaining performance obligations either not satisfied or partially satisfied was approximately $1.5 billion as of October 31, 2023. Subscription services are typically satisfied over three to five years, support services are generally satisfied within one year, and professional services are typically satisfied within one year. Professional services under time and material contracts are not included in the remaining performance obligations calculation as these arrangements can be cancelled at any time.
3. Fair Value of Financial Instruments
Available-for-sale investments within cash equivalents and investments consist of the following:following (in thousands):
October 31, 2023
Amortized CostUnrealized GainsUnrealized LossesEstimated Fair Value
Asset-backed securities$39,999 $10 $(240)$39,769 
Certificates of deposit31,295 — — 31,295 
Commercial paper191,145 — — 191,145 
Corporate bonds218,184 18 (1,111)217,091 
Foreign government bonds8,352 1 (123)8,230 
Money market funds138,674 — — 138,674 
U.S. Government agency securities71,445 1 (100)71,346 
U.S. Government bonds85,180 — (1,062)84,118 
     Total$784,274 $30 $(2,636)$781,668 
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July 31, 2023
January 31, 2018Amortized CostUnrealized GainsUnrealized LossesEstimated Fair Value
Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value
(in thousands)
U.S. Government agency securities$21,369
 $—
 $(51) $21,318
Asset-backed securitiesAsset-backed securities$43,573 $18 $(234)$43,357 
Certificates of depositCertificates of deposit34,395 — — 34,395 
Commercial paper100,010
 —
 (44) 99,966
Commercial paper150,254 — — 150,254 
Corporate bonds230,696
 33
 (593) 230,136
Corporate bonds200,691 41 (1,590)199,142 
Foreign government bondsForeign government bonds14,559 — (203)14,356 
Money market fundsMoney market funds229,721 — — 229,721 
U.S. Government agency securitiesU.S. Government agency securities84,180 9 (151)84,038 
U.S. Government bonds50,159
 —
 (158) 50,001
U.S. Government bonds87,064 1 (1,230)85,835 
Certificates of deposit26,747
 5
 (13) 26,739
Money market funds92,380
 —
 —
 92,380
Total$521,361
 $38
 $(859) $520,540
 Total$844,437 $69 $(3,408)$841,098 

 July 31, 2017
 Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value
 (in thousands)
U.S. Government agency securities$22,662
 $—
 $(66) $22,596
Commercial paper147,371
 2
 (34) 147,339
Corporate bonds258,334
 157
 (146) 258,345
U.S. Government bonds67,164
 —
 (185) 66,979
Certificate of deposit27,498
 29
 —
 27,527
Money market funds96,313
 —
 —
 96,313
    Total$619,342
 $188
 $(431) $619,099
The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses, aggregated by investment category and length of time that individual securities have been in an unrealized loss position:
 January 31, 2018
 Less Than 12 Months 12 Months or Greater Total
 Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses
 (in thousands)
U.S. Government agency securities$3,796
 $(1) $17,522
 $(50) $21,318
 $(51)
Commercial paper37,167
 (44) —
 —
 37,167
 (44)
Corporate bonds172,910
 (546) 25,966
 (48) 198,876
 (594)
U.S. Government bonds8,468
 (12) 41,534
 (145) 50,002
 (157)
Certificate of deposit10,236
 (13) —
 —
 10,236
 (13)
     Total$232,577
 $(616) $85,022
 $(243) $317,599
 $(859)

As of January 31, 2018, the Company had 135 investments in a gross unrealized loss position. The unrealized losses on its available-for-sale securities were primarily a result of unfavorable changes in interest rates subsequent to the initial purchase of these securities. The Company does not intend to sell, nor does it believe it will need to sell, these securities before recovering the associated unrealized losses. The Company does not consider any portion of the unrealized losses at JanuaryOctober 31, 2018 to be other-than-temporarily impaired, nor are any unrealized losses considered2023 to be credit losses. The Company has recorded the securities at fair value in its condensed consolidated balance sheets, with unrealized gains and losses reported as a component of accumulated other comprehensive loss.income (loss). The amount of realizedunrealized gains and losses reclassified into earnings are based on the specific identification of the securities sold. The realized gains and losses from sales of securities are presented in the periods presented were not material.condensed consolidated statements of comprehensive income (loss).
The following table summarizes the contractual maturities of the Company’s available-for-sale investments measured at fair value:value (in thousands):
October 31, 2023
Less Than 12 Months12 Months or GreaterTotal
Asset-backed securities$141 $39,628 $39,769 
Certificates of deposit31,295 — 31,295 
Commercial paper191,145 — 191,145 
Corporate bonds150,917 66,174 217,091 
Foreign government bonds4,827 3,403 8,230 
Money market funds138,674 — 138,674 
U.S. Government agency securities68,548 2,798 71,346 
U.S. Government bonds55,477 28,641 84,118 
     Total$641,024 $140,644 $781,668 

12
 January 31, 2018
 Less Than 12 Months 12 to 24 Months Total
 (in thousands)
U.S. Government agency securities$19,588
 $1,730
 $21,318
Commercial paper99,966
 —
 99,966
Corporate bonds174,084
 56,052
 230,136
U.S. Government bonds50,001
 —
 50,001
Money market funds92,380
 —
 92,380
Certificates of deposit20,248
 6,491
 26,739
     Total$456,267
 $64,273
 $520,540
Table of Contents

Fair Value Measurement
The current accounting guidance for fair value measurements defines a three-level valuation hierarchy for disclosures as follows:Available-for-sale investments
Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2—Inputs other than quoted prices included within Level 1 that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data; and
Level 3—Unobservable inputs that are supported by little or no market activity, which require the Company to develop its own assumptions.
The following tables summarize the Company’s available-for-sale investments measured at fair value, on a recurring basis, by level within the fair value hierarchy:hierarchy (in thousands):
October 31, 2023
Level 1Level 2Level 3Total
Cash equivalents:
Commercial paper$— $75,657 $— $75,657 
Money market funds138,674 — — 138,674 
U.S. Government agency securities— 7,177 — 7,177 
U.S. Government bonds— 7,988 — 7,988 
Total cash equivalents138,674 90,822 — 229,496 
Short-term investments:
Asset-backed securities— 141 — 141 
Certificates of deposit— 31,295 — 31,295 
Commercial paper— 115,488 — 115,488 
Corporate bonds— 150,917 — 150,917 
Foreign government bonds— 4,827 — 4,827 
U.S. Government agency securities— 61,371 — 61,371 
U.S. Government bonds— 47,489 — 47,489 
Total short-term investments— 411,528 — 411,528 
Long-term investments:
Asset-backed securities— 39,628 — 39,628 
Corporate bonds— 66,174 — 66,174 
Foreign government bonds— 3,403 — 3,403 
U.S. Government agency securities— 2,798 — 2,798 
U.S. Government bonds— 28,641 — 28,641 
Total long-term investments— 140,644 — 140,644 
       Total$138,674 $642,994 $— $781,668 
13
Table of Contents
January 31, 2018
Level 1 Level 2 Level 3 TotalJuly 31, 2023
 (in thousands)Level 1Level 2Level 3Total
Cash equivalents:       Cash equivalents:
Corporate bonds$—
 $4,100
 $—
 $4,100
Commercial paper—
 59,896
 —
 59,896
Commercial paper$— $61,296 $— $61,296 
Money market funds92,380
 —
 —
 92,380
Money market funds229,721 — — 229,721 
U.S. Government agency securitiesU.S. Government agency securities— 8,478 — 8,478 
U.S. Government bondsU.S. Government bonds— 15,949 — 15,949 
Total cash equivalentsTotal cash equivalents229,721 85,723 — 315,444 
Short-term investments:       Short-term investments:
Asset-backed securitiesAsset-backed securities— 2,705 — 2,705 
Certificates of depositCertificates of deposit— 34,395 — 34,395 
Commercial paperCommercial paper— 88,958 — 88,958 
Corporate bondsCorporate bonds— 156,396 — 156,396 
Foreign government bondsForeign government bonds— 10,717 — 10,717 
U.S. Government agency securities—
 19,588
 —
 19,588
U.S. Government agency securities— 69,101 — 69,101 
Commercial paper—
 40,070
 —
 40,070
U.S. Government bonds—
 50,001
 —
 50,001
U.S. Government bonds— 34,600 — 34,600 
Total short-term investmentsTotal short-term investments— 396,872 — 396,872 
Long-term investments:Long-term investments:
Asset-backed securitiesAsset-backed securities— 40,652 — 40,652 
Corporate bonds—
 169,983
 —
 169,983
Corporate bonds— 42,746 — 42,746 
Certificates of deposit—
 20,249
 —
 20,249
Long-term investments:       
Foreign government bondsForeign government bonds— 3,639 — 3,639 
U.S. Government agency securities—
 1,730
 —
 1,730
U.S. Government agency securities— 6,459 — 6,459 
Certificates of deposit—
 6,490
 —
 6,490
Corporate bonds—
 56,053
 —
 56,053
U.S. Government bonds—
 —
 —
 —
U.S. Government bonds— 35,286 — 35,286 
Total long-term investmentsTotal long-term investments— 128,782 — 128,782 
Total$92,380
 $428,160
 $—
 $520,540
 Total$229,721 $611,377 $— $841,098 

Convertible Senior Notes

 July 31, 2017
 Level 1 Level 2 Level 3 Total
  (in thousands)
Cash equivalents:       
     Corporate bonds$—
 $—
 $—
 $—
     Commercial paper—
 98,174
 —
 98,174
     Money market funds96,313
 —
 —
 96,313
Short-term investments:       
     U.S. Government agency securities—
 20,583
 —
 20,583
     Commercial paper—
 49,165
 —
 49,165
U.S. Government bonds—
 47,105
 —
 47,105
     Corporate bonds—
 170,654
 —
 170,654
Certificate of deposit—
 22,520
 —
 22,520
Long-term investments:       
     U.S. Government agency securities—
 2,013
 —
 2,013
     Certificate of deposit—
 5,007
 —
 5,007
     Corporate bonds—
 87,691
 —
 87,691
     U.S. Government bonds—
 19,874
 —
 19,874
      Total$96,313
 $522,786
 $—
 $619,099
3.Acquisitions

Cyence Acquisition

On November 1, 2017,In March 2018, the Company completed its acquisitionissued $400.0 million aggregate principal amount of Cyence, Inc. (“Cyence”) for an aggregate consideration of approximately $260.3 million, including approximately $146.6 million in cash, and equity consideration valued at approximately $113.7 million of newly issued Guidewire common stock and options, net of certain adjustments including a net working capital adjustment1.25% Convertible Senior Notes due 2025 (the “Cyence Acquisition”“Convertible Senior Notes”). Through the acquisition, the Company gained a cloud-based data listening and risk analytics technology offering for the P&C insurance industry which enables underwriting new and evolving risks, such as cyber risk. This acquisition was accounted for as a business combination. The results of Cyence’s operations have been included in the Company’s results of operations since November 1, 2017, the date of acquisition.
As part of the acquisition, the Company assumed certain Cyence compensation agreements, consisting of RSAs, stock options, and cash compensation, with an estimated fair value of $37.6 million. Based on the period earned prior to the acquisition date, $18.2 million was allocated to the purchase price, and $19.4 million relating to post-acquisition services, will be recorded as operating expenses over the remaining requisite service periods. RSAs were valued based on the November 1, 2017 grant date value, and the estimated fair value of the stock options assumed by the CompanyConvertible Senior Notes was determined using the Black-Scholes option pricing model.

The adjustments reflected herein to determine the purchase consideration are preliminary$404.0 million and may change as the Company finalizes these adjustments during the measurement period based on new information as it becomes available. The preliminary purchase consideration is as follows:
 Preliminary Purchase Consideration
 (in thousands)
Cash consideration paid at close$146,651
Equity issued to shareholders102,493
Issuance of replacement awards11,205
Total preliminary purchase consideration$260,349

In conjunction with the preliminary purchase price allocation, the Company determined that Cyence’s separately identifiable intangible assets were developed technology, customer contracts$388.2 million at October 31, 2023 and related relationships, order backlog, and trade names.July 31, 2023, respectively. The Company utilized the discounted cash flow methodology and the profit allocation methodology under the income approach to estimate the fair values of intangible assets. The Company used the cost build-up approach to estimateestimates the fair value of deferred revenue by estimating the costs related to fulfilling the obligation plus an additional markup for an assumed operating margin to reflect the profit a third party would expect to realize on the costs incurred. These fair valueConvertible Senior Notes using commonly accepted valuation methodologies and market-based risk measurements were based on significant inputs that were not observable in the market and thus represent a Level 3 measurement. The valuation models were based on estimates of future operating projections of Cyence and rights to sell new products containing the acquired technology as well as judgments on the discount rates used and other variables. The Company developed forecasts based on a number of factors including future revenue and operating cost projections, a discount rate that is representative of the weighted average cost of capital, in addition to royalty and long-term sustainable growth rates based on a market analysis. The Company amortizes the acquired intangibles over their estimated useful lives as set forth in the table below.

The allocation of purchase price is preliminary pending the final valuation of intangible and tangible assets acquired and liabilities assumed, certain acquired deferred tax assets and completion of certain statutory tax filing requirements and is therefore subject to potential future measurement period adjustments. The preliminary allocation of the purchase consideration is as follows:
  Preliminary Purchase Price Allocation Estimated Useful Lives
  (in thousands) (in years)
Acquired assets, net of assumed liabilities $7,470
  
Developed technology 28,400
 5
Customer contracts and related relationships 17,700
 5
Order backlog 3,200
 2
Trademarks 2,500
 7
Goodwill 201,079
  
Total preliminary purchase consideration $260,349
  
The goodwill of $201.1 million arising from the Cyence Acquisition consists largely of the acquired workforce and the opportunity to expand the Company’s customer base. The goodwill recognized is not expected to be deductible for income tax purposes.
For the three and six months ended January 31, 2018, total revenue and net loss attributable to Cyence was approximately $2.1 million and $9.7 million, respectively. The Company incurred $3.8 million and $5.2 million of total acquisition-related costs for the three months and six months ended January 31, 2018, respectively, that were recognized in general and administrative expenses.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information presents the combined results of operations for the Company and Cyence for the three and six months ended January 31, 2018 and 2017, after giving effect to the Cyence Acquisition as if it had occurred on August 1, 2016. The unaudited pro forma financial information includes adjustments to give effect to pro forma events that are directly attributable to the business combination and factually supportable. The unaudited pro forma financial information presented includes the business combination accounting effects resulting from the acquisition, including adjustments for the amortization of intangible assets, stock-based compensation, deferred revenue, and transaction costs on August 1, 2016 with a corresponding reduction of these amounts in the period originally recognized.
The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations that would have been realized if the Cyence acquisition had been completed on August 1, 2016, nor does it purport to project the results of operations of the combined company in future periods. The unaudited pro forma financial information does not give effect to any anticipated integration costs related to the acquired company. Consequently, actual results will differ from the unaudited pro forma financial information.
The unaudited pro forma financial information is as follows (in thousands):

 Three Months Ended January 31, Six Months Ended January 31,
 2018 2017 2018 2017
Pro forma revenue$163,787
 $118,235
 $276,891
 $215,065
Pro forma net loss$(38,779) $(3,187) $(51,329) $(24,464)
Pro forma net loss per share -- basic$(0.50) $(0.04) $(0.67) $(0.33)
Pro forma net loss per share -- diluted$(0.50) $(0.04) $(0.67) $(0.33)
The pro forma revenue and net loss reflects material, nonrecurring adjustments,observable, such as transaction, transition and integration-related charges (including legal, accounting and other professional fees, and retention bonuses)unadjusted quoted prices in markets that resulted from the acquisition.are not active (Level 2).

ISCS Acquisition

On February 16, 2017, the Company completed its acquisition of ISCS, Inc., a privately-held company that provides a cloud-based, all-in-one system for policy administration, billing and claims management to P&C insurers (“ISCS Acquisition”). The purchase price of the ISCS Acquisition was approximately $160 million, subject to certain adjustments including a net working capital adjustment, which resulted in cash consideration paid of $154.9 million. The fair value of all assets acquired, and liabilities assumed will be finalized by the fiscal quarter ending April 30, 2018. A portion of the consideration was placed into an escrow account as partial security to satisfy any potential claims, including the indemnification liability for state sales taxes. The ISCS Acquisition is intended to enhance the Company's ability to serve those P&C insurers that prefer a cloud-based, all-in-one platform that offers policy, billing, and claims management functionality. Total acquisition costs of $1.1 million were expensed as incurred,and recorded as general and administrative expenses in the accompanying condensed consolidated statement of operations. The results of ISCS’ operations have been included in the Company’s results of operations since February 16, 2017, the acquisition date.

In connection with the ISCS Acquisition, the Company recorded an indemnification asset of $1.6 million, which represents the selling security holders’ obligation under the Agreement and Plan of Merger to indemnify the Company for unpaid state sales taxes. The indemnification asset was recognized on the same basis as the corresponding liability, which is based on its estimated fair value as of the date of acquisition.

The ISCS Acquisition was accounted for as a business combination. As part of the preliminary purchase price allocation, the Company determined that ISCS’s separately identifiable intangible assets were developed technology, customer contracts and related relationships, and order backlog. The valuation method used was in accordance with the Company’s policy, practice, and experience as described above:     
  Total Purchase Price Allocation Estimated Useful Lives
  (in thousands) (in years)
Acquired assets, net of assumed liabilities $4,551
 
Developed technology 43,300
 4
Customer contracts and related relationships 7,000
 9
Order backlog 3,500
 4
Deferred tax assets 171
 
Goodwill 96,410
 
Total preliminary purchase price $154,932
  
The goodwill of $96.4 million arising from the ISCS Acquisition consists largely of the acquired workforce, the expected company-specific synergies and the opportunity to expand the Company’s customer base. The goodwill recognized is deductible for income tax purposes.

4. Balance Sheet Components
Property and Equipment, net
Property and equipment consist of the following:
 January 31, 2018 July 31, 2017
 (in thousands)
Computer hardware$23,950
 $21,408
Purchased software4,111
 3,855
Capitalized software development costs2,125
 1,065
Furniture and fixtures3,684
 3,253
Leasehold improvements9,395
 8,251
      Total property and equipment43,265
 37,832
(Less) accumulated depreciation(27,060) (23,456)
      Property and equipment, net$16,205
 $14,376
As of January 31, 2018 and July 31, 2017, no property and equipment was pledged as collateral. Depreciation expense was $1.9 million and $1.7 million for the three months ended January 31, 2018 and 2017, respectively; and was $3.8 million and $3.3 million for the six months ended January 31, 2018 and 2017, respectively.
During the third fiscal quarter of 2017, the Company began to capitalize software development costs for technology applications that the Company will offer solely as cloud-based subscriptions. The amounts capitalized as of January 31, 2018 and July 31, 2017 were $2.1 million and $1.1 million, respectively, and primarily comprised compensation and related headcount costs for employees who were directly associated with the software development projects. During the fiscal quarter ended January 31, 2018, the first phase of the Company's technology platform became ready for its intended use and, accordingly, approximately $1.5 million in previously capitalized costs began amortization over the estimated useful life of 3 years. The Company recognized approximately $0.1 million in amortization expense in cost of revenues, license and other on the accompanying condensed consolidated statements of operations during the three and six months ended January 31, 2018. There was no such amortization during the three and six months ended January 31, 2017.
Other AssetsStrategic Equity Investments
The Company’s other assets of $20.7 million and $20.1 million at January 31, 2018 and at July 31, 2017, respectively, include a strategic equity investmentinvestments in a privately-held company of $10.7 million, which was accounted for using the cost method of accounting. Strategic investments are non-marketable equity securities,companies in which the Company does not have a controlling interest or the ability to exert significant influence. TheseThe strategic investments consist of non-marketable equity securities that do not have a readily determinable market value. Under the cost method of accounting, the non-marketable securities are carriedvalues (Level 3). The Company records these strategic investments at cost less impairment and are adjusted onlyadjusts cost for other-than temporary impairments, certain distributions, and additional investments. Accordingly, if the Company were to disclose the fair value of the investment, the fair value measurement would be Level 3 in the valuation hierarchy. The Company assesses the investment for impairment when events orsubsequent observable changes in circumstances indicate that its carrying amount may not be recoverable.
As of January 31, 2018 and July 31, 2017, there were no indicators that the investment with carrying value of $10.7 million was impaired.
Goodwill and Intangible Assets
The following table presents changes in the carrying amount of goodwill for the period presented:
 (in thousands)
Goodwill, July 31, 2017$141,851
Acquisition - Cyence201,079
Changes in carrying value318
Goodwill, January 31, 2018$343,248

The Company’s intangible assets are amortized over their estimated useful lives. Intangible assets consist of the following:
 January 31, 2018 July 31, 2017
 (in thousands)
 Cost Accumulated Amortization Net Book Value Cost Accumulated Amortization Net Book Value
Amortized intangible assets:           
Acquired technology$93,600
 $23,900
 $69,700
 $65,200
 $14,710
 $50,490
Customer contracts and related relationships35,700
 3,666
 32,034
 18,000
 1,683
 16,317
Partner relationships200
 41
 159
 200
 30
 170
Trademarks2,500
 89
 2,411
 —
 —
 —
Order backlog8,700
 2,333
 6,367
 5,500
 1,162
 4,338
Total amortized intangible assets$140,700
 $30,029
 $110,671
 $88,900
 $17,585
 $71,315
Amortization expense was $7.6 million and $1.7 million forfair value. During the three months ended JanuaryOctober 31, 20182023, the Company invested $0.2 million in a new strategic equity investment. At October 31, 2023 and 2017, respectively, andJuly 31, 2023, the Company’s total strategic equity investments was $12.4$28.0 million and $3.1$27.8 million, forrespectively.
No impairment charge or unrealized gain or loss related to strategic investments were recognized during the sixthree months ended JanuaryOctober 31, 20182023 and 2017, respectively. The estimated aggregate amortization expense for existing intangible assets as2022.
14
Table of January 31, 2018, based on their current useful lives, is estimated as follows:
Contents
 Future Amortization
 (in thousands)
Fiscal year ending July 31, 
2018 (remainder of fiscal year)$15,017
201929,112
202026,834
202119,965
202211,143
Thereafter8,600
     Total future amortization expense$110,671
Accrued Employee Compensation
Accrued employee compensation expense consists of the following:
 January 31, 2018 July 31, 2017
 (in thousands)
 Accrued bonuses$13,929
 $26,581
 Accrued commission1,960
 5,228
 Accrued vacation11,190
 10,873
 Accrued salaries, payroll taxes and benefits6,602
 6,200
     Total accrued employee compensation$33,681
 $48,882

Deferred Revenues
Deferred revenues, current and non-current, consist of the following:
 January 31, 2018 July 31, 2017
 (in thousands)
Deferred license and other revenues$38,921
 $23,727
Deferred maintenance revenues45,109
 47,727
Deferred services revenues46,862
 39,681
     Total deferred revenues$130,892
 $111,135
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss by component during the six months ended January 31, 2018 were as follows:
 Foreign Currency Translation Adjustments Unrealized Gain (Loss) on Available-for-Sale Securities Total
 (in thousands)
Balance as of July 31, 2017$(5,630) $(166) $(5,796)
Other comprehensive income (loss) before reclassification1,428
 (592) 836
Amounts reclassified from accumulated other comprehensive loss to earnings—
 15
 15
Tax effect—
 167
 167
Balance as of January 31, 2018$(4,202) $(576) $(4,778)

5.4. Net Income (Loss) Per Share
The Company calculates basic earnings per share by dividing the net income (loss) by the weighted average number of shares of common stock outstanding for the period. For calculating diluted earnings per share, the Company uses the treasury stock method for options to purchase common stock and Stock Awards and the if-converted method for Convertible Senior Notes.
The following table sets forth the computation of the Company’s basic and diluted net income (loss) per share:share for the three months ended October 31, 2023 and 2022 (in thousands, except share and per share amounts):
Three Months Ended
October 31,
20232022
Numerator:
 Net income (loss)$(27,071)$(69,318)
Net income (loss) per share:
 Basic and diluted$(0.33)$(0.83)
Denominator:
Weighted average shares used in computing net income (loss) per share:
Basic and diluted81,690,912 83,320,967 
 Three Months Ended January 31, Six Months Ended January 31,
 2018 2017 2018 2017
 (in thousands, except share and per share amounts)
Numerator:       
   Net income (loss) 
$(45,555) $3,974
 $(54,469) $(3,884)
Net income (loss) per share:       
   Basic$(0.59) $0.05
 $(0.72) $(0.05)
   Diluted$(0.59) $0.05
 $(0.72) $(0.05)
Denominator:       
Weighted average shares used in computing net income (loss) per share:       
   Basic76,859,040
 73,738,810
 76,023,237
 73,516,140
     Weighted average effect of dilutive stock options—
 602,839
 —
 —
     Weighted average effect of dilutive restricted stock units—
 451,591
 —
 —
   Diluted76,859,040
 74,793,240
 76,023,237
 73,516,140


The following weighted average shares outstanding of potential common stock were excluded from the computation of diluted lossnet income (loss) per share for the periods presented because including them would have been anti-dilutive:
Three Months Ended
October 31,
20232022
Stock options157,638 14,806 
Stock awards2,255,096 1,188,284 
Convertible senior notes3,516,480 3,516,480 
During the three months ended October 31, 2023 and 2022, the average market price of the Company’s common stock did not exceed the initial conversion price of the Convertible Senior Notes.
15
 Three Months Ended January 31, Six Months Ended January 31,
 2018 2017 2018 2017
Stock options to purchase common stock657,271
 59,323
 601,370
 1,009,969
Restricted stock units3,474,549
 832,650
 3,222,956
 3,119,079
Table of Contents
6.5. Commitments and Contingencies
There has been no material change in the Company’s contractual obligations and commitments other than in the ordinary course of business since the Company’s fiscal year ended July 31, 2017. 2023.
See the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 20172023 for additional information regarding the Company’s contractual obligations.

Leases
The Company leases certain facilities and equipment under operating leases. Lease expense for all worldwide facilities and equipment, which is being recognized on a straight-line basis over terms of the various leases, was $2.1 million and $1.6 million for the three months ended January 31, 2018 and 2017, respectively, and was $4.0 million and $3.1 million for the six months ended January 31, 2018 and 2017, respectively.
In December 2017, the Company entered into a new lease agreement for its potential future headquarter facility. The lease term is expected to commence on December 1, 2018, for a period of 10.5 years. Total payments committed under the lease is $132.1 million. In connection with this lease agreement, the Company also entered into an irrevocable stand-by letter of credit to guarantee the $1.8 million security deposit.
Legal Proceedings
From time to time, the Company is involved in various legal proceedings and receives claims, arising from the normal course of business activities. The Company has not recorded any accrual for claims as of October 31, 2023 or July 31, 2023. The Company has not accrued for estimated losses in the accompanying condensed consolidated financial statements as the Company has determined that no provision for liability nor disclosure is required related to any claim against the Company because: (a) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim; (b) a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate is immaterial. The Company has not recorded any accrual for claims as of January 31, 2018 or July 31, 2017. The Company expenses legal fees in the period in which they are incurred.
Indemnification
The Company sells software licenses and services to its customers under contracts (“Software License”). Each Software License containsAgreements (“SLA”) and Software Subscription Agreements (“SSA”). SLAs and SSAs contain the terms of the contractual arrangement with the customer and generally includesinclude certain provisions for defending the customer against any claims that the Company’s software infringes upon a patent, copyright, trademark, or other proprietary right of a third party. Software LicensesSLAs and SSAs also generally indemnify the customer against losses,judgments, settlements, fines, penalties, costs, and expenses and liabilitiesresulting from damages that may be assesseda claim (“Losses”) against the customer in the event the Company’s software is found to infringe upon such third-party rights.
The Company has not had to reimburse any of its customers for lossesLosses related to indemnification provisions and no material claims against the Company were outstanding as of JanuaryOctober 31, 20182023 or July 31, 2017.2023. For several reasons, including the lack of prior indemnification claims and the lack of a monetary liability limit for certain infringement cases under various Software Licenses,SLAs and SSAs, the Company cannot estimate the amount of potential future payments, if any, related to indemnification provisions.
The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines, and settlement amounts incurred by any of these persons in any action or proceeding to which any of these persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by the Company, arising out of that person’s services as the Company’s director or officer or that person’s services provided to any other company or enterprise at the Company’s request. The Company maintains director and officer insurance coverage that may enable the Company to recover a portion of any future amounts paid.



7.6. Stock-Based Compensation Expense and Shareholders’ Equity
Stock-Based Compensation Expense
Stock-based compensation expense related to stock options and Stock Awards and stock options is included in the Company’s condensed consolidated statements of operations as follows:follows (in thousands):
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 Three Months Ended January 31, Six Months Ended January 31,
 2018 2017 2018 2017
 (in thousands)
Total stock-based compensation$25,035
 $18,807
 $44,649
 $36,911
Net impact of capitalized stock-based compensation(3) (220) 6
 (447)
 Total stock-based compensation expense$25,032
 $18,587
 $44,655
 36,464
        
Stock-based compensation expense was charged to the following categories:       
 Cost of license and other revenues$258
 $90
 $432
 $141
 Cost of maintenance revenues481
 436
 936
 849
 Cost of services revenues5,446
 4,815
 10,672
 9,510
 Research and development7,697
 4,650
 12,609
 9,117
 Sales and marketing5,024
 4,283
 9,241
 8,506
 General and administrative6,126
 4,313
 10,765
 8,341
 Total stock-based compensation expense$25,032
 $18,587
 $44,655
 $36,464
Three Months Ended
October 31,
20232022
Stock-based compensation expense$36,199 $35,249 
Net impact of deferred stock-based compensation(102)(153)
 Total stock-based compensation expense, net$36,097 $35,096 
Stock-based compensation expense is included in the following categories:
Cost of subscription and support revenue$3,462 $3,468 
Cost of license revenue95 147 
Cost of services revenue4,789 5,349 
Research and development9,986 9,291 
Sales and marketing7,729 6,887 
General and administrative10,036 9,954 
Total stock-based compensation expense$36,097 $35,096 

As of January 31, 2018, total unamortizedTotal unrecognized stock-based compensation cost for ourexpense related to the Company’s stock options and Stock Awards wereas of October 31, 2023 is as follows:
 As of January 31, 2018
Unrecognized Expense Weighted Average Expected Recognition Period
(in thousands) (in years)Unrecognized Expense
(in thousands)		Weighted Average Expected Recognition Period
(in years)
Stock Options$7,964
 2.3Stock Options$1,924 0.8
Stock Awards186,232
 2.5Stock Awards350,805 2.8
$194,196
 
Total unrecognized stock-based compensation expenseTotal unrecognized stock-based compensation expense$352,729 
Stock Awards

A summary of the Company’s Stock Awards activity under the Company’s equity incentive plans is as follows:
 Stock Awards Outstanding
 Number of Stock Awards Outstanding Weighted Average Grant Date Fair Value
 Aggregate Intrinsic Value (in thousands)(1)
Balance as of July 31, 20233,414,706 $85.68 $289,635 
Granted1,483,739 $91.77 
Released(489,783)$94.18 $44,580 
Canceled(25,556)$92.60 
Balance as of October 31, 20234,383,106 $86.75 $395,049 
Expected to vest as of October 31, 20234,383,106 $86.75 $395,049 
(1) Aggregate intrinsic value at each period end represents the total market value of Stock Awards at the Company’s closing stock price of $90.13 and $84.82 on October 31, 2023 and July 31, 2023, respectively. Aggregate intrinsic value for released Stock Awards represents the total market value of released Stock Awards at date of release.
  Stock Awards Outstanding
  Number of Stock Awards Outstanding  Weighted Average Grant Date Fair Value 
 Aggregate Intrinsic Value (in thousands)

(1)
Balance as of July 31, 20172,634,085
 $56.62
 $190,076
Granted1,571,536
 $78.10
 
Released(643,219) $55.01
 $48,777
Canceled(151,655) $61.54
 
Balance as of January 31, 20183,410,747
 $66.61
 $270,984
Expected to vest as of January 31, 20183,410,747
 $66.61
 $270,984
In September 2023, certain executive officers were granted Stock Awards that vest in September 2026, subject to continued service until such time, with the opportunity to increase the number of vested awards based on Company financial performance and, for a select number of awards, the market performance of the Company’s common stock. The fair value of the awards will be recognized over the performance period and may increase or decrease depending on the estimated attainment of Company financial performance criteria. The Company determined the fair value of the portion of the award subject to the market performance of the Company’s common stock using a Monte Carlo simulation model, which included the following assumptions:
(1)Performance PeriodAggregate intrinsic value at each period end represents the total market value of Stock Awards at the Company’s closing stock price of $79.45 and $72.16 on January 31, 2018 and July 31, 2017, respectively. Aggregate intrinsic value for released RSUs represents the total market value of released Stock Awards at date of release.September 13, 2023 to September 13, 2026
3-year Historical Volatility35.0%
3-year Risk Free Rate4.5%

Certain
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For the portion of the award subject to the market performance of the Company’s common stock, stock-based compensation expense is recognized over the requisite service period regardless of whether or not the market condition is ultimately satisfied, subject to continued service over the period.
Prior to fiscal year 2024, certain executives and employees of the Company received PSUs, and TSR PSUs in addition to RSUs. The PSUs included performance-based conditions andwhich will vest over a four-year period. The TSR PSUs are subject to total shareholder return rankings relative tothree years with 50% vesting annually over the software companies inthree year period and the S&P Index for a specified performance period or specified performance periods, and vestremaining 50% vesting at the end of the third year.
The Company recognized stock-based compensation related to PSUs of $4.1 million and $4.0 million during the three years. In select cases, certain TSR PSUs are also subject to performance-based conditions.
RSAs are issuedmonths ended October 31, 2023 and outstanding upon grant; however, vesting is based on continued employment and achievement of certain milestones. The weighted average grant date fair value is based on the market value of our common stock on the date of grant.

2022, respectively.
Stock Options
StockA summary of stock option activity under the Company’s equity incentive plans is as follows:
  Stock Options Outstanding
  Number of Stock Options Outstanding  Weighted Average Exercise Price Weighted Average Remaining Contractual Life 
 Aggregate Intrinsic Value 

(1)
 
 
 (in years)  (in thousands)
Balance as of July 31, 2017555,636
 $22.17
 4.0 $27,777
Granted137,057
      
Exercised(59,078) $12.31
   $3,792
Canceled(1,441)      
Balance as of January 31, 2018632,174
 $20.48
 4.8 $37,279
Vested and expected to vest as of January 31, 2018632,174
 $20.48
 4.8 $37,279
Exercisable as of January 31, 2018481,304
 $21.39
 3.6 $27,945
(1)
 Stock Options Outstanding
 Number of Stock Options Outstanding Weighted Average Exercise PriceWeighted Average Remaining Contractual Life
 Aggregate Intrinsic Value(1)
(in years) (in thousands)
Balance as of July 31, 2023187,572 $65.90 8.8$3,549 
Granted— $— 
Exercised(42)$46.77 $2 
Canceled— $— 
Balance as of October 31, 2023187,530 $65.90 8.6$4,543 
Vested and expected to vest as of October 31, 2023187,530 $65.90 8.6$4,543 
Exercisable as of October 31, 20238,182 $11.46 3.3$644 
(1) Aggregate intrinsic value at each period end represents the difference between the Company's closing stock prices of $79.45 and $72.16 on January 31, 2018 and July 31, 2017, respectively, and the exercise price of outstanding options. Aggregate intrinsic value for exercised options represents the difference between the Company’s stock price at date of exercise and the exercise price.
Valuation of Awards
TSR PSUs
The fair values of our TSR PSUs were estimated at the date of grant using the Monte Carlo simulation model which included the following assumptions:    
 Three Months Ended January 31, Six Months Ended January 31,
 2018 2017 2018 2017
Expected term (in years)* 2.66 2.88 2.66-2.88
Risk-free interest rate* 1.34% 1.44% 0.89%-1.34%
Expected volatility of the Company* 30.2% 28.0% 30.2%-31.5%
Average expected volatility of the peer companies in the S&P Index* 36.9% 34.7% 36.9%-37.0%
Expected dividend yield* —% —% —%
*There were no TSR PSUs granted during the three months ended January 31, 2018.

The number of TSR PSUs that may ultimately vest will vary based on the relative performance of the Company’s total shareholder return rankings relative to the software companies in the S&P Index for a specified performance period or specified performance periods. The Monte Carlo methodology incorporates into the valuation all possible outcomes, including that the Company’s relative performance may result in no shares vesting. As a result, stock-based compensation expense is recognized

regardlessclosing stock price of the ultimate achievement of the plan’s performance metrics. The expense will be reversed only in the event that a grantee is terminated prior to satisfying the requisite service period.

For a subset of TSR PSUs, the number of shares that may ultimately vest will vary based$90.13 and $84.82 on the achievement of certain Company specific financial performance metrics in addition to the Company’s total shareholder return condition noted above. As a result, the expense recognized will fluctuate based on the Company’s estimated financial performance relative to the target financial performance metrics.
Common Stock Reserved for Issuance
As of JanuaryOctober 31, 20182023 and July 31, 2017,2023, respectively, and the Company was authorized to issue 500,000,000 sharesexercise price of common stock with a paroutstanding options. Aggregate intrinsic value of $0.0001 per share and, of these, 77,279,160 and 75,007,625 shares of common stock were issued and outstanding, respectively. As of January 31, 2018 and July 31, 2017,for exercised options represents the Company had reserved shares of common stock for future issuance as follows:
 January 31, 2018 July 31, 2017
 Exercise of stock options to purchase common stock632,174
 555,636
 Vesting of restricted stock awards3,160,747
 2,634,085
 Shares available under stock plans21,728,177
 18,453,674
      Total common stock reserved for issuance25,521,098
 21,643,395


8.Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was enacted into law which changed U.S. tax law, including, but not limited to: (1) reducing the U.S. federal corporate income tax rate from 35.0% to 21%; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal corporate income taxes on dividends from foreign subsidiaries; (4) capitalizing R&D expenses which are amortized over five to 15 years; and (5) other changes to how foreign and domestic earnings are taxed.
As a result ofdifference between the Company’s fiscal non-calendar year end,stock price at date of exercise and the lower U.S. statutory federal income tax rate will result inexercise price.
Share Repurchase Program
In September 2022, the Company's board of directors authorized and approved a blended U.S. Federal statutory rate of 26.9% for the Company’s fiscal year 2018. During the quarter ended January 31, 2018, the Company remeasured deferred tax assets and liabilities based on the rates at which they are expected to reverse and recorded a provisional net charge of $34.0 million based on preliminary estimates of the tax effects. In addition, as a result of changes in tax law under the Tax Act, the Company recorded a provisional benefit of $5.4 million related to the release of valuation allowance against certain deferred tax assets that are more likely than not to be realized. The provisional net charge and provisional benefit are subject to revisions as the Company completes its analysis of the Tax Act. The Company estimates that no tax will be due related to the one-time transition tax on the deemed repatriation of deferred foreign income.
The Tax Act includes a provision to tax global intangible low-taxed income of foreign subsidiaries and a base erosion abuse tax measure that taxes certain payments between a U.S. corporation and its foreign subsidiaries. These provisions of the Tax Act will be effective for the Company beginning August 1, 2018. The Company is in the process of completing its analysis of the deferred tax accounting on global intangible low-taxed income and has not recorded provisional amounts. The Company is still evaluating an accounting policy to record amounts as deferred taxes or as period costs related to this provision. The SEC staff issued Staff Accounting Bulletin No. 118 which provides for a measurement periodshare repurchase program of up to one year after the enactment date$400.0 million of the Tax ActCompany's outstanding common stock. Share repurchases under the program may be made from time to finalizetime, in the related income tax impacts. The Company expects to completeopen market, in privately negotiated transactions and otherwise, at the accounting for the Tax Act during this measurement period.
The Company recognized income tax expensediscretion of $48.1 million and $6.1 million for the three months ended January 31, 2018 and 2017, respectively. The increase in tax expense for the three months ended January 31, 2018 was primarily due to the impactmanagement of the TaxCompany and in accordance with applicable federal securities laws, including Rule 10b-18 of the Exchange Act, including discrete tax expense of $34.0 million related to the remeasurement of net deferred tax assets offsetand other applicable legal requirements. Such repurchases may also be made in compliance with Rule 10b5-1 trading plans entered into by the discrete tax benefit of $5.4 million noted above. The effective tax rate of 1,880% for the three months ended January 31, 2018, differs from the statutory U.S. federal income tax rate of 26.9% mainly due to the tax expense recorded as a result of the remeasurement of deferred tax assets and release of valuation allowance, as well as permanent differences for stock-based compensation, including excess tax benefits, research and development credits, the tax rate differences between the United States and foreign countries, foreign withholding taxes, certain non-deductible expenses including executive compensation, and acquisition-related expenses.Company.
During the three months ended JanuaryOctober 31, 2018,2023, the increase in unrecognized tax benefits fromCompany did not repurchase any shares of common stock. As of October 31, 2023, $138.2 million remained available for future share repurchases.
During the beginningthree months ended October 31, 2022, the Company entered into an accelerated share repurchase (“ASR”) agreement with a large financial institution whereupon the Company provided them with a prepayment of $200.0 million and received an initial delivery of 2,581,478 shares of the periodCompany’s common stock. In the third quarter of fiscal year 2023, the ASR was $3.7 million. Accordingly, assettled in full with the delivery of January 31, 2018,an additional 648,001 shares of common stock which resulted in total repurchases under the Company had unrecognized tax benefitsASR of $6.4 million that, if recognized, would affect the Company’s effective tax rate.3,229,479 shares of common stock at an average purchase price of $61.93 per share.


9.Segment Information

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The Company operates in one segment. The Company’s chief operating decision maker (the “CODM”), its Chief Executive Officer, manages the Company’s operations on a consolidated basis for purposes of allocating resources. When evaluating the Company’s financial performance, the CODM reviews separate revenues information for the Company’s license, maintenance, and professional services offerings, while all other financial information is reviewed on a consolidated basis. The Company’s principal operations and decision-making functions are located in the United States.

The following table sets forth revenues by country and region based on the billing address of the customer:
 Three Months Ended January 31, Six Months Ended January 31,
 2018 2017 2018 2017
 (in thousands)
United States$104,422
 $64,506
 $174,256
 $111,355
Canada16,458
 14,355
 26,653
 28,849
Other Americas3,418
 3,872
 8,160
 9,096
Total Americas124,298
 82,733
 209,069
 149,300
United Kingdom9,315
 9,574
 18,652
 17,964
Other EMEA10,554
 8,809
 17,178
 17,750
Total EMEA19,869
 18,383
 35,830
 35,714
Total APAC19,621
 14,505
 27,060
 24,734
Total revenues$163,788
 $115,621
 $271,959
 $209,748
No country or region, other than those presented above, accounted for more than 10%
Table of revenues during the three and six months ended January 31, 2018 and 2017.
The following table sets forth the Company’s long-lived assets, including intangibles and goodwill, net by geographic region:
Contents
 January 31, 2018 July 31, 2017
  (in thousands)
Americas$466,943
 $224,667
EMEA3,121
 2,747
APAC60
 128
Total$470,124
 $227,542

ITEM 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes thereto included elsewhere in this documentQuarterly Report on Form 10-Q and the Risk Factors included in Item 1A of Part II of this Quarterly Report on Form 10-Q. All information presented herein is based on our fiscal calendar. Unless otherwise stated, references in this report to particular years or quarters refer to our fiscal years ended in July and the associated quarters of those fiscal years. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.
Overview
We areGuidewire delivers a provider of software products and subscriptions for the globalplatform that property and casualty (“P&C”) industry. Our software servesinsurers trust to engage, innovate, and grow efficiently. Guidewire’s platform combines core operations, digital engagement, analytics, and machine learning and artificial intelligence (“AI”) applications delivered as a technology platform for P&C insurance primary carriers. Guidewire InsurancePlatformTM consists of applicationscloud service or self-managed software. As a partner to support core operations, data managementour customers, we continually evolve to enable their success and analytics, and digital engagement, and is connected to numerous data sources and third-party applications. Our applications are designed to work together to strengthen our customers’ ability to adapt and succeedassist them in navigating a rapidly changing insurance market. Guidewire InsuranceSuite™
Our core operational services and Guidewireproducts are InsuranceSuite Cloud, InsuranceNow,TM provide core and InsuranceSuite for self-managed installations. These services and products are transactional systems of record supportingthat support the entire insurance lifecycle, including insurance product definition, distribution, underwriting, policy-holderpolicyholder services, and claims management. Guidewire InsuranceSuite is a highly configurable and scalable system primarily comprised of three applications (ClaimCenter, PolicyCenter and BillingCenter) that can be licensed separately or together and can be deployed on-premise or in the cloud. Guidewire InsuranceNow is a cloud-based system that offers policy, billing, and claims management functionality to insurers that prefer an all-in-one solution. Our data and analytics applications enable insurers to manage data more effectively, gain insights into their business, and underwrite new and evolving risks. Our digital engagement applications enable digital sales, omni-channel service, and enhanced claims experiences for policyholders, agents, vendor partners, and field personnel. The applicationsOur analytics offerings enable insurers to manage data more effectively, gain insights into their business, drive operational efficiencies, and services of Guidewire InsurancePlatform can be deployed in the cloud, on-premise, or in a hybrid mode.underwrite new and evolving risks. To support P&C insurers globally, we have localized, and will continue to localize, our softwareplatform for use in a variety of international regulatory, language, and currency environments.
We sellInsuranceSuite 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 productsGuidewire Cloud Platform (“GWCP”) architecture and leverage our in-house cloud operations team. InsuranceSuite Cloud is designed to support multiple releases each year to ensure that cloud customers remain on the latest version and gain fast access to our innovation efforts. Additionally, InsuranceSuite Cloud embeds digital and analytics capabilities natively into our platform. Most new sales and implementations are for InsuranceSuite Cloud.
InsuranceNow is a wide varietycomplete, cloud-based application that offers policy, billing, and claims management functionality to insurers.
InsuranceSuite for self-managed installations is comprised of global P&C insurers rangingthree core applications (PolicyCenter, BillingCenter, and ClaimCenter) that can be licensed separately or together and can be deployed and updated by our customers and their implementation partners.
Our customers range from some of the largest global insurance carrierscompanies or their subsidiaries to predominantly national and regional carriers. or local insurers that serve specific states and/or regions.Our customer engagement is led by our direct sales team and supported by our system integrator (“SI”) partners. We maintain and continue to grow our sales and marketing efforts globally, and maintain regional sales centers inthroughout the Americas, Europe and Asia. Strong customer relationships are a key driver ofworld.
Because our success given the long-term nature ofplatform is critical to our engagements and the importance of customer references for new sales. We continue to focus on deepening our customer relationships through continued successful product implementations, robust product support, strategic engagement on new products and technologies, and ongoing account management.
Our sales cycles for new and existing customers remain protracted as customers are deliberate and the decision makingcustomers’ businesses, their decision-making and product evaluation process is long.thorough, which often results in an extended sales cycle. These evaluation periods can extend further if thea customer purchases multiple services and products or assesses the benefits ofis considering a move to a cloud-based subscription in addition to our more traditional on-premises licensing models.for the first time. Sales to new customers also involve extensive customer due diligence and reference checks. We must earn credibility with each successful implementation as we expand our sales operations, market products that have been acquired or newly introduced, and expand the ways we deliver our software. 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, and theefficient operation of our cloud infrastructure, continued development of relevant local content and the automated tools that we believe are optimal for updating that content.content, and successful implementations and migrations.
To date, we have primarily licensedWe sell our software undercloud-delivered offerings through subscription services and our self-managed products through term license contracts.licenses. We generally price our licensesservices and products based on the amount of direct written premiumsDirect Written Premium (“DWP”) that will be managed by our solutions.platform. Our term licenses for both recurringsubscription, term license, and maintenancesupport fees are typically invoiced annually in advance or, in certain cases, quarterly. Term licenses thatadvance. Subscription services are greater than one year are characterized by extended payment terms. We assess whethergenerally sold with an initial term of between three and five years with optional annual renewals commencing after the initial term. Subscription revenue is recognized on a fee is fixed or determinable atratable basis over the outset of the arrangement, primarily based on the payment terms associated with the transaction. Forcommitted term, licenses with extended payment terms, term license fees are not considered to be fixed and determinable until they become due or payment is received, resulting in a deferral of the related revenues until this revenue recognition criteria is met, assumingonce all other revenue recognition criteria are satisfied. In preparing for our adoption ofmet including providing access to the new revenue recognition standard, we began revising our contracting practices in fiscal 2016 by selling substantially all termservice. Term licenses are primarily sold with an initial two-year committed term and optional annual renewals. We also began a program to amend existing long-term contracts to the same committed term of two-years with optional annual renewals.renewals commencing after the initial term. We may enter into term license arrangements with our customers that have an initial term of more than two years or may renew license arrangements for longer than one year. A small portion of our revenues arerevenue is derived from perpetual licenses, for whichlicenses. Term and perpetual license revenuesrevenue are typically recognized upon delivery ofwhen software is made available to the software,customer, provided that all other revenue recognition criteria have been met.
Our support revenue is generally recognized ratably over the committed support term of the licensed software. Our support fees are typically priced as a fixed percentage of the associated license fees. We also offer professional services, both directly and through SI partners, to help our customers deploy, migrate, and utilize our platform, services, and products. A majority of our services revenue is billed monthly on a time and materials basis.
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Over the past few years, we have primarily been entering into cloud-based subscriptions. Currently, these subscriptions may be for terms greater than two years,subscription arrangements with our new and existing customers, and we anticipate that subscription arrangements will be a majority of these arrangements will be billed annually or quarterly in advance, although in some instances additional

fees may be assessed in arrears as customers increase their DWP. Revenues derived from these subscriptions are recognized ratably over the contractual term beginning after the subscription is effectively provisioned, which is the date our software service is made available to customers. We anticipate thatannual new sales of subscriptions will increase as a percentage of annual sales as we sell more cloud-based services.going forward. As a result of the ratable recognition of revenues associated with subscriptions, a significant shift from term licenses to subscriptions will adversely affect our reported revenue growth. As this relatively new sales model matures, we may decide to change certain contract terms in new arrangements to remain competitive or otherwise meet market demands.
To extend our technology leadership in the global market and to drive operating efficiency, we continue to invest in researchproduct development and developmentcloud operations to enhance and improve our current services and products, introduce new services and products, and advance our ability to deploysecurely and cost-effectively each ofdeliver our productsservices in the cloud. Continued investment in product innovation is critical as we seek to assist our customers in achieving their ITtechnology goals, maintain our competitive advantage, grow our revenues,revenue, expand internationally, and meet evolving customer demands. In certain cases, we willmay also acquire skills and technologies to manage our cloud infrastructure and accelerate our time to market for new products, solutions, and solutions.upgrades.
Our track record of success with customers and their implementations is central to maintaining our strong competitive position. We rely on our global services teamsteam and SI partners to meet our customers’ implementation needs. Our services organization comprises on-site, near-shore, and off-shore technical experts. The services organization seeks to ensure that teams with the right combination of product, business, and language skills are utilizedused in the most efficient way. Our partnerships with leading SIs allows usway to increase efficiencymeet our customers’ implementation and scale while reducing customer implementation costs. Ourmigration needs. We have extensive relationships with SIsSI, consulting, technology, and other industry partners. Our network of partners have strengthened andhas expanded in line with theas interest in and adoption of our products.platform has grown. We encourage our partners to co-market, pursue joint sales initiatives, and drive broader adoption of our technology, helping us grow our business more efficiently.efficiently and enabling us to focus our resources on continued innovation and further enhancement of our solutions.
We work closely with our network of third-party SI partners to facilitate new sales and implementations of both our subscription services and self-managed products. Our partnership with leading SI partners allows us to increase efficiency and scale while reducing customer implementation and migration costs. We continue to grow our services organization and invest time and resources in increasingto increase the number of qualified consultants employed by our SI partners, develop relationships with new SIspartners in existing and new markets, and ensure that all SI partners are readyqualified to assist with implementing our services and products. We believe this model will continue to serve us well, and we intend to continue to expand our network of partners and the number of certified consultants with whom we work so we can leverage our SI partners more effectively, especially for future subscription migrations and implementations.
We face a number of risks in the execution of our strategy, including risks related to expanding to new markets, managing lengthy sales cycles, competing effectively in the global market, relying on sales to a relatively small number of large customers, developing new or acquiring existing services and products successfully, migrating a portion of our business totowards a moresubscription model with ratable revenue recognition, model as we bring to market more cloud-based solutions, and increasing the overall adoption of our products.services and products, and cost-effectively and securely managing the infrastructure of our cloud-based customers. In response to these and other risks we might face, we continue to invest in many areas of our business. Our investments inbusiness, including product development, cloud operations, cybersecurity, implementation and migration services, and sales and marketing align with our goal of winning new customers in both existing and new markets, and enable us to maintain a persistent, consultative relationship with our existing customers. Our investments in product development are designed to meet the evolving needs of our customers. Our investments in services are designed to ensure customer success, both with on-premise and cloud-based solutions.
Acquisitions
On November 1, 2017, we completed the acquisition of Cyence, Inc. (“Cyence”), for an aggregate consideration of approximately $260.3 million, including approximately $146.6 million in cash and equity consideration valued at approximately $113.7 million of newly issued Guidewire common stock and options, net of certain adjustments. Through the acquisition we gained a cloud-based data listening and risk analytics technology that enables the P&C insurance industry to grow by underwriting new and evolving risks, such as cyber risk, that have gone underinsured or uninsured. This acquisition was accounted for as a business combination. The results of Cyence’s operations have been included in our results of operations since November 1, 2017, the date of acquisition.
In February 2017, we completed the acquisition of ISCS, Inc. (“ISCS”), for cash consideration, net of certain adjustments, of approximately $154.9 million. Through the acquisition we gained a cloud-based, all-in-one transactional platform that combines policy, claims and billing management functionality for P&C insurers. Re-branded InsuranceNow, this platform enhances our ability to serve P&C insurers that have less complex businesses, require the functionality of a suite, and prefer cloud-based delivery. We will continue to invest in this platform, improving its scalability and performance, reducing its cost to implement and deliver, adapting it for international markets, and integrating it with our data and analytics and digital products. The results of ISCS’s operations have been included in our results of operations since February 16, 2017, the date of acquisition.
marketing.
Seasonality
We have historically experienced seasonal variations in our license revenue and, other revenuesto a lesser extent, in our subscription revenue as a result of increased customer orders in our second and fourth fiscal quarters. We generally see a modest increase in orders in our second fiscal quarter, which is the quarter ending January 31, due to customer buying patterns. We also see significantly increased orders in our fourth fiscal quarter, which is the quarter endedending July 31,31. We generally see significantly increased orders in our fourth fiscal quarter due to efforts by our sales team to achieve annual incentives. This seasonal pattern, however, may be absent in any given year. For example, the timing of a small number of large transactions or the receipt of early payments may be sufficientBecause we recognize revenue upfront for new term licenses and multi-year term license renewals compared to disrupt seasonal revenue trends. On an annual basis, our maintenance revenues, which are recognized ratably, may also be impactedover time for subscription services, changes in the event that seasonal patterns change significantly. During fiscal yearsmix between term license and subscription services may impact our quarterly results. Additionally, any quarter in which a significant multi-year term license or multi-year term license renewal or non-renewal occurs could be impacted. As subscriptions

increase as a percentage of total sales, the revenuesrevenue we can recognize in the initial fiscal year of an order will be reduced, deferred revenue will increase, and our reported revenue growth will be adversely affected.affected in the near term due to the ratable nature of these arrangements. The seasonal natureconcentration of our sales and the concentration of such sales in our fourth fiscal fourth quarter increases this impact.impact as the revenue impact of most fourth fiscal quarter subscription sales will not be realized until the following fiscal year.
Our services revenues arerevenue is also subject to seasonal fluctuations, though to a lesser degree than our license revenues.revenue and subscription revenue. Our services revenues arerevenue is impacted by the number of billable days in a given fiscal quarter. TheOur second fiscal quarter, endedwhich is the quarter ending January 31, usually has fewer billable days due to the impact of the Thanksgiving, Christmas, and New Year’s holidays. TheOur fourth fiscal quarter ended July 31 usually also has fewer billable days due to the impact of vacation timesvacations taken by our professional staff.services professionals. Because we pay our services professionals the same amountsamount throughout the year, our gross margins on our services revenuesrevenue are usually lower in these quarters. This seasonal pattern, however, may be absent in any given year.
Recent Global Events
Recent global events have adversely affected and are continuing to adversely affect workforces, organizations, economies, and financial markets globally, leading to economic downturns, inflation, and increased market volatility. For instance, the ongoing wars between Israel and Hamas and between Russia and Ukraine, escalating tensions in the South China Sea, inflation higher than we have seen in decades, the recent bank failures in the United States and Switzerland and the related impact on financial markets and
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institutions, and supply chain issues have contributed to global economic and market volatility. We are unable to accurately predict the full impact that these global events will have on our results of operations, financial condition, liquidity, and cash flows due to numerous uncertainties.
Our business and financial results 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. Our sales cycles, ARR growth rates, and revenue, especially services revenue, continue 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.
Our customers may be unable to pay or may request amended payment terms for their outstanding invoices due to the economic impacts from these disruptions, and we may need to increase our accounts receivable allowances. A decrease in orders in a given period could negatively affect our revenue and ARR in future periods, particularly if experienced on a sustained basis, because a substantial proportion of our new software subscription services orders is recognized as revenue over time. Also, the global economic impact of these disruptions could affect our customers’ DWP, which could ultimately impact our revenue as we generally price our 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, intangible assets, or goodwill.
We will continue to monitor and evaluate the nature and extent of these global events on our business.
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 rolling four-quarterARR and Free Cash Flow. For a further discussion of how we use key metrics and certain non-GAAP financial measures, see “Non-GAAP Financial Measures” in this Quarterly Report on Form 10-Q.
Annual Recurring Revenue (“ARR”)
We use ARR to quantify the annualized recurring revenues fromvalue outlined in active customer contracts at the end of a reporting period. ARR includes the annualized recurring value of term licenses, subscription agreements, support contracts, and total maintenance.hosting agreements based on customer contracts, which may not be the same as the timing and amount of revenue recognized. All components of the licensing and other arrangements that are not expected to recur (primarily perpetual licenses and professional services) are excluded. In addition,some arrangements with multiple performance obligations, a portion of recurring license and support or subscription contract value is allocated to services revenue for revenue recognition purposes, but does not get allocated for purposes of calculating ARR. This revenue allocation generally only impacts the initial term of the contract. This means that as we present select GAAP and non-GAAP financial metricsincrease arrangements with multiple performance obligations that we use internally to manage the business and that we believe are useful for investors. These metrics include four-quarter recurring revenues as well as operating cash flows and capital expenditures.
Four-Quarter Recurring Revenues
We measure four-quarter recurring revenues by addingservices at discounted rates, more of the total termcontract value will be recognized as services revenue, but our reported ARR amount will not be impacted. During the three months ended October 31, 2023, the recurring license and other revenues and total maintenance revenuessupport or subscription contract value recognized under GAAPas services revenue was $3.0 million. 
If a customer contract contains invoicing amounts that increase over the contract term, then ARR reflects the annualized invoicing amount outlined in the preceding four quarters ended incontract for the statedcurrent reporting period. This metric excludes perpetual license revenues, revenues from perpetual buyout rights, and services revenues. This metric allows us to better understand the trends in our recurring revenues because it reduces the variations in any particular quarter caused by seasonality. However, the effects of theFor example, given a contract with annual invoicing of our term licenses,$1.0 million at the beginning of year one, $2.0 million at the beginning of year two, and certain effects$3.0 million at the beginning of contractual provisionsyear three, and the reporting period is subsequent to year two invoicing and prior to year three invoicing, the reported ARR for that may accelerate or delay revenue recognition in some cases can impact this metric. In addition, this metric willcontract would be adversely impacted$2.0 million.
As of October 31, 2023, ARR was $770 million, compared to $763 million as of July 31, 2023. We measure ARR results on a constant currency basis during periods in which subscriptions increase as a percentage of total customer orders, as more of the revenue under those agreements will be deferred to future periods. This metric applies revenue recognition rules under GAAP and does not substitute individually tailored revenue recognition and measurement methods. The relevance and value of this metric may be impacted by our transition to a new revenue standard in fiscal year 2019. Our four-quarter recurring revenues for each of the eight periods presented were:and revalue ARR at year end to current currency rates.
 Four quarters ended
 January 31, 2018 October 31, 2017 July 31, 2017 April 30, 2017 January 31, 2017 October 31, 2016 July 31, 2016 April 30, 2016
 (in thousands)
Term license and other revenues$272,328
 $253,792
 $258,322
 $237,919
 $220,494
 $210,278
 $208,430
 $194,458
Maintenance revenues73,568
 71,041
 68,643
 66,958
 64,776
 62,451
 59,931
 56,103
Total four-quarter recurring revenues$345,896
 $324,833
 $326,965
 $304,877
 $285,270
 $272,729
 $268,361
 $250,561
OperatingFree Cash Flows and Capital ExpendituresFlow
We monitor our free cash flows from operating activities and cash used for capital expenditures,flow, as a key measure of our overall business performance, which enables us to analyze our financial performance without the effects of certain non-cash items such as depreciation, and amortization, and stock-based compensation expenses. Additionally, operatingfree cash flowsflow takes into account the impact of changes in deferred revenues,revenue, which reflects the receipt of cash payment for services and products before they are recognized as revenues.revenue, and unbilled accounts receivable, which reflects revenue that has been recognized that has yet to be invoiced to our customers. Our net cash provided by (used in) operating cash flows areactivities is significantly impacted by the timing of invoicing and collections of accounts receivable, the sizetiming and amount of annual bonus payment,payments, as well as payments of payroll and other taxes. As a result, our operating cash flows fluctuate significantly on a year over year basis. Cash provided by our operations was $16.4 million and $29.6 million for the six months ended January 31, 2018 and 2017, respectively. Additionally, cash used for capital expenditures was $5.4 million and $2.6 million for the six months ended January 31, 2018 and 2017, respectively.tax payments. Our capital expenditures consistedconsist of purchases of property and equipment, most of which wasprimarily computer hardware, software, and leasehold improvements, and capitalized software development costs, and leasehold improvements.costs. Free cash flow in the three months ended October 31, 2022 was impacted by severance payments of $2.9 million. For a further discussion of our operating cash flows, see “Liquidity and Capital Resources-CashResources – Cash Flows.”
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Three Months Ended October 31,
20232022
Net cash provided by (used in) operating activities$(72,083)$(87,435)
Purchases of property and equipment(998)(604)
Capitalized software development costs(3,692)(3,697)
Free cash flow$(76,773)$(91,736)

Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).GAAP. Accounting policies, methods, and estimates are an integral part of the preparation of condensed consolidated financial statements in accordance with U.S. GAAP and, in part, are based upon management’s current

judgments. Those judgments are normally based on knowledge and experience with regard to past and current events and assumptions about future events. Certain accounting policies, methods, and estimates are particularly sensitive because of their significance to the condensed consolidated financial statements and because of the possibility that future events affecting them may differ markedly from management’s current judgments. While there are a number of significant accounting policies, methods, and estimates affecting our condensed consolidated financial statements, areas thatwhich are particularly significant include:
Revenue recognition policies;
Stock-based compensation;
Income taxes;
Business combinations;described in Note 1 “The Company and
Long-lived assets, intangible assets, a Summary of Significant Accounting Policies and goodwill impairment.
There have been no changesEstimates” to our significant accounting policies and estimates describedconsolidated financial statements included in our Annual Report on Form 10-K that have had a material impact on our condensed consolidated financial statements and related notes, except for our election to change our accounting policy to account for the forfeitures and tax effects from stock-based compensation awards as they occur. The change was applied on a modified retrospective basis with a net cumulative effect adjustment of $1.0 million recordedfiscal year ended July 31, 2023, our revenue recognition policies are critical to the periods presented.
There have been no material changes to our retained earnings balancecritical accounting policies as of August 1, 2017. Please refer to Management’sdescribed in “Management's Discussion and Analysis of Financial Condition and Results of Operations contained– Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K filedfor the fiscal year ended July 31, 2023.
Recent Accounting Pronouncements
See Note 1 “The Company and Summary of Significant Accounting Policies and Estimates” to the condensed consolidated financial statements included in this Quarterly Report on September 19, 2017Form 10-Q for a complete discussionfull description of our criticalrecent accounting policiespronouncements adopted, including the dates of adoption, and estimates.recent account pronouncements not yet adopted.


Results of Operations
The following tables settable sets forth our results of operations for the periods presented. The data has been derived from the unaudited Condensed Consolidated Financial Statementscondensed consolidated financial statements contained in this Quarterly Report on Form 10-Q which, in the opinion of our management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to fairly present fairly the financial position and results of operations for the interim periods presented. The operating results of operations for any period should not be considered indicative of results for any future period. This information should be read in conjunction with the Consolidated Financial Statementsconsolidated financial statements and Notesnotes thereto included in our Annual Report on Form 10-K filed withfor the SEC on September 19, 2017.fiscal year ended July 31, 2023.
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Three Months Ended October 31,
Three Months Ended January 31, Six Months Ended January 31, 2023As a % of total revenue2022As a % of total revenue
2018 As a % of total revenues 2017 As a % of total revenues 2018 As a % of total revenues 2017 As a % of total revenues(in thousands, except percentages)
(in thousands)
Revenues:               
License and other$84,221
 51 % $64,075
 56% $114,314
 42 % $102,796
 49 %
Maintenance19,110
 12
 16,582
 14
 38,040
 14
 33,114
 16
Revenue:Revenue:
Subscription and supportSubscription and support$127,627 62 %$99,068 51 %
LicenseLicense34,025 16 40,952 21 
Services60,457
 37
 34,964
 30
 119,605
 44
 73,838
 35
Services45,755 22 55,262 28 
Total revenues163,788
 100
 115,621
 100
 271,959
 100
 209,748
 100
Cost of revenues:               
License and other9,040
 5
 2,781
 2
 15,755
 5
 5,211
 3
Maintenance3,593
 2
 3,079
 3
 7,060
 3
 6,404
 3
Total revenueTotal revenue207,407 100 195,282 100 
Cost of revenue:Cost of revenue:
Subscription and supportSubscription and support48,054 23 55,691 29 
LicenseLicense1,219 1 1,873 1 
Services55,136
 34
 34,951
 30
 107,848
 40
 71,215
 34
Services45,842 22 65,566 34 
Total cost of revenues67,769
 41
 40,811
 35
 130,663
 48
 82,830
 40
Total cost of revenueTotal cost of revenue95,115 46 123,130 64 
Gross profit:               Gross profit:
License and other75,181
 46
 61,294
 54
 98,559
 37
 97,585
 46
Maintenance15,517
 10
 13,503
 11
 30,980
 11
 26,710
 13
Subscription and supportSubscription and support79,573 39 43,377 22 
LicenseLicense32,806 15 39,079 20 
Services5,321
 3
 13
 0
 11,757
 4
 2,623
 1
Services(87)— (10,304)(6)
Total gross profit96,019
 59
 74,810
 65
 141,296
 52
 126,918
 60
Total gross profit112,292 54 72,152 36 
Operating expenses:               Operating expenses:
Research and development43,657
 26
 30,025
 26
 79,368
 29
 60,775
 29
Research and development62,469 30 58,170 30 
Sales and marketing31,961
 20
 23,520
 21
 55,571
 20
 49,020
 23
Sales and marketing44,581 21 46,468 24 
General and administrative21,066
 13
 13,060
 11
 39,737
 15
 27,220
 13
General and administrative39,023 19 42,067 22 
Total operating expenses96,684
 59
 66,605
 58
 174,676
 64
 137,015
 65
Total operating expenses146,073 70 146,705 76 
Income (loss) from operations(665) 0
 8,205
 7
 (33,380) (12) (10,097) (5)Income (loss) from operations(33,781)(16)(74,553)(40)
Interest income1,566
 1
 1,544
 2
 3,474
 1
 2,886
 1
Interest income10,613 5 4,638 2 
Interest expenseInterest expense(1,683)(1)(1,674)(1)
Other income (expense), net1,658
 1
 335
 0
 1,396
 1
 (346) 0
Other income (expense), net(13,742)(7)(13,824)(7)
Income (loss) before income taxes2,559
 2
 10,084
 9
 (28,510) (10) (7,557) (4)
Income (loss) before provision for (benefit from) income taxesIncome (loss) before provision for (benefit from) income taxes(38,593)(19)(85,413)(46)
Provision for (benefit from) income taxes48,114
 30
 6,110
 5
 25,959
 10
 (3,673) (2)Provision for (benefit from) income taxes(11,522)(6)(16,095)(8)
Net income (loss)$(45,555) (28)% $3,974
 4% $(54,469) (20)% $(3,884) (2)%Net income (loss)$(27,071)(13)%$(69,318)(38)%






RevenuesRevenue
We derive our revenuesrevenue primarily from delivering cloud-based services, licensing our software applications, providing maintenance support, and delivering professional services. Additionally, a
Subscription and Support
A growing portion of our revenues are derived from subscriptions torevenue consists of fees for our cloud-delivered software.
We will adopt Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) on August 1, 2018. We currently intend to apply the Modified Retrospective Method. We have evaluated the potential impact of Topic 606 on our revenue recognition policy and practices and have concluded that Topic 606 will impact the pattern of our revenue recognition associated with our term software licenses, software subscriptions, and to a lesser extent, our cloud-based subscriptions. Refer to Note 1 of the Notes to Condensed Consolidated Financial Statements included in this Form 10-Q for further details on our evaluation of the potential impact of Topic 606 and our accounting policy related to revenue recognition.
Licenses and Other
A substantial majority of our license and other revenues consist of term license fees. We also recognize revenue from sales of subscriptions and perpetual licenses. Our term license revenues are primarily generated through annual license fees that recur during the term of the contract. Since fiscal year 2016, a substantial majority of our term licenses have been sold with a contract of a two year committed term with optional annual renewals. Term license revenuessubscription services, which are generally recognized uponpriced based on the earlieramount of when paymentDWP that is due or cashmanaged by our subscription services. Subscription revenue is received from our customers.
Cloud-based subscription revenues are generally recognized ratably over the term of the arrangement, typically beginning upon the provisioning of our service for each engagement, which isat the point in time our provisioning process has been completed and access has been made available to the customer, assuming that all othercustomer. The initial term of such arrangements is generally from three to five years. Subscription agreements contain optional annual renewals commencing upon the expiration of the initial contract term. A majority of our subscription customers are billed annually in advance. In some arrangements with multiple performance obligations, a portion of recurring subscription contract value may be allocated to license revenue or services revenue for revenue recognition criteriapurposes. For example, in arrangements with multiple performance obligations that include services at discounted rates, a portion of the total contract value related to subscription services will be allocated and recognized as services revenue. Additionally, agreements to migrate an existing term license customer to subscription services contain multiple performance obligations, including a provision to continue using the term license during the subscription
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service implementation period. Under these migration agreements, a portion of the total contract value related to subscription services could be allocated and recognized as term license and support revenue in the period renewed or delivered.
Our support revenue is generally recognized ratably over the committed support term of the licensed software. Our support fees are typically priced as a fixed percentage of the associated term license fees. We generally invoice support annually in advance. Support related to subscription arrangements is included in subscription revenue, as support is not quoted or priced separately from the subscription services.
License
A substantial majority of our license revenue consists of term license fees. Our term license revenue is primarily generated through license fees that are billed annually in advance during the term of the contract, including any renewals. Our term license fees are generally priced based on the amount of DWP that will be managed by our licensed software. Our term licenses have generally been met. Such arrangements are not necessarily structured withsold under a two yeartwo-year initial term andwith optional annual renewals after the initial term. However, we do enter into license arrangements that have an initial term may be longer.of more than two years and renewal terms of more than one year. Term license revenue for the committed term of the customer agreement is generally fully recognized upon delivery of the software or at the beginning of the renewal term.
In a limited number of cases, we license our software on a perpetual basis or our term licenses provide the customer with the option to purchase a perpetual license at the end of the initial contract term, which we refer to as a perpetual buyout right.basis. Perpetual license revenues arerevenue is generally recognized upon delivery.
We generally price our software based on the amount of direct written premiums, or DWP, that will be managed by our software. A majority of our term license customers are billed annually in advance and we currently bill our cloud-based subscription customers similarly, but terms may change as our cloud business matures and the market develops. We invoice our perpetual license customers either in full at contract signing or on an installment basis.
MaintenanceServices
Our maintenance revenues are generally recognized over the committed maintenance term. Our maintenance fees are typically priced as a fixed percentage of the associated license fees. We invoice a substantial majority of our customers annually in advance.
Professional Services
Our professional services revenues arerevenue is primarily derived from implementation and migration services performed for our customers, reimbursable travel expenses, and training fees. A substantial majority of our services engagements generate revenuesare billed and revenue is recognized on a time and materials basis and revenues are typically recognized upon delivery ofproviding our services.
Three Months Ended October 31,
20232022Change
AmountAs a % of total
 revenue		AmountAs a % of total
 revenue		($)(%)
(in thousands, except percentages)
Revenue:
Subscription and support:
Subscription$109,597 53 %$78,977 40 %$30,620 39 %
Support18,030 9 20,091 10 (2,061)(10)%
License:
Term license33,977 16 40,889 21 (6,912)(17)%
Perpetual license48 — 63 — (15)(24)%
Services45,755 22 55,262 29 (9,507)(17)%
Total revenue$207,407 100 %$195,282 100 %$12,125 6 %
24

 Three Months Ended January 31,    
 2018 2017    
   % of total   % of total Change
 Amount revenues Amount revenues ($) (%)
 (in thousands, except percentages)
Revenues:           
 License and other$84,221
 51% $64,075
 56% $20,146
 31%
 Maintenance19,110
 12% 16,582
 14% 2,528
 15%
 Services60,457
 37% 34,964
 30% 25,493
 73%
 Total revenues$163,788
 100% $115,621
 100% $48,167
 42%
Subscription and Support

 Six Months Ended January 31,    
 2018 2017    
   % of total   % of total Change
 Amount revenues Amount revenues ($) (%)
 (in thousands, except percentages)
Revenues:           
 License and other$114,314
 42% $102,796
 49% $11,518
 11%
 Maintenance38,040
 14% 33,114
 16% 4,926
 15%
 Services119,605
 44% 73,838
 35% 45,767
 62%
 Total revenues$271,959
 100% $209,748
 100% $62,211
 30%

License and Other Revenues
License and other revenues increased $20.1 million and $11.5 million during the three and six months ended January 31, 2018, respectively, as comparedWe anticipate subscriptions will continue to the same periodsrepresent a year ago. These increases were primarily driven by additional software licenses and subscriptions tomajority of new andarrangements, including customers migrating from existing customers.

Our license and other revenues are primarily comprised of term license revenues. Term licenses remain our predominant licensing model, although we anticipate subscriptionsarrangements to grow as a percentage of annual salessubscription services, in future periods. Due to the delayed and ratable recognition of subscription revenues,revenue, growth in subscription revenuesrevenue will lag behind the growth of subscription salesorders and will impact the comparative growth of our reported revenues.revenue on a year-over-year basis. If we complete a higher percentage of subscription arrangements in a given period, our short-term growth rates will be negatively impacted. Due to the seasonal nature of our business, the impact of new subscription orders in our fourth fiscal quarter, our historically largest quarter for new orders, is not fully reflected in revenue until the following fiscal year.

 Three Months Ended January 31,    
 2018 2017    
    % of License and other    % of License and other  Change
  Amount revenues  Amount revenues  ($)  (%)
 (in thousands, except percentages)
License and other revenues:           
Term and other$81,404
 97% $62,868
 98% $18,536
 29%
Perpetual2,817
 3% 1,207
 2% 1,610
 133%
Total license and other revenues$84,221
 100% $64,075
 100% $20,146
 31%
 Six Months Ended January 31,    
 2018 2017    
    % of License and other    % of License and other  Change
  Amount revenues  Amount revenues  ($)  (%)
 (in thousands, except percentages)
License and other revenues:           
Term and other$111,374
 97% $97,368
 95% $14,006
 14 %
Perpetual2,940
 3% 5,428
 5% (2,488) (46)%
Total license and other revenues$114,314
 100% $102,796
 100% $11,518
 11 %

Term license and other revenuesSubscription revenue increased by $18.5$30.6 million during the three months ended JanuaryOctober 31, 2018,2023, compared to the same period a year ago, primarily due primarily to the additionimpact of cloud transition agreements and new term licensesubscription agreements entered into and provisioned since October 31, 2022, and the renewal or extension of subscription orders from new and existing customers. As we have noted, our reported results in any given period may be positively impactedservices at the fully ramped annual fees after the initial committed term.
Support revenue decreased by early payments due in future periods and negatively impacted by early payments made in preceding periods. During the quarter, we recognized $4.6 million from early payments due in the third quarter, offset in part by $1.3 million of payments due in the second quarter that were paid in the first quarter, resulting in a net benefit to the second quarter of $3.2 million.

Term license and other revenues increased by $14.0$2.1 million during the sixthree months ended JanuaryOctober 31, 2018,2023, compared to the same period a year ago, primarily due primarilyto more customers migrating from on-premise term licenses to subscription services. Support related to subscription arrangements is included in subscription revenue, as support is not quoted or priced separately from the subscription services. As customers enter into a subscription agreement to migrate from an existing term license agreement, the timing and amount of revenue recognized will be impacted by allocations of the total contract value between the license, subscription, and support performance obligations. As a result, we expect the increase in subscription orders as a percentage of total new sales and customers migrating from term licenses to subscription services will result in lower support revenue in the future.
License
Revenue related to new term licenses and multi-year term license renewals is generally recognized upfront and, as a result, no additional license revenue is recognized until after the committed term expires. As a customer enters into a subscription agreement to migrate from an existing term license agreement, the timing and amount of revenue recognition will be impacted by allocations of total contract value between license, subscription, and support performance obligations. License revenue growth has and will be negatively impacted as subscription sales increase as a percentage of total new sales and as customers migrate from term licenses to subscription services instead of renewing their term licenses.
Term license revenue decreased by $6.9 million during the three months ended October 31, 2023, compared to the addition ofsame period a year ago. This decrease is driven by lower new term license agreements as most of our new sales activity is for subscription services, the impact of contracts with an initial term of greater than two years or a renewal term of greater than one year, and the impact of customers that migrated from a term license to a subscription ordersservice. There was no impact on term license revenue from new and existing customers. Results forcontracts with an initial term of greater than two years or a renewal term of greater than one year during the six month period, benefited by the early payments of $4.6 million previously noted, offset by $6.1three months ended October 31, 2023 compared with $3.4 million in

payments due in the first quarter but received in the fourth quarter of 2017, resulting in a decrease to recognized revenue of approximately $1.5 million during the six months ended January 31, 2018.

prior year period.
Perpetual license revenuesrevenue accounted for approximately 3% and 2%less than 1% of total license and other revenue during the three months ended JanuaryOctober 31, 20182023 and 2017, respectively, and 3% and 5% during the six months ended January 31, 2018 and 2017.2022. We anticipate that revenues from the sale and delivery ofexpect perpetual licenses willlicense revenue to continue to represent a small percentage of our total license and other revenues. Nevertheless, werevenue. We also expect perpetual license revenuesrevenue to remainpotentially be volatile across quarters due to the large amount of perpetual revenue that may be generated from a single customer order.

Maintenance Revenues
The increase in our maintenance revenues reflects our growing term and perpetual license customer base. Subscription arrangements include maintenance as part of the subscription service and are not priced or reported separately. As a result, an increase in the mix of subscription orders in the future will reduce the growth in maintenance revenues.

Services
Services Revenues
Services revenues increased $25.5 million and $45.8revenue decreased by $9.5 million during the three and six months ended JanuaryOctober 31, 2018, primarily as a result of a net increase in billings from new and existing customer engagements performed during the period, and billings associated with engagements relating2023, compared to the implementationsame period a year ago. The decrease is primarily driven by the completion of previously acquired products, such as InsuranceNow.
Historically, we have relied onimplementations, combined with our network of third-party SI partners to facilitateleading more new salessubscription implementation and implementations of our products. We believe this model will continue to serve us well and we intend,migration projects than in the future,past. Additionally, services revenue overall continues to continue to expand our network of SI partnersbe impacted by investments in customer implementations, including fixed fee or capped arrangements. 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 the number of trained consultants with whom we work.
While not essential to the functionality of the service, for a period of time implementations of InsuranceNow or InsuranceSuite Cloud will require significantly greater levels of participation by our services professionals than is currently necessary for on-premise versions of our products.  With respect to InsuranceSuite Cloud, our obligation to manage the platform in production requires us to have a much greater familiarity with its configuration and integrations. As a result, we intend to control implementation work until effective processes have been established to reduce any risk we face in managing a production environment for a system we have not implemented. At the time of acquisition, ISCS had few third-party resources to assist with implementations of InsuranceNow. While we are actively qualifying and training consultants from existing and new partners to assist with such implementations, we have taken, and for the forseeable future we expect to take, primary responsibility for InsuranceNow implementations.lower gross profit.
As we gain experience with the deployment and maintenance of cloud solutions, we hope tosuccessfully leverage our SI partners to lead more effectivelyimplementations and replicate more closelymigrations, we expect our current division of labor applicable with on-premise implementations. During this period, however, we anticipate higher levels of growth for our service revenues.
We also expect modestly higher levels of variability of our service revenues.services revenue to decline in the near-term. As we continue to expand into new markets and develop new product categories,services and products, we have, and we expectmay continue to, enter into contracts that may require us to delay the recognition of service revenueswith lower average billing rates, make investments in customer implementation and associated costs until we are able to meet certain contractual obligations, including customer acceptance criteria or the delivery of new products.  This has in the past,migration engagements, and may in the future, result in volatility in our reported services revenues and cost of revenues.

Deferred Revenues
 As of    
 January 31, 2018 July 31, 2017  Change
  Amount  Amount  ($)  (%)
 (in thousands, except percentages)
Deferred revenues:       
Deferred license and other revenues$38,921
 $23,727
 $15,194
 64 %
Deferred maintenance revenues45,109
 47,727
 (2,618) (5)%
Deferred services revenues46,862
 39,681
 7,181
 18 %
Total deferred revenues$130,892
 $111,135
 $19,757
 18 %

Deferred License and Other Revenues

The $15.2 million increase in deferred license and other revenues was primarily a result of the combined effect of net increases in deferrals associated with subscription contracts that are recognized on a ratable basis in addition to net increases in term license billings related to new and existingenter into fixed price contracts, which will be recognized when all revenue recognition criteria are met.
Deferred Maintenance Revenues
The $2.6 million decrease in deferred maintenance revenues was primarily driven by the impact from revenues recognized in excess of new billings during the three months ended January 31, 2018, and reflects the seasonal nature of the billings of maintenance revenues. Additionally, subscription arrangements include maintenance as part of the subscription service and are not priced or reported separately. As a result, an increase in the mix of subscription orders in the future will reduce the growth in maintenance revenues and may impact the growth in deferred maintenance revenues.services revenue and services margin.
Deferred Services Revenues
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The $7.2 million increase in deferred services revenues was primarily driven by increased services billings, mainly composed
Table of ongoing InsuranceNow implementations related to acquired contracts which are being deferred until go-live. The increase was partially offset by net recognition in previously deferred billings.Contents
Generally, our deferred revenues consist only of amounts that have been invoiced, but not yet recognized as revenues. As a result, deferred revenues and change in deferred revenues represent incomplete measures of the strength of our business and are not necessarily indicative of our future performance. However, the transition to a greater mix of subscription orders will likely result in higher deferred revenues.

Cost of RevenuesRevenue and Gross Profit
Our total cost of revenuessubscription and gross profit are variable and depend on the type of revenues earned in each period.
Our cost of license and other revenuessupport revenue primarily consists of compensation and benefit expensespersonnel costs for our cloud operations and Guidewire Production Services personnel,technical support teams, cloud infrastructure costs, development of online training curriculum, amortization of our acquired intangible assets, and royalty fees paid to third parties. Our cost of maintenance revenueslicense revenue primarily consists of compensationdevelopment of online training curriculum, royalty fees paid to third parties, and benefit expenses for our technical support team.amortization of intangible assets. Our cost of services revenuesrevenue primarily consists of compensation and benefit expensespersonnel costs for our professional service employees, third-party subcontractors or consultants, and contractors, travel-related costs, and allocated overhead.travel costs. In instances where we have primary responsibility for the instances we serve as a prime contractor,delivery of services, subcontractor fees are expensed as cost of service.services revenue. In each case, personnel costs include salaries, bonuses, benefits, and stock-based compensation and allocated overhead.compensation.
We allocate overhead such as IT support, facility,information technology infrastructure and other administrative costssoftware expenses, information security infrastructure and software expenses, and facilities expenses to all functional departments based on headcount. As such, these general overhead expenses are reflected in cost of revenue and each functional operating expense.

Cost of Revenues:
Revenue:
 Three Months Ended January 31,    
 2018 2017  Change
  Amount  Amount  ($)  (%)
 (in thousands, except percentages)
Cost of revenues:       
License and other$9,040
 $2,781
 $6,259
 225%
Maintenance3,593
 3,079
 514
 17%
Services55,136
 34,951
 20,185
 58%
Total cost of revenues$67,769
 $40,811
 $26,958
 66%
        
Includes stock-based compensation of:       
        Cost of license and other revenues$258
 $90
 $168
 
        Cost of maintenance revenues481
 436
 45
 
        Cost of services revenues5,446
 4,815
 631
 
        Total$6,185
 $5,341
 $844
 
        
Three Months Ended October 31,
20232022 Change
 Amount Amount ($) (%)
(in thousands, except percentages)
Cost of revenue:
Subscription and support$48,054 $55,691 $(7,637)(14)%
License1,219 1,873 (654)(35)%
Services45,842 65,566 (19,724)(30)%
Total cost of revenue$95,115 $123,130 $(28,015)(23)%
Includes stock-based compensation of:
        Cost of subscription and support revenue$3,462 $3,468 $(6)
        Cost of license revenue95 147 (52)
        Cost of services revenue4,789 5,349 (560)
        Total$8,346 $8,964 $(618)


 Six Months Ended January 31,    
 2018 2017  Change
  Amount  Amount  ($)  (%)
 (in thousands, except percentages)
Cost of revenues:       
License and other$15,755
 $5,211
 $10,544
 202%
Maintenance7,060
 6,404
 656
 10%
Services107,848
 71,215
 36,633
 51%
Total cost of revenues$130,663
 $82,830
 $47,833
 58%
        
Includes stock-based compensation of:       
        Cost of license and other revenues$432
 $141
 $291
  
        Cost of maintenance revenues936
 849
 87
  
        Cost of services revenues10,672
 9,510
 1,162
  
        Total$12,040
 $10,500
 $1,540
  

The $27.0 million increase in costCost of revenuessubscription and support revenue during the three months ended JanuaryOctober 31, 2018,2023 decreased by $7.6 million, compared to the same period a year ago, primarily due to decreases in cloud infrastructure expense of $5.9 million, amortization of intangibles of $1.4 million due to certain acquired intangibles assets being fully amortized, professional services of $0.8 million, and personnel costs of $0.7 million, partially offset by increases in internal-use software amortization of $0.7 million and royalties of $0.5 million.

Cloud hosting costs are benefiting from the efficiencies that we are achieving from our development efforts associated with GWCP and the cost benefits associated with the five-year agreement with a cloud infrastructure services provider that was entered into in the second quarter of fiscal year 2023. We have also slowed hiring and are critically evaluating professional services contracts and third-party software costs. However, we expect cost of subscription and support revenue to increase in absolute dollars due to the increased number of customers utilizing our cloud product, the volume of transactions by our cloud customers, and the impact of inflation and other macroeconomic events.
The $0.7 million decrease in our cost of license revenue during the three months ended October 31, 2023, compared to the same period a year ago, was due to lower personnel costs associated with the development of online training curriculum included with the latest releases of InsuranceSuite of $0.5 million and a decrease in royalties of $0.2 million.
We continue to anticipate lower cost of license revenue over time as our term license customers transition to cloud subscription agreements.
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The $19.7 million decrease in cost of services revenue during the three months ended October 31, 2023, compared to the same period a year ago, was primarily attributabledue to increasesdecreases in the costsubcontractor expenses of service revenues of $20.2$18.1 million and costs of license and other revenues of $6.3 million.
Cost of license and other revenues increased primarily due to the combined impact from increasescompletion of $4.3 million related to the amortizationcertain fixed fee engagements and more customer engagements being led by SIs, personnel costs of intangible assets primarily from the Cyence and ISCS acquisitions and $1.5 million, related to increased higher headcount and related employee expenses as we grew ourprofessional services of $0.1 million.
We had 597 cloud operations and Guidewire Production Services staff. We anticipate higher cost of licensetechnical support employees and other revenue as we continue826 professional services employees at October 31, 2023, compared to grow the staffing for our692 cloud operations and Guidewire Production Services.
Cost of maintenance revenues remained relatively flat in line with our term and perpetual license sales activities. Cost of maintenance revenues grew modestly primarily due to the increase in staff required totechnical support our term and perpetual license customers.
Cost of services revenues increased primarily due to $11.4 million in higher headcount and related employee expenses and $6.3 million in expenses for billable third-party consultants and sub-contractors.
We had 790 professional service employees and 100 technical support and licensing operations employees at January 31, 2018 compared to 610790 professional services employees and 75 technical support and licensing operations employees at JanuaryOctober 31, 2017. The increase in hiring included the 128 professional service, technical support, and licensing operations employees hired on a permanent basis as part of the ISCS acquisition that we completed on February 16, 2017.2022.
The $47.8Gross Profit:
Three Months Ended October 31,
20232022 Change
 AmountMargin % AmountMargin % ($) (%)
(in thousands, except percentages)
Gross profit:
Subscription and support$79,573 62 %$43,377 44 %$36,196 83 %
License32,806 96 39,079 95 (6,273)(16)%
Services(87)— (10,304)(19)10,217 99 %
Total gross profit$112,292 54 %$72,152 37 %$40,140 56 %
Our gross profit increased $40.1 million increase in cost of revenues during the sixthree months ended JanuaryOctober 31, 2018,2023, compared to the same period a year ago,ago. Gross profit was primarily attributable to increasesimpacted by an increase in the costs of licensesubscription and other revenues of $10.5 million and cost of service revenues of $36.6 million.
Cost of license and other revenues increased primarily due to the combined impact from increases of $7.1 million related to the amortization of intangible assets and $2.5 million related to increased higher headcount and related employee expenses as we grew our cloud operations and Guidewire Production Services staff. We anticipate higher cost of license and other revenue as we continue to grow the staffing for our cloud operations and Guidewire Production Services.
Cost of maintenance revenues remained relatively flat in line with our term and perpetual license sales activities. Cost of maintenance revenues grew modestly primarilysupport gross profit due to the increase in staff required to support our termsubscription revenue and perpetual license customers.
Cost ofcloud operations efficiencies and improvements in services revenues increased primarilygross profit due to the combined impactcompletion of $21.7 millioncertain implementation projects that required significant investment by us and more SIs contracting directly with our customers, partially offset by a decrease in higher headcount and related employee expenses and $10.4 million in expenses for billable third-party consultants and sub-contractors.

Gross Profit:

 Three Months Ended January 31,    
 2018 2017  Change
  Amount Margin %  Amount Margin %  ($)  (%)
 (in thousands, except percentages)
Gross profit:           
License and other$75,181
 89% $61,294
 96% $13,887
 23%
Maintenance15,517
 81% 13,503
 81% 2,014
 15%
Services5,321
 9% 13
 0% 5,308
 *
Total gross profit$96,019
 59% $74,810
 65% $21,209
 28%
* Not meaningful           
 Six Months Ended January 31,    
 2018 2017  Change
  Amount Margin %  Amount Margin %  ($)  (%)
 (in thousands, except percentages)
Gross profit:           
License and other$98,559
 86% $97,585
 95% $974
 1%
Maintenance30,980
 81% 26,710
 81% 4,270
 16%
Services11,757
 10% 2,623
 4% 9,134
 348%
Total gross profit$141,296
 52% $126,918
 60% $14,378
 11%
            
license gross profit due to customer migrations to subscription services.
Our gross margin decreasedincreased to 59% and 52%54% during the three and six months ended JanuaryOctober 31, 2018, respectively, compared to 65% and 60% for the corresponding prior year periods. The decreases in our gross margin were primarily driven by changes in the mix between higher gross margin license revenues and lower gross margin service revenues and lower license and other margins. These decreases were partially offset by improved services margins compared to2023 from 37% during the same period a year ago. Gross margin was primarily impacted by the increase in subscription and support revenue at a higher margin due to cloud operations efficiencies and improvements in services margin due to the completion of certain implementation projects that required significant investment by us and more SIs contracting directly with our customers, partially offset by lower license margin due to lower license revenue as more customers migrate to subscription services.
We expect subscription and support gross margins will decrease formargin to improve over the full fiscal year 2018 compared to fiscal year 2017next several years as we currentlygain efficiencies and increase the number of cloud customers. We expect services gross margin will improve as we lower our reliance on subcontractors and enter into fewer fixed fee arrangements. We expect license gross profit and license gross margin to decline based on changes in revenue due to customers migrating from licenses to subscription services, the mixtiming of our lower margin services revenues willdelivery of new multi-year term licenses, and the execution of multi-year term license renewals, as cost of license revenue is expected to be significantly higherrelatively consistent from period to period in fiscal 2018 than in fiscal 2017. We also intendthe future. Overall, we expect gross margins to continue to investimprove over time as improvements in our Guidewire Production Servicessubscription and cloud operations, whichsupport gross margin and services gross margin will more than offset the negative impact of revenue shifts away from high margin license and other margins. Finally, we also anticipate that increases in our costs associated with the amortization of intangible assets will contribute to lower margins.revenue.
Operating Expenses
Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. The largest components of our operating expenses are compensation and benefit expensespersonnel costs for our employees including stock-based awards and, to a lesser extent, professional services,services. In each case, personnel costs include salaries, bonuses, commissions, benefits, and rent and facility costs.stock-based compensation. We allocate overhead such as IT support, facility,information technology infrastructure and other administrative costssoftware expenses, information security infrastructure and software expenses, and facilities expenses to all functional departments based on headcount. As a result,such, these general overhead expenses are reflected in cost of revenue and each functional operating expense.
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Three Months Ended January 31,    
2018 2017    Three Months Ended October 31,
   % of total    % of total  Change20232022 Change
 Amount revenues  Amount revenues  ($)  (%) AmountAs a % of total revenue AmountAs a % of total revenue ($) (%)
(in thousands, except percentages)(in thousands, except percentages)
Operating expenses:           Operating expenses:
Research and development$43,657
 26% $30,025
 26% $13,632
 45%Research and development$62,469 30%$58,170 30%$4,299 7 %
Sales and marketing31,961
 20% 23,520
 21% 8,441
 36%Sales and marketing44,581 2146,468 24(1,887)(4)%
General and administrative21,066
 13% 13,060
 11% 8,006
 61%General and administrative39,023 1942,067 22(3,044)(7)%
Total operating expenses$96,684
 59% $66,605
 58% $30,079
 45%Total operating expenses$146,073 70$146,705 76$(632)— %
           
Includes stock-based compensation of:           Includes stock-based compensation of:
Research and development$7,697
   $4,650
   $3,047
   Research and development$9,986 $9,291 $695 
Sales and marketing5,024
   4,283
   741
   Sales and marketing7,729 6,887 842 
General and administrative6,126
   4,313
   1,813
   General and administrative10,036 9,954 82 
Total$18,847
   $13,246
   $5,601
  Total$27,751 $26,132 $1,619 
           

 Six Months Ended January 31,    
 2018 2017    
    % of total    % of total  Change
  Amount revenues  Amount revenues  ($)  (%)
 (in thousands, except percentages)
Operating expenses:           
Research and development$79,368
 29% $60,775
 29% $18,593
 31%
Sales and marketing55,571
 20% 49,020
 23% 6,551
 13%
General and administrative39,737
 15% 27,220
 13% 12,517
 46%
Total operating expenses$174,676
 64% $137,015
 65% $37,661
 27%
            
Includes stock-based compensation of:           
 Research and development$12,609
   $9,117
   $3,492
  
 Sales and marketing9,241
   8,506
   735
  
 General and administrative10,765
   8,341
   2,424
  
Total$32,615
   $25,964
   $6,651
  
            

Research and Development
Our research and development expenses primarily consist of personnel costs incurred for compensation and benefit expenses for our technical staff including stock-based awards and allocated overhead, as well asconsultants providing professional services costs.services.
The $13.6$4.3 million increase in research and development expenses during the three months ended JanuaryOctober 31, 2018, as2023, compared to the same period in the priora year ago, was primarily attributabledue to the net effect from increases in ourpersonnel costs of $6.2 million associated with higher headcount and related employee expenses of $13.7 million, which included increased stock-based compensationsoftware subscription costs of $3.0 million,$0.7 million. These increases are partially offset by the capitalization of internal use software developmentdecreases in cloud hosting costs of $0.6$1.7 million, relatedprofessional services of $0.5 million, and acquisition consideration holdback costs of $0.4 million recognized over a service period relating to the development of new cloud-based technologies.
The $18.6 million increase in researchHazardHub acquisition. Cloud hosting costs are benefiting from the efficiencies that we are achieving with GWCP and development expenses during the six months ended January 31, 2018, as compared to the same periodfive-year agreement with a cloud infrastructure services provider that was entered into in the priorsecond quarter of fiscal year was primarily attributable to the net effect from increases in our headcount and related employee expenses of $19.7 million which included increased stock-based compensation costs of $3.5 million, partially offset by the capitalization of internal use software development costs of $1.0 million related to the development of a new cloud-based technologies.2023.
Our research and development headcount was 6781,069 at JanuaryOctober 31, 20182023, compared with 495940 at JanuaryOctober 31, 2017. The increase in headcount reflects our continued investment in our products, and includes 107 employees gained through the ISCS and Cyence acquisitions.2022.
We expect our research and development expenses to continue to increase in absolute dollars due to inflation and investments to support our growing customer base, but decrease as a percentage of revenue after a period of significant investment in cloud platform capabilities as overall hiring slows and we focus on hiring in lower cost regions. We continue to hire aggressively in researchdedicate internal resources to develop, improve, and development.expand the functionality of our solutions and migrate our solutions to the cloud. Research and development expenses may also increase if we pursue additional acquisitions.
Sales and Marketing
Our sales and marketing expenses primarily consist of personnel costs incurred for compensation and benefit expenses for our sales and marketing employees, including stock-based awards. Itemployees. Included in our personnel costs are commissions, which are considered contract acquisition costs and are capitalized when earned and expensed over the anticipated period of time that goods and services are expected to be provided to a customer, which we estimate to be approximately five years. Sales and marketing expenses also includes allocated overhead, commission payments,include travel expenses, professional services for marketing activities, and amortization of certain acquired intangibles.
The $8.4$1.9 million increasedecrease in sales and marketing expenses during the three months ended JanuaryOctober 31, 2018,2023, compared to the same period a year ago, was primarily attributabledue to increased headcount and related employee costs of $4.0 million, increaseddecreases in marketing and advertising expenses of $2.6$2.5 million resulting fromdue to the timing of expenses fromConnections, our annual Connections User Conferencecustomer conference, which occurredwas held in the first quarter of fiscal year 2023 and is being held in the second quarter of our current fiscal year compared to the first quarter in our prior fiscal year,2024, professional services costs of $0.2 million, and to a lesser extent, $1.9web hosting costs of $0.2 million, related to the amortization of acquired intangible assets.
The $6.6 millionpartially offset by an increase in sales and marketing expenses during the six months ended January 31, 2018, compared to the same period a year ago, was primarily attributable to increased headcount and related employeepersonnel costs of $3.5 million, and to a lesser extent, an increase of $2.4 million related to the amortization of acquired intangible assets.

$1.0 million.
Our sales and marketing headcount was 318465 at JanuaryOctober 31, 20182023, compared with 285454 at JanuaryOctober 31, 2017.2022.
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We expect our sales and marketing expenses to continue to increase in absolute dollars as we continuedue to invest in salesinflation and marketing activitiesinvestments to support ongoing growth, but decrease as a percentage of revenue as overall hiring slows after a period of investment in building out our business growth.

customer success team and adding analytics and cloud sales capabilities.
General and Administrative
Our general and administrative expenses primarily consist of compensation and benefit expenses, including stock-based awards, as well as professional services and facility costs related to ourinclude executive, finance, human resources, information technology, information security, legal, and corporate development legaland strategy functions, and allocated overhead.primarily consist of personnel costs and, to a lesser extent, professional services, software costs, and cloud hosting costs.
The $8.0$3.0 million increasedecrease in our general and administrative expenses during the three months ended JanuaryOctober 31, 2018,2023, compared to the same period a year ago, was primarily attributabledue to increasesdecreases in facilities costs of $5.4$2.5 million in fees for professional services incurred in connection with the acquisition of Cyence and the continued investment in our corporate infrastructure including fees associated with the implementation of a new enterprise resource planning system. In addition, we incurred an additional $2.6 million for increased headcount and related employee costs.
The $12.5 million increase in general and administrative expenses during the six months ended January 31, 2018, compared to the same period a year ago, was primarily attributable to increases of $9.4 million in fees for professional services due to the continued investmentassignment of the lease agreement for our previous headquarters and concurrent sublease for less office space in our corporate infrastructure including fees associated withSan Mateo, California during the implementationthird quarter of a new enterprise resource planning systemfiscal year 2023, professional services of $0.7 million, and web hosting of $0.6 million, partially offset by increases in software subscriptions of $0.5 million and personnel costs incurred in connection with the acquisition of Cyence. In addition, we incurred an additional $3.0 million for increased headcount and related employee costs.$0.4 million.
Our general and administrative headcount was 219453 at JanuaryOctober 31, 20182023, compared with 175462 at JanuaryOctober 31, 2017.2022. General and administrative headcount includes facilities personnel whose expenses are allocated across all functional departments.
We expect that our general and administrative expenses will increase in absolute dollars as we continuedue to invest in personnelinflation and corporate infrastructure and systemsinvestments required to support our strategic initiatives, the growth ofgrow our business, and meet our product and information security, compliance and reporting obligations.obligations, but decrease as a percentage of revenue as overall hiring and investments slow. Additionally, we have three customers in Argentina, which represent approximately $7 million of accounts receivable and approximately $5 million of ARR as of October 31, 2023, who are currently unable to pay outstanding amounts due to us because of certain government restrictions limiting the amount of U.S. dollars that can be sent out of such country. If these customers are not able to send U.S. dollars outside of Argentina, we may have to record a reserve against our accounts receivable and, potentially, make changes to the way we do business in such country that may have other adverse impacts to our business, financial condition, and results of operations.
Other Income (Expense)
Three Months Ended October 31,
20232022 Change
 Amount Amount ($) (%)
(in thousands, except percentages)
Interest income$10,613 $4,638 $5,975 129 %
Interest expense$(1,683)$(1,674)$(9)1 %
Other income (expense), net$(13,742)$(13,824)$82 1 %
 Three Months Ended January 31,    
 2018 2017  Change
  Amount  Amount  ($)  (%)
 (in thousands, except percentages)
Interest income$1,566
 $1,544
 $22
 1%
Other income (expense), net$1,658
 $335
 $1,323
 395%
        

 Six Months Ended January 31,    
 2018 2017  Change
  Amount  Amount  ($)  (%)
 (in thousands, except percentages)
Interest income$3,474
 $2,886
 $588
 20.4 %
Other income (expense), net$1,396
 $(346) $1,742
 (503.5)%
        


Interest Income

Interest income represents interest earned on our cash, cash equivalents, and investments.

Interest income increased less than $0.1$6.0 million during the three and six months ended JanuaryOctober 31, 2018,2023, compared to the same period a year ago, periods primarily due to higher yieldsinterest rates on invested funds.
Interest Expense

Interest expense includes both stated interest and the amortization of debt issuance costs associated with our cash equivalentsConvertible Senior Notes. The amortization of debt issuance costs are recognized on an effective interest basis. Stated interest expense is consistent in the comparative periods as the outstanding principal and investments.stated interest rate have not changed.

Interest expense for the three months ended October 31, 2023 consists of stated interest of $1.3 million and non-cash interest expense of $0.4 million related to amortization of debt issuance costs. Interest expense for the three months ended October 31, 2022 consists of stated interest of $1.3 million and non-cash interest expense of $0.4 million related to the amortization of debt issuance costs.
Other Income (Expense), Net

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Other income (expense), net consists primarily ofincludes foreign exchange gains (losses)and losses resulting from fluctuations in foreign exchange rates on our receivablesmonetary asset and payablesmonetary liability balances that are denominated in currencies other than the U.S. dollar.

Other income (expense), net increased by $1.3 millionfunctional currency of the entity in which they are recorded. Our monetary assets and $1.7 million during the three and six months ended January 31, 2018, compared to the year ago periods.

For the three months ended January 31, 2018, the increase is primarily a result of increased realized gains from our receivables and payablesliabilities denominated in currencies other than the U.S. dollar. Last year, we realizedfunctional currency of the entity in which they are recorded consist primarily of trade accounts receivable, unbilled accounts receivable, trade accounts payable, and intercompany receivables and payables. We have significant transactions in the following currencies: Australian Dollar, British Pound, Canadian Dollar, Euro, Indian Rupee, Japanese Yen, Malaysian Ringgit, and Polish Zloty.
Other income (expense), net currency exchange gains of $0.3 million forduring the three months ended JanuaryOctober 31, 2017 from transactions primarily denominated2023 was expense of $13.7 million, as compared to expense of $13.8 million during the same period a year ago, due to fluctuations in the British Pound, Euro, Australian Dollar, Canadian Dollar, Japanese Yen, and Brazilian Real.    

For the six months ended January 31, 2018, the increase is primarily a result of decreased realized losses in the current fiscal year from our receivables and payables denominated in currencies other than the U.S. dollar. Last year, we realized netforeign currency exchange losses of $0.3 million for the six months ended January 31, 2017 from transactions primarily denominated in the British Pound, Euro, Australian Dollar, Canadian Dollar, Japanese Yen, and Brazilian Real.    rates.
Provision for (Benefit(benefit from) Income Taxes

We are subject to taxes in the United States as well as other tax jurisdictions orand 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 current U.S. income tax.
 Three Months Ended January 31,    
 2018 2017  Change
  Amount  Amount  ($)  (%)
 (in thousands, except percentages)
Provision for income taxes$48,114
 $6,110
 $42,004
 687%
        
Three Months Ended October 31,
20232022 Change
 Amount Amount ($) (%)
(in thousands, except percentages)
Provision for (benefit from) income taxes$(11,522)$(16,095)$4,573 (28)%
Effective tax rate30 %19 %
 Six Months Ended January 31,    
 2018 2017  Change
  Amount  Amount  ($)  (%)
 (in thousands, except percentages)
Provision for (benefit from) income taxes$25,959
 $(3,673) $29,632
 (807)%
        



We recognized an income tax expensebenefit of $48.1$11.5 million and $6.1$16.1 million for the three months ended JanuaryOctober 31, 20182023 and 2017,2022, respectively. The increasedecrease in the amount of income tax expensebenefit recorded for the three months ended JanuaryOctober 31, 20182023, compared to the same period a year ago was primarily due to a decrease in the impact of the Tax Cuts and Jobs Act (“Tax Act”), including discrete tax expense of $34.0 million related to the remeasurement of net deferred tax assetsloss before taxes, offset by a discretean increase in tax benefit of $5.4 million related todeductions from stock-based compensation, the release of a valuation allowance. U.S. Foreign Derived Intangible Income (“FDII”) deduction, and research and development credits.
The effective tax rate of 1,880%30% for the three months ended JanuaryOctober 31, 2018,2023, differs from the statutory U.S. federalFederal income tax rate of 26.9% mainly21% primarily due to thestate taxes, tax expense recorded as a result of the remeasurement of deferred tax assets and release of valuation allowance, as well as permanent differences fordeficiencies related to stock-based compensation, including excess tax benefits, research and development credits, foreign earnings taxed in the tax rate differences betweenU.S., the United StatesFDII deduction, and foreign countries, foreign withholding taxes, certain non-deductible expenses, including, executive compensation and acquisition-related expenses.
On December 22, 2017, the Tax Act was enacted into law which changed U.S. tax law, including, but not limited to: (1) reducingto, executive compensation limitation.
Non-GAAP Financial Measures
In addition to the U.S. federal corporate income tax rate from 35%key business metrics presented above, we believe that the following non-GAAP financial measures provide useful information to 21%; (2) requiringmanagement and investors regarding certain financial and business trends relating to our financial condition and results of operations. Management uses these non-GAAP measures to compare our performance to that of prior periods for trend analysis, for purposes of determining executive and senior management incentive compensation, and for budgeting and planning purposes. We believe that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial results with other software companies because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, many of which present similar non-GAAP financial measures to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal corporate income taxes on dividends from foreign subsidiaries; (4) capitalizing R&D expenses which are amortized over fiveinvestors. However, our management does not consider these non-GAAP measures in isolation or as an alternative to 15 years; and (5) other changes to how foreign and domestic earnings are taxed.financial measures determined in accordance with GAAP.
The lower U.S. statutory federalnon-GAAP financial information is presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses and income tax rate will resultthat are required by GAAP to be recorded in a blended U.S. Federal statutory rate of 26.9% for our fiscal year 2018, as a result of the Company’s fiscal non-calendar year end. During the quarter ended January 31, 2018, we remeasured deferred tax assets and liabilities based on the rates at which they are expected to reverse and recorded a provisional net charge of $34.0 million based on preliminary estimates of the tax effects.financial statements. In addition, as a result of changes in tax law under the Tax Act, we recorded a provisional benefit of $5.4 million related to the release of a valuation allowance against certain deferred tax assets that are more likely than not to be realized. The provisional net charge and provisional benefitthey are subject to revisionsinherent limitations as we complete our analysisthey reflect the exercise of judgment by management about which expenses and income are excluded or included in determining these non-GAAP financial measures. We urge investors to review the Tax Act. We estimate that no tax will be due relatedreconciliation of non-GAAP financial measures to the one-time transition taxcomparable GAAP financial measures included herein and not to rely on any single financial measure to evaluate the deemed repatriation of deferred foreign income.Company’s business.
The Tax Act includes a provision to tax global intangible low-taxed income of foreign subsidiaries and a base erosion abuse tax measure that taxes certain payments between a U.S. corporation and its foreign subsidiaries. These provisions offollowing table reconciles the Tax Act will be effective for us beginning August 1, 2018. We arespecific items excluded from GAAP in the processcalculation of completing our analysis of the deferred tax accounting on global intangible low-taxed income and have not recorded provisional amounts. We are still evaluating an accounting policy to record amounts as deferred taxes or as period costs related to this provision. The SEC staff issued Staff Accounting Bulletin No. 118 which provides for a measurement period of up to one year after the enactment date of the Tax Act to finalize the related income tax impacts. We expect to complete the accountingnon-GAAP financial measures for the Tax Act during this measurement period.periods indicated below (in thousands, except share and per share data):
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Three Months Ended
October 31,
20232022
Gross profit reconciliation:
GAAP gross profit$112,292 $72,152 
Non-GAAP adjustments:
Stock-based compensation8,346 8,964 
Amortization of intangibles485 1,905 
Non-GAAP gross profit$121,123 $83,021 
Income (loss) from operations reconciliation:
GAAP income (loss) from operations$(33,781)$(74,553)
Non-GAAP adjustments:
Stock-based compensation36,097 35,096 
Amortization of intangibles1,367 2,787 
Acquisition consideration holdback386 773 
Non-GAAP income (loss) from operations$4,069 $(35,897)
Net income (loss) reconciliation:
GAAP net income (loss)$(27,071)$(69,318)
Non-GAAP adjustments:
Stock-based compensation36,097 35,096 
Amortization of intangibles1,367 2,787 
Acquisition consideration holdback386 773 
Amortization of debt issuance costs430 423 
Tax impact of non-GAAP adjustments(11,493)20,378 
Non-GAAP net income (loss)$(284)$(9,861)
Tax provision (benefit) reconciliation:
GAAP tax provision (benefit)$(11,522)$(16,095)
Non-GAAP adjustments:
Stock-based compensation3,379 27,626 
Amortization of intangibles128 2,194 
Acquisition consideration holdback36 608 
Amortization of debt issuance costs40 333 
Tax impact of non-GAAP adjustments7,910 (51,139)
Non-GAAP tax provision (benefit)$(29)$(36,473)
Net income (loss) per share reconciliation:
GAAP net income (loss) per share — diluted$(0.33)$(0.83)
Non-GAAP adjustments:
Stock-based compensation0.44 0.42 
Amortization of intangibles0.02 0.03 
Acquisition consideration holdback— 0.01 
Amortization of debt issuance costs0.01 0.01 
Tax impact of non-GAAP adjustments(0.14)0.24 
Non-GAAP net income (loss) per share — diluted$— $(0.12)
Shares used in computing Non-GAAP net income (loss) per share amounts:
GAAP and pro forma weighted average shares — diluted81,690,912 83,320,967 
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Liquidity and Capital Resources
Our principal sources of liquidity are as follows (in thousands):
October 31, 2023July 31, 2023
Cash, cash equivalents, and investments$853,591 $927,467 
Working capital$714,423 $726,342 
Cash, Cash Equivalents, and Investments
Our cash and cash equivalents are comprised of cash and liquid investments with remaining maturities of 90 days or less from the date of purchase, primarily commercial paper and money market funds. Our investments primarily consist of corporate debt securities, U.S. government and agency debt securities, commercial paper, asset-backed securities, and non-U.S. government securities, which include state, municipal, and foreign government securities.
As of JanuaryOctober 31, 2018 and July 31, 2017, we had $569.5 million and $687.8 million of cash, cash equivalents, and investments, respectively, and working capital of $466.2 million and $515.6 million, respectively. As of January 31, 2018,2023, approximately $32.8$52.7 million of our cash and cash equivalents were domiciled in foreign tax jurisdictions. While we have no current plans toWe may repatriate these fundsforeign earnings to the United States we may repatriate foreign earnings in the future to the extent that the repatriation is not restricted by local laws accounting rules, or there are no substantial incremental costs associated with such repatriation.
Share Repurchase Program
In November 2017, we completed the acquisitionSeptember 2022, our board of Cyence Inc. for approximately $260.3 million, subjectdirectors authorized and approved a share repurchase program of up to customary transaction adjustments. Consideration consisted of net cash of approximately $130.1 million and equity consideration valued at approximately $113.7$400.0 million of newly issued Guidewireour outstanding common stock and options. Assets acquired included approximately $16.5stock. During the three months ended October 31, 2023, we did not repurchase any shares of our common stock. As of October 31, 2023, $138.2 million of cash and cash equivalents. A portion of the consideration has been placed into an escrow account as partial security to satisfy any potential claims.

remained available for future share repurchases.
Cash Flows
Our cash flows from operations are significantly impacted by timing of invoicing and collections of accounts receivable, annual bonus payment,payments, as well as payments of payroll, commissions, payroll taxes, and other taxes. We expect that we will continue to generate positive cash flows from operations on an annual basis in the future, although this may fluctuate significantly on a quarterly basis. In particular, we typically use more cash during theour first fiscal quarter, endedwhich is the quarter ending October 31, as we generally pay cash bonuses to our employees for the prior fiscal year during that period and pay seasonally higher sales commissions from increased customer orders booked in our fourth fiscal quarter.quarter of the prior year. Additionally, our capital expenditures may fluctuate depending on future office build outs and development activities subject to capitalization.
We believe that our existing cash and cash equivalents and sources of liquidity will be sufficient to fund our operations for at least the next 12 months. Our future capitalcash requirements will depend on many factors, including our rate of revenue growth, the expansion of our sales and marketing activities, the timing and extent of our spending to support our research and development efforts, investments in cloud infrastructure, cybersecurity, and operating costs, and expansion into other markets. We also anticipate investingmay invest in or acquiringacquire complementary businesses, applications or technologies, or may execute on a board-authorized share repurchase program, which may require the use of significant cash resources and may requireand/or additional financing.

The following summary of cash flows for the periods indicated has been derived from our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q:10-Q (in thousands):
 Six Months Ended January 31,
 2018 2017
 (in thousands)
Net cash provided by operating activities$16,446
 $29,649
Net cash used in investing activities$(76,269) $(29,091)
Net cash provided by financing activities$727
 $2,034
 Three Months Ended October 31,
 20232022
Net cash provided by (used in) operating activities$(72,083)$(87,435)
Net cash provided by (used in) investing activities$(27,793)$(54,423)
Net cash provided by (used in) financing activities$— $(200,000)
Cash Flows from Operating Activities
Net cash provided byused in operating activities decreased by $13.2was $72.1 million for the sixthree months ended JanuaryOctober 31, 2018,2023 compared to net cash used in operating activities of $87.4 million during the sixthree months ended JanuaryOctober 31, 2017. The2022. This $15.4 million decrease in operating cash providedused was primarily attributable to a $10.1$27.2 million increase in cash used inby working capital activity as compared to the same period a year ago. Higher cash used in working capital activity in the current period is primarily due to increases in accounts receivable attributed to timing of collections, partially offset by changes in timing of payments to vendors. The increase in cash used in working capital activity is partiallyactivities offset by a $3.1$42.6 million decrease in net loss after excluding the impact of non-cash charges such as deferred taxes, stock-based compensation expense, depreciation and amortization expense, and other non-cash items. During the first quarter of fiscal year 2023, changes in working capital included severance payments of $2.9 million.
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Cash Flows from Investing Activities
Net cash used in investing activities increased by $47.2was $27.8 million for the sixthree months ended JanuaryOctober 31, 2018 as2023 compared to net cash used in investing activities of $54.4 million during the sixthree months ended JanuaryOctober 31, 20172022. The $26.6 million decrease in cash used in investing activities was primarily due to $130.1 millionnet purchases in excess of maturities and sales of available-for-sale securities being lower than prior year’s net purchases by $27.1 million. This decrease in the use of cash used for the acquisition of Cyence during the six months ended January 31, 2018, partiallyfrom available-for-sale securities was offset by $52.4higher capital expenditures and capitalized software development costs of $0.4 million and an increase in net cash inflows resulting from sales and purchasesamounts paid for strategic investments of marketable securities.

$0.1 million.
Cash Flows from Financing Activities
NetThere was no cash provided byused in financing activities decreased by $1.3 million for the sixthree months ended JanuaryOctober 31, 2018, as2023 compared to $200.0 million used in financing activities for the sixthree months ended JanuaryOctober 31, 2017 primarily due to fewer stock options exercised. Excess tax benefits2022. This $200.0 million decrease in cash used was because of shares repurchased under the authorized and deficiencies previously classified as financing activities have been classified as operating activities on the condensed consolidated statement of cash flows as a result of our adoption of ASU 2016-09 duringapproved share repurchase program in the first quarter of fiscal year 2018. There2023. No shares were no excess tax benefits or deficienciesrepurchased in financing activities during the six months ended January 31, 2017.first quarter of fiscal year 2024.
Commitments and Contractual Obligations
Our primaryThere have been no material changes in our contractual obligations are from operating leasesand commitments other than in the ordinary course of business since our fiscal year ended July 31, 2023.
See our Annual Report on Form 10-K for office space and letters of credit related to those leases. See Note 6 to the Condensed Consolidated Financial Statementsfiscal year ended July 31, 2023 for a discussion ofadditional information regarding our lease commitments and letters of credit.contractual obligations.
Other than the lease commitments and letters of credit discussed in Note 6 to the Condensed Consolidated Financial Statements, we do not have commercial commitments under lines of credit, standby repurchase obligations or other such debt arrangements. We do not have any material non-cancellable purchase commitments as of January 31, 2018.
Off-Balance Sheet Arrangements
WeThrough October 31, 2023, we did not have noany 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 transactions with unconsolidatedother contractually narrow or limited purpose entities, nor do we have any undisclosed material transactions or commitments involving related persons or entities.purposes.

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ITEM 3.    Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates and foreign currency exchange rates. We do not hold or issue financial instruments for trading purposes.
Interest Rate Sensitivity
Our exposure to market risk for changes in interest rates relates primarily to our cash, cash equivalents, and investments as of January 31, 2018 and July 31, 2017.investments. Our cash, cash equivalents, and investments as of JanuaryOctober 31, 20182023 and July 31, 20172023 were $569.5$853.6 million and $687.8$927.5 million, respectively, primarily consisting of cash, money market funds, commercial paper, corporate bonds, U. S. Governmentdebt securities, U.S. government and agency debt securities, commercial paper, asset-backed securities, and U.S. Government bonds. Our primary exposure to market risk is interest income sensitivity,non-U.S. government securities, which is affected by changesinclude state, municipal, and foreign government securities. Changes in the general level of the interest rates, primarily in the United States. However, becauseStates, affect the interest earned on our cash, cash equivalents, and investments, and their market value. A hypothetical 100 basis point increase in interest rates is estimated to result in a decrease of $3.4 million and $3.0 million in the short-term naturemarket value of our interest-bearingavailable-for-sale securities a ten percent change in marketas of October 31, 2023 and July 31, 2023, respectively. Any realized gains or losses resulting from such interest ratesrate changes would not be expectedonly occur if we sold the investments prior to have a material impact on our consolidated financial condition or results of operations.maturity.
Foreign Currency Exchange Risk
Our results of operations, ARR, and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Canadian dollar, Australian dollar, Euro,Dollar, British Pound, Japanese Yen,Canadian Dollar, Euro, Indian Rupee, and Brazilian Real.Polish Zloty, the currency of the locations within which we have significant operations. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. Although weWe believe our operating activities act as a natural hedge for a substantial portion of our foreign currency exposure because we typically collect revenuesrevenue and incur costs in the currency inof the location in which we provide our application,services. However, our contractsrelationships with our customers are long termlong-term in nature so it is difficult to predict if our operating activities will provide a natural hedge in the future. Additionally, changes in foreign currency exchange rates can affect our financial results due to transaction gains or losses related to revaluing certain currentmonetary asset and currentmonetary liability balances that are denominated in currencies other than the functional currency of the entitiesentity in which they are recorded. Our monetary assets and liabilities denominated in currencies other than the functional currency of the entity in which they are recorded consist primarily of trade accounts receivable, unbilled accounts receivable, trade accounts payable, and intercompany receivables and payables. For example, for the sixthree months ended JanuaryOctober 31, 2018,2023 and 2022, we recorded a foreign currency loss of $1.4$13.7 million asand $13.8 million, respectively, in other expenseincome (expense) in our condensed consolidated statement of operations primarily due to unfavorable currency exchange rate movement during the six months ended January 31, 2018.fluctuations. We expect towill continue to experience fluctuations in foreign currency exchange rates. If a hypothetical ten percent change in foreign currency exchange rates were to occur in the future, the resulting transaction gain or loss is estimated to be approximately $27.2 million. As our international operations grow, we will continue to reassessassess our approach to managemanaging our risk relating to fluctuations in currency rates.
Fair Value of Financial Instruments
We do not have material exposure to market risk with respect to investments in financial instruments, as our investments primarily consist of highlyhigh-quality liquid investments purchased with a remaining maturity of twothree years or less. We do not use derivative financial instruments for speculative or trading purposes. However, this current position does not preclude our adoption of specific hedging strategies in the future.

Our strategic investments in privately held securities are in various classes of equity. The particular securities we hold, and their rights and preferences relative to those of other securities within the capital structure, may impact the magnitude by which our investment value moves in relation to movements in the total enterprise value of the company in which we are invested. As a result, our investment in a specific company may move by more or less than any change in value of that overall company. In addition, the financial success of our investment in any company is typically dependent on a liquidity event, such as a public offering, acquisition, or other favorable market event reflecting appreciation to the value of our investment. All of our investments, particularly those in privately held companies, are therefore subject to a risk of partial or total loss of invested capital.
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ITEM 4.
ITEM 4.     Controls and Procedures

Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a- 15(e)13a-15(e) and 15d- 15(e)15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”))Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
During our most recent fiscal quarter, we implemented certain phases of a new global finance enterprise resource planning ("ERP") system. Accordingly, we are modifying the design and documentation of certain internal control processes and procedures relating to the new ERP system. We will continue to evaluate and monitor our internal control over financial reporting as we implement other ERP-related accounting systems. We currently anticipate completing the implementation of these applications by our current fiscal year end. Other than the ERP and related systems implementation, there have been no significant changes to our internal control over financial reporting.
Inherent Limitations of Internal Controls
Our management, including our Chief Executive Officerprincipal executive officer and Chief Financial Officer,principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of

the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended October 31, 2023 identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION

ITEM 1.Legal Proceedings
ITEM 1.Legal Proceedings
From time to time, we are involved in legal proceedings that arise in the ordinary course of our business. Any such proceedings, whether meritorious or not, could be time consuming, costly, and result in the diversion of significant operational resources and/or management time.
Although the outcomes of legal proceedings are inherently difficult to predict, we are not currently involved in any legal proceeding in which the outcome, in our judgment based on information currently available, is likely to have a material adverse effect on our business or financial position.
As described in Note 5 “Commitments and Contingencies,” to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, which are incorporated by reference herein, we are not party to any material pending legal proceedings.


ITEM 1A.Risk Factors
ITEM 1A.Risk Factors

A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider such risks and uncertainties, together with the other information contained in this report,Quarterly Report on Form 10-Q, and in our other public filings. If any of such risks and uncertainties actually occurs, our business, financial condition or results of operations could differ materially from the plans, projections and other forward-looking statements included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this reportQuarterly Report on Form 10-Q and in our other public filings. In addition, if any of the following risks and uncertainties, or if any other risks and uncertainties, actually occurs, our business, financial condition or results of operations could be harmed substantially, which could cause the market price of our stock to decline, perhaps significantly.
Risks Related to our Business and Industry
We may experience significant quarterly and annual fluctuations in our results of operations due to a number of factors.
Our quarterly and annual results of operations may fluctuate significantly due to a variety of factors, many of which are outside of our control. This variability may lead to volatility in our stock price as investors and research analysts respond to quarterly fluctuations. In addition, comparing our results of operations on a period-to-period basis, particularly on a sequential quarterly basis, may not be meaningful. You should not rely on our past results as an indication of our future performance.
Factors that may affect our results of operations include:
•the timingimpact 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 ordersdomestic and revenue recognition for newinternational customers and prior year orders;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 the two sales methods;these contract types;
volatility•changes in the salescontract durations of our productsterm software licenses and the execution timingrenewals or modifications of newcustomer contracts;
•increases in costs related to cloud operations, product development, and renewal agreements within such periods;services;
•our ability to increase sales todevelop and renew agreements with our existing customers, particularly larger customers;
our ability to attract new customers in both domestic and international markets;
achieve market adoption of cloud-based services, including the structureimpact of our licensing contracts, including delayed paymentcustomers transitioning from term software licenses to subscription services;
•erosion in services margins or acceptance terms and escalating payments, includingsignificant fluctuations in perpetual licenses from period to period;services revenue caused by changing customer demand, negotiated professional services billing rates, investments in customer implementation and migration projects, or fixed fee contracts;
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•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;
introduction of new, or the increase of existing, licensing models that feature ratable revenue recognition;
our ability to develop and achieve market adoption of cloud-based services;
increases in cloud-related development and services costs;
•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;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 impactability to hire and onboard appropriate personnel, and the timing of a recession or anyhiring personnel and employee related expenses;
•our ability to realize expected benefits from our acquisitions and other adverse global economic conditions on ourstrategic business including uncertainties that may cause a delay in entering into or a failure to enter into significant customer agreements;transactions;
the lengthy and variable nature of our product implementation cycles;
•reductions in our customers’ budgets for information technology purchases and delays in their purchasing cycles;decisions;
variations•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 amountfulfillment 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, sold by our customers, where pricing to such customers is based on the direct written premium that is managed by our solutions;interpretations, and controls;
erosion in services margins or significant fluctuations in services revenues caused by changing customer demand;
our ability to realize expected benefits from our acquisitions;

timing of commissions expense related to large transactions;
bonus expense based on the bonus attainment rate;
the timing and cost of hiring personnel and of large expenses such as third-party professional services;
stock-based compensation expenses, which vary along with changes to our stock price;
•fluctuations in foreign currency exchange rates; and
unanticipated trade sanctions and other restrictions•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 may impede our ability to sell internationally; and
future accounting pronouncements or changes in accounting rules or our accounting policies.
In addition, our license and other revenue may fluctuate if our customers make early payments of their annual license fees in advancecan be sent out of the invoice due date. This may cause an unexpected increase in revenues in one quarter reducingcountry, and their impact on interest rates, collection timeframes, and our revenue and growth rates in future periods.given the multi-year term of most customer agreements.
The foregoing factors are difficult to forecast, and these, as well as other factors, could materially adversely affect our quarterly and annual results of operations. Further, due to multi-year term licenses and multi-year term license renewals, increased cloud-based subscription services, timing of and billing rates for professional services engagements, and other ongoing changes to our business, it is challenging to forecast our quarterly and annual results.
We believe our ability to adjust spending quickly enough to compensate for a potential revenue shortfall is very limited and our inability to do so could magnify the adverse impact of sucha potential revenue shortfall on our results of operations. If we fail to achieve our quarterly forecasts, if our forecasts fall below the expectations of investors or research analysts, or if our actual results fail to meet the expectations of investors or research analysts, our stock price may decline.
Seasonal sales patterns and other variations related to our revenue recognition may cause significant fluctuations in our results of operations and cash flows and may prevent us from achieving our quarterly or annual forecasts, which may cause our stock price to decline.
We have signed a significantly higher percentage of software license orders in the second and fourth quarters of each fiscal year. We generally see increased new orders in our secondfourth fiscal quarter, which is the quarter ended Januaryending July 31, due to customer buying patterns and our sales are typically greatest the fourth quarter due to efforts by our sales team to achieve annual incentives. As a result, a significantly higher percentage of our annual license revenuesrevenue and cash receipts have historically been recognized in our second and fourth fiscal quarters.quarter. Since a substantial majority of our license revenues recur annually under our multi-year contracts,revenue has annual renewals after the initial term of the contract, we expect to continue to experience this seasonality effect in subsequent years. However, weGenerally, accounting under ASC 606 has and may continue to heighten or change the seasonal impact due to license revenue for the entire committed term of our new term licenses and multi-year term license renewals being recognized at the beginning of the agreement. Because of the upfront nature of revenue recognition for new multi-year term licenses and multi-year term license renewals, any quarter in which a significant agreement of this nature is signed, renewed, cancelled, or not renewed when scheduled to do so may be impacted.
We currently anticipate that sales of, and revenue from, subscription services will continue to increase as a percentage of new and total yearly sales.in the future. Subscriptions are recognized ratably over the term of the agreement after provisioning of the software, which may take as many as 90 days for our more complex implementations.service. Over time, this may reduce the impact of our historic revenue seasonality, but in the near term the introduction of proportionally more subscription services into our revenue stream, together with their delayed and ratable recognition, will likely impact quarter over quarterquarter-over-quarter and year over yearyear-over-year revenue growth comparisons. The concentrationCash flow expectations and comparisons could also be impacted because of salesthe ramped nature of the annual installments of these multi-year subscription services arrangements but will most likely remain concentrated in the fourth quarter, includingfiscal quarter. Additionally, ARR, which reflects the annualized recurring value of active customer contracts at the end of a reporting period, will be impacted by the seasonality of new sales orders, even if the revenue is recognized ratably.
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Our quarterly growth in license revenuesrevenue or ARR also may not match up tocoincide with new orders we receiveor cash flows in a given quarter, which could mask the impact of seasonal variations. This mismatch is primarily due to the following reasons:
for•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 year of aterm, 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
•revenue recognition may not occur in the period when the order is placed due to certain revenue recognition criteria not being met;
we may enter into license agreements with future productmet, such as delivery requirements or specified terms for product upgrades or functionality, which may require us to delay revenue recognition for the initial period;
our term licenses may include payment terms that escalate every year and may be modest in the first year; and
our subscription arrangements are recognized ratably and only a portion of the revenue from an order is recognized insoftware or providing access to the same fiscal period of the order.subscription services.
Additionally, seasonal patterns may be affected by the timing of particularly large transactions. For example, in fiscal year 2017, we achieved higher revenue growth in the third fiscal quarter than in the fourth fiscal quarter due to the effects of a single large contract that was entered into in the third fiscal quarter.
Our revenues may fluctuate versus comparable prior periods or prior quarters within the same fiscal year based on when new orders are executed in the quartertransactions and the payment termsnumber of each order. Our ability to renew existing contracts for multiple year terms versus annual automatic renewals may also impact revenue recognition.
We generally charge annual software license fees for our multi-year term licenses and price our licenses based on the amount of direct written premiums (“DWP”) that will be managed by our solutions. However, in certain circumstances, our customers desire the ability to purchase our products on a perpetual license basis, resulting in an acceleration of revenue recognition. Milestone payments in a perpetual license order also cause seasonal variations. Our perpetual license revenues are not necessarily consistent from period to period. In addition, a few of our multi-year term licenses provide the customer with the option to purchase a perpetual

license at the end of the initial contract term, which we refer to as a perpetual buyout right. The mix of our contract terms for our licenses and the exercise of perpetual buyout rights at the end of the initial contract term by our customers may lead to variability in our results of operations. Increases in perpetual license sales and exercises of perpetual buyout rights by our customers may affect our ability to show consistent growth in license revenues in subsequent periods. Reductions in perpetual licenses in future periods could cause adverse period-to-period comparisons of our financial results.
given quarter. Seasonal and other variations related to our revenue recognition 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.
We have relied and expect to continue to rely on orders from a relatively small number of customers in the P&C insurance industry for a substantial portion of our revenues, and the loss of any of these customers would significantly harm our business, results of operations and financial condition.
Our revenues are dependent on orders from customers in the P&C insurance industry, which may be adversely affected by economic, environmental, and world political conditions. A relatively small number of customers have historically accounted for a significant portion of our revenues. While the composition of our individual top customers will vary from year to year, in fiscal 2017, 2016, and 2015, our ten largest customers accounted for 27%, 27%, and 31% of our revenues, respectively. While we expect this reliance to decrease over time, we expect that we will continue to depend upon a relatively small number of customers for a significant portion of our revenues for the foreseeable future. As a result, ifIf we fail to successfully sellmanage our products and servicestransition to one or more of these anticipated customers in any particular perioda business model focused on delivering cloud-based offerings on a subscription basis or fail to identify additional potential customers or such customers purchase fewer ofmeet stipulated service levels with our products orsubscription services, defer or cancel orders, fail to renew their license or subscription agreements, or otherwise terminate their relationship with us, our business, results of operations, and financial condition would be harmed. Additionally, if our sales to one or more of these anticipated customers in any particular period are ratable in nature, or if we fail to achieve the required performance or acceptance criteria for one or more of these relatively small number of customers, our quarterly and annual results of operations may fluctuate significantly.
If we are required to,and fail to successfully manage any changes to our business model, including the transition of our products to cloud offerings, our results of operations could be harmed.
To address demand trends in the P&C insurance industry, we now offer customers the use of our software products through a cloud-based offering sold on a subscription basis in addition to our on-premisesself-managed offering. This adjustmentchange to our business model requires a considerable investment of technical, operational, financial, legal, and sales resources.Our software and cloud services involve the storage and transmission of customer data, including in some cases, personal data, and security breaches could result in the loss of this information, which in turn could result in litigation, breach of contract claims, indemnity obligations, harm to our reputation, and other liabilities for us. Our transition to cloud offerings will continue to divertbe the focus of existing resources, require us to hire additional resources, and increase costs, especially in cost of licensesubscription and other revenues,support revenue, cost of services revenue, and research and development, in any given period. Such investmentsWe may not improvebe able to efficiently scale such investments to meet customer demand and expectations, which may impact our long-term growth and results of operations. Further, the increase in some costs associated with our cloud services, such as the cost of publicthird-party infrastructure in which we rely to host our subscription services, may be difficult to predict over time, especially in light of our lack of historicallimited experience with the costs of delivering cloud-based versions of our applications. Furthermore, we may assume greater responsibilities for implementation of subscription services due to our operating and maintaining the cloud environment for our customers. As a result, we may face risks associated with new and complex implementations or migrations, the cost of which may differ from original estimates. Our subscription contracts also contain penalty clauses, for matters such as failing to meet stipulated service levels or other contractual provisions, which represent new risks we are not accustomed to managing. Should these penalties be triggered, our results of operations may be adversely affected. Furthermore, we may assume greater responsibilities for implementation related services during this transition. As a result, we may face risks associated with newThese penalties and complex implementations,costs could take the costform of which may differ from original estimates. As with our stated history, the consequences in such circumstances could include monetary credits for current or future service engagements, reduced fees for additional product sales,services or products or upon renewal of existing agreements, and a customer’s renegotiation or refusal to pay theirits contractually-obligated subscription or service fees.
We expect the revenue we would recognizeRevenue under our cloud-based subscription model towill generally be recognized ratably over the term of the contract. The transition to ratable revenue recognition may reduce licensewill result in lower revenue than we otherwise would have recognized in those periods in which the portioninitial period of our revenues attributable to ratable subscription contracts grows.the customer agreement under term license agreements. This effect on recognized revenue may be magnified in any fiscal year due to the concentration of our orders in the fourth fiscal quarter. A combination of increased costs and delayed recognition of revenue would adversely impact our gross and operating margins during thosecompared to prior periods. Additionally, the change in our business model and the timing of our customers’ decision to transition from self-managed licenses to cloud-based subscription services could negatively affect our ability to forecast the timing and amount of our revenue in any period.
In addition, market acceptance of our cloud-based offerings may be affected by a variety of factors, including, but not limited to:to, price, security, reliability, performance, customer preference, public concerns regarding privacy, and the enactment of restrictive laws
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or regulations. We are in the early stages of re-architectingcontinually updating our existing services and products and developing new services and products in an effort to offer customers greater choices on how they consumeutilize our software. As our business practices in this area develop and evolve over time, we may be required to revise theour current subscription agreements, we initially develop in connection with this transition, which may result in revised terms and conditions that impact how we recognize revenue and the costs and risks associated with these offerings. Whether our product development efforts or business model transition will prove successful and accomplish our business objectives is subject to numerous uncertainties and risks, including, but not limited to:to, customer demand, our ability to further develop, manage, and scale infrastructure, our ability to include functionality and usability in such offerings that address customer requirements, our customers’ ability to successfully migrate to and implement our subscription services, tax and accounting implications, and our costs.
In addition, the metrics we and our investors use to gauge the status

of our business model transition may evolve over the course of the transition as significant trends emerge. It may be difficult, therefore, to accurately determine the impact of this transition on our business on a contemporaneous basis, or to clearly communicate the appropriate metrics to our investors. If we 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.
IncreasesWe have relied and expect to continue to rely on orders from a relatively small number of customers in the P&C insurance industry for a substantial portion of our revenue and ARR, and the loss of any of these customers would significantly harm our business, results of operations, and financial condition.
Our revenue and ARR are dependent on orders from customers in the P&C insurance industry, which may be adversely affected by worldwide economic, environmental, public health, and political conditions. A relatively small number of customers have historically accounted for a significant portion of our revenue. The composition of our individual top customers has and will vary from year to year. In fiscal years 2022 and 2023, our ten largest customers in each fiscal year accounted for 23% of our revenue. Additionally, our ten largest customers based on ARR accounted for 24% of total ARR at July 31, 2023. Customers for these metrics are calculated at the parent corporation level, while our total customer count is based on entities that have placed orders for our services revenuesor products. While we expect this reliance to decrease over time as our revenue, customer base and subscription services as a percentage of total revenuesrevenue grows, we expect that we will continue to depend upon a relatively small number of customers for a significant portion of our revenue and ARR for the foreseeable future. As a result, if we fail to successfully sell our services and products to one or lowermore of these anticipated customers in any particular period or fail to identify additional potential customers or such customers purchase fewer of our services or products, defer or cancel orders, fail to renew their license or subscription agreements or otherwise terminate or reduce their relationship with us, our business, results of operations, and financial condition would be harmed. Additionally, if one or more of these anticipated customers enters into or transitions to a subscription agreement in any particular period, or if we fail to achieve the required performance or acceptance criteria for one or more of this relatively small number of customers, our quarterly and annual results of operations may fluctuate significantly.
Recent global events have adversely affected, and may continue to adversely affect, our business, results of operations, and financial condition.
Recent global events have adversely affected and are continuing to adversely affect workforces, organizations, economies, and financial markets globally, leading to economic downturns, inflation, and increased market volatility. The ongoing wars between Israel and Hamas and between Russia and Ukraine, escalating tensions in the South China Sea, inflation higher than we have seen in decades, increasing interest rates, bank failures and associated financial instability and crises, and supply chain issues have added to global economic and market volatility. Our past business and financial results, including our ARR growth rates, services revenue, and margins, were adversely impacted due to the disruptions resulting from these events. These global events have also disrupted the normal operations of our customers’ businesses and our SI partners’ businesses. The related impacts of recent global events on the global economy could decrease or delay technology spending and adversely affect demand for our products. Further, our sales and implementation cycles have increased and could continue to increase, which has resulted in and could result in contract terms more favorable to customers and a potentially longer delay between incurring operating expenses and the generation of corresponding revenue, if any, or difficulty in accurately forecasting our financial results. Additionally, our customers may be unable to pay outstanding invoices or may request amended payment terms due to the economic impacts from these global events and related implementation delays. As a result of these developments and the related economic impact to our business, we may be required to record impairment related to our operating lease assets, investments, long-lived assets, or goodwill. We may experience further operational challenges, including increased costs, as a portion of our workforce returns to working in person and gradually shifts to assisting customers in person, difficulty in hiring necessary personnel, and higher employee attrition. Due to the continuing and evolving nature of these global events, it is not possible for us to accurately predict the duration or magnitude of the adverse impacts and effects on our business, results of operations, or financial condition. Further, to the extent recent global events adversely affects our business, results of operations, or financial condition, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
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We have transitioned to a hybrid in-person and remote workforce, which will subject us to certain operational challenges and risks and potential harm to our business.
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. As a result, we expect to continue to be subject to the challenges and risks of having a remote workforce, as well as new challenges and risks from operating with a hybrid workforce. For example, certain security systems in homes or other remote workplaces may be less secure than those used in our offices, which may subject us to increased security risks, including cybersecurity-related events, and expose us to risks of data or financial loss and associated disruptions to our business operations. Members of our workforce who work remotely may not have access to technology that is as robust as that in our offices, which could cause the networks, information systems, applications, and other tools available to those remote workers to be more limited or less reliable than in our offices. We may also be exposed to risks associated with the locations of remote workers, including compliance with local laws and regulations or exposure to compromised internet infrastructure. Allowing members of our workforce to work remotely may create intellectual property risk if employees create intellectual property on our behalf while residing in a jurisdiction with unenforced or uncertain intellectual property laws. Further, if employees fail to inform us of changes in their work location, we may be exposed to additional risks without our knowledge. The transition to hybrid in-person as well as remote working may also subject us to other operational challenges and risks. For example, our shift to hybrid working may adversely affect our ability to recruit and retain personnel who prefer a fully remote or fully in-person work environment. Operating our business with both remote and in-person workers, or workers who work in flexible locations and on flexible schedules, could have a negative impact on our corporate culture, decrease the ability of our workforce to collaborate and communicate effectively, decrease innovation and productivity, or negatively affect workforce morale and retention rates. In addition, we expect to incur costs related to the transition to a hybrid workforce to, among other things, facilitate permanent remote work for a portion of our workforce and update our offices to offer more collaborative workspaces. If we are unable to effectively transition to a hybrid workforce, manage the cybersecurity and other risks of remote work, and maintain our corporate culture and workforce morale, our business could be harmed or otherwise negatively impacted.
We face intense competition in our market, which could negatively impact our business, results of operations, and financial condition and cause our market share to decline.
The market for our software and services is intensely competitive. The competitors we face in any sale opportunity may change depending on, among other things, the line of business purchasing the software, the application or service being sold, the geography in which the customer is operating, and the size of the insurance carrier to which we are selling. For example, we are more likely to face competition from small independent firms when addressing the needs of small insurers. These competitors may compete on the basis of price, the time and cost required for implementation, custom development, or unique product features or functions. Outside of the United States, we are more likely to compete against vendors that may differentiate themselves based on local advantages in language, market knowledge, and pre-built content applicable to that jurisdiction. We also compete with vendors of horizontal software products that may be customized to address needs of the P&C insurance industry.
Additionally, many of our prospective customers operate firmly entrenched legacy systems, some of which have been in operation for decades. Our implementation cycles may be lengthy, variable, and require the investment of significant time and expense by our customers. These expenses and associated operating risks attendant on any significant process re-engineering and new technology implementation, may cause customers to prefer maintaining legacy systems. Also, maintaining these legacy systems may be so time consuming and costly for our potential customers that they do not have adequate resources to devote to the purchase and implementation of our services and products. We also compete against technology consulting firms that either helped create such legacy systems or may own, in full or in part, subsidiaries that develop software and systems for the P&C insurance industry.
As we expand our product portfolio, we may begin to compete with software and service providers we have not competed against previously. Such potential competitors offer data and analytics tools that may, in time, become more competitive with our offerings.
If our competitors’ products, services, or technologies become more accepted than our solutions, if they are successful in bringing their products or services to market earlier than we are, if their products or services are more technologically capable than ours (including, without limitation, as a result of new or better use of evolving AI technologies, such as generative AI), or if customers replace our solutions with custom-built software, then our revenue could be adversely affected.
We expect the intensity of competition to remain high in the future, as the amount of capital invested in current and potential competitors, including insurtech companies, has increased significantly in recent years.
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As a result, our competitors or potential competitors may develop improved product or sales capabilities, or even a technology breakthrough that disrupts our market. Continuing intense competition could result in increased pricing pressure, increased sales and marketing expenses, and greater investments in research and development, each of which could negatively impact our profitability. In addition, the failure to increase, or the loss of, market share would harm our business, results of operations, financial condition, and/or future prospects. Our larger current and potential competitors may be able to devote greater resources to the development, promotion, and sale of their services and products than we can devote to ours, which could allow them to respond more quickly than we can to new technologies and changes in customer needs, thus leading to their wider market acceptance. We may not be able to compete effectively and competitive pressures may prevent us from acquiring and maintaining the customer base necessary for us to increase our revenue and profitability.
In addition, the insurance industry is evolving rapidly, and we anticipate the market for cloud-based solutions will become increasingly competitive. If our current and potential customers move a greater proportion of their data and computational needs to the cloud, new competitors may emerge that offer services either comparable or better suited than ours to address the demand for such cloud-based solutions, which could reduce demand for our offerings. To compete effectively we will likely be required to increase our investment in research and development, as well as the personnel and third-party services required to improve reliability and lower the cost of delivery of our cloud-based solutions. New competitors are able to develop cloud-based solutions without the cost of maintaining or migrating existing solutions and satisfying existing customer requirements, which may allow them to introduce new services and products more quickly and on more efficient technologies than us. This may increase our costs more than we anticipate and may adversely impact our results of operations.
Our current and potential competitors may also establish cooperative relationships among themselves or with third parties to further enhance their resources and offerings. Current or potential competitors may be acquired by other vendors or third parties with greater available resources. As a result of such acquisitions, our current or potential competitors might be more able than we are to adapt quickly to new technologies and customer needs, to devote greater resources to the promotion or sale of their services and products, to initiate or withstand substantial price competition, or to take advantage of emerging opportunities by developing and expanding their product and service offerings more quickly than we can. Additionally, they may hold larger portfolios of patents and other intellectual property rights as a result of such relationships or acquisitions. If we are unable to compete effectively with these evolving competitors for market share, our business, results of operations, and financial condition could be materially and adversely affected.
Our sales and implementation cycles are lengthy and variable, depend upon factors outside our control, and could cause us to expend significant time and resources prior to generating revenue.
The typical sales cycle for our services and products is lengthy and unpredictable, requires pre-purchase evaluation by a significant number of employees in our customers’ organizations, often involves a significant operational decision by our customers, and could be affected by factors outside of our control. Our sales efforts involve educating our customers about the use and benefits of our services and products, including the technical capabilities of our services and products, the potential cost savings achievable by organizations deploying our services and products, and the benefits and risks associated with cloud-based services. Customers typically undertake a significant evaluation process, which frequently involves not only our services and products, but also those of our competitors. We spend substantial time, effort, and money in our sales efforts without any assurance that our efforts will produce sales, and our customers have significant negotiating power during the sales process which may result in a lengthy sales cycle and significant contractual complexity. Additionally, we may be unable to predict the size and terms of the initial contract until very late in the sales cycle, which affects our ability to accurately forecast revenue and ARR. In addition, we sometimes commit to include specific functions in our base service and product offering at the request of a customer or group of customers and are unable to recognize revenue until the specific functions have been added to our services and products. Providing this additional functionality may be time consuming and may involve factors that are outside of our control. Customers may also insist that we commit to certain time frames in which systems built around our services and products will be operational or that once implemented our services and products will be able to meet certain operational requirements. Our ability to meet such timeframes and requirements may involve factors that are outside of our control, and failure to meet such timeframes and requirements could result in us incurring penalties and costs and/or making additional resource commitments, which would adversely affect our business and results of operations.
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The implementation and testing of our services and products by our customers typically lasts six to 24 months or longer and unexpected implementation delays and difficulties can occur. Implementing our services and products typically involves integration with our customers’ and third parties’ systems and creating or updating the digital experience, as well as adding customer and third-party data to our platform. This process can be complex, time consuming, and expensive for our customers and can result in delays in the implementation and deployment of our services and products. Failing to meet the expectations of our customers during the implementation of our services and products could result in a loss of customers and negative publicity about us and our services and products. Such failure could result from deficiencies in our product capabilities, performance issues, or inadequate service engagements by us, our SI partners, or our customers’ employees, the latter two of which are beyond our direct control. The consequences of such failure could include, and have included, monetary credits for current or future service engagements, reduced fees for additional services or products sales or upon renewals of existing services and products, potential reversals of previously recognized revenue, renegotiating existing customers’ contractual terms, and a customer’s refusal to pay their contractually-obligated license, support, or service fees. In addition, time-consuming and delayed implementations may also increase the amount of services personnel we must allocate to the implementation for it to be successful, thereby increasing our costs and adversely affecting our business, results of operations, and financial condition.
Furthermore, our sales and implementation cycles could be interrupted or affected by other factors outside of our control. We have had, and may in the future have, restrictions on travel, which are in accordance with recommendations by the U.S. government, The Centers for Disease Control and Prevention, and other equivalent agencies in the locations in which we operate, and our customers, SI partners, and prospects have likewise enacted their own preventative policies and travel restrictions. Widespread restrictions on travel and in-person meetings have affected and could, in the future, affect services delivery, delay implementations, and interrupt sales activity. We cannot predict the duration or the extent of adverse impacts from pandemics and other global events on our business, results of operations, and financial condition.
Failure to manage our expanding operations effectively could harm our business.
We have experienced consistent growth and expect to continue to expand our operations, including the number of employees and the locations and scope of our international operations. Additionally, we have 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. This expansion and changing work environment has placed, and will continue to place, a significant strain on our operational and financial resources and our personnel. To manage our anticipated future operational expansion effectively, we must continue to maintain and may need to enhance our information technology and cybersecurity infrastructure and financial and accounting systems and controls, and manage expanded operations and employees in geographically distributed locations. Our growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of new, enhanced, or more secure services and products or investments in cloud operations. If we increase the size of our organization without experiencing an increase in sales of our services and products, we will experience reductions in our gross and operating margins and net income. If we are unable to effectively manage our expanding operations or hybrid work environment, our expenses may increase more than expected, our revenue could decline or grow more slowly than expected, and we may be unable to implement our business strategy.
Revenue mix, as well as declines in our subscription and support gross margin or our services gross margin, could adversely affect our overall gross marginsmargin and profitability.
Our services revenues were 44%, 34%, 34%,subscription and 40%support revenue was 48% and 42% of total revenuesrevenue for each of the six months ended January 31, 2018 and fiscal years 2017, 2016,2023 and 2015,2022, respectively. Our services revenues producesubscription and support revenue produces lower gross margins than our license revenues.revenue. The gross margin of our services revenuessubscription and support revenue was 10%, 7%, 8%,51% and 12%41% for the six months ended January 31, 2018 and fiscal years 2017, 2016,2023 and 2015,2022, respectively, while the gross margin for license revenuesrevenue was 86%, 94%, 97%,98% and 97% for the six months ended January 31, 2018 and fiscal years 2017, 2016,2023 and 2015,2022, respectively. Our gross marginsAs our cloud transition continues, we expect that subscription revenue will decline in the event that lower-margin service revenues constitute a greater percentage of total revenues and if associated service or license margins decline.
In fiscal year 2018, services revenues have grown at a faster rate than license revenues and have increased significantlycontinue to increase as a percentage of total revenues. This trend isrevenue as we contract with new cloud customers and existing customers migrate from term licenses to subscription services. Additionally, we are incurring significant expenses to develop our cloud services and scale our cloud operations which may not result in an improvement of our subscription and support gross margin. These trends, along with other factors, some of which may be beyond our control, may adversely affect our overall gross and operating margins. These other factors include the percentage of new customers that enter into subscription services agreements as compared to term license agreements, the revenue impact of allocating total contract consideration between license revenue and subscription and support revenue when existing customers transition from term license to subscription services agreements, investments in certain cloud implementations to assist our customers with their migration to our cloud services, continued growth and efficiency of our cloud operations and technical support teams, and the impact on the global economy as a result of pandemics, inflation, or other global events and disasters.
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 of our services revenue was negative in both fiscal years 2023 and 2022. If we experience an increase in the percentage of total revenue represented by services revenue, due to acquisitions or other factors, such increase could reduce our overall gross and operating margins. Fluctuation in our services revenue can result from several factors, some of which may be beyond our control, including the
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pace of our customers’ migration from term license to subscription services as we continue our cloud transition, change in customer demand for our services team’s involvement in the implementation of new services and products, the rates we charge or discounts we offer for our services, our ability to bill our customers for all time incurred to complete a project, the extent and quality of implementations and migrations provided by our SI partners, and the impact on the global economy as a result of economic volatility, inflation, or other global events and disasters. Additionally, the failure to improve, or the erosion of, our services margin, whether due to discounts related to encouraging clients to accelerate their cloud transition or otherwise, particularly in combination with any increase in services revenue, could adversely affect our overall gross and operating margins. Our services margin may erode if we hire and train additional services personnel to support cloud-based services or markets prior to having customer engagements, if we make investments in customer migrations from self-managed term licenses to subscription services, if we enter into fixed fee services arrangements, if our services personnel are underutilized, or if we require additional personnel on unexpectedly difficult projects to ensure customer success, perhaps without receiving commensurate compensation.
Our large customers have substantial negotiating leverage, which may require that we agree to terms and conditions that result in increased cost of sales, decreased revenue, and lower average selling prices and gross margins, all of which could harm our results of operations.
Some of our customers include the world’s largest P&C insurers. These customers have significant bargaining power when negotiating new licenses or subscriptions or renewals of existing agreements, and have the ability to buy similar services and products from other vendors or develop such systems internally. These customers have and may continue to seek advantageous pricing and other commercial and performance terms that may require us to develop additional features in the services and products we sell to them or add complexity to our customer agreements. These customers may also delay making payments under existing agreements, or at renewal, in an attempt to obtain more favorable terms from us. We have been required to, and may 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.
Our business depends on customers renewing and expanding their license, support, and subscription contracts for our services and products. A decline in our customer renewals and expansions could harm our future results of operations.
Our customers have no obligation to renew their term licenses or subscriptions after their contract period expires, and these licenses and subscriptions, if renewed, may be done so on less favorable terms. Moreover, under certain circumstances, our customers have the right to cancel their licenses or subscriptions before they expire. We may not accurately predict future trends in customer renewals. In addition, our perpetual license customers have no obligation to renew their support arrangements after the expiration of the initial contractual period. Our customers’ renewal rates may fluctuate or decline because of several factors, including their satisfaction or dissatisfaction with our services and products, the prices of our services and products, the prices of services and products offered by our competitors, reduction in our customers’ business including their DWP, reductions in our customers’ spending levels due to the macroeconomic environment or other factors, or the sale of their operations to a buyer that is not a current customer.
Also, in some cases, our customers have a right to exercise a perpetual buyout of their term licenses at the end of the initial contract term, which if exercised would eliminate future term license revenue. If our customers do not renew their term licenses or subscriptions for our solutions or renew on less favorable terms, our revenue may decline or grow more slowly than expected and our profitability may be harmed.
Failure of any of our established services or products to satisfy customer demands or to maintain market acceptance could harm our business, results of operations, financial condition, and growth prospects.
We derive a significant majority of our revenue and cash flows from our established product offerings, including Guidewire InsuranceSuite Cloud, Guidewire InsuranceNow, Guidewire InsuranceSuite for self-managed installations, and our digital and data services and products. We expect to continue to derive a substantial portion of our revenue from these sources. As such, continued market acceptance of these services and products is critical to our growth and success. Demand for our services and products is affected by a number of factors, some of which are beyond our control, including increasedthe 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 operate, and the growth or contraction in the worldwide market for technological solutions for the P&C insurance industry. If we are unable to continue to meet customer demand fordemands, to achieve and maintain a technological advantage over competitors, or to maintain market acceptance of our service team involvement inservices and products, our business, results of operations, financial condition and growth prospects may be adversely affected.
If we are unable to develop, introduce, and market new and enhanced versions of our services and products, we may be put at a competitive disadvantage.
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Our success depends on our continued ability to develop, introduce, and market new and enhanced versions of our services and products to meet evolving customer requirements. Because some of our services and products are complex and require rigorous testing, new features, new functionality, and updates to our existing products and services the ratescan take significant time and resources to develop and bring to market.As we charge forexpand internationally, our services and products must be modified and adapted to comply with regulations and other requirements of the extent tocountries in which SIs are willing and able to provide services directly to customers.
Services marginsour customers do business. Additionally, market conditions may decline in periods which require a significant expansiondictate that we change the delivery method of our services capabilities asand products or the technology platform underlying our existing services and products or that new services and products be developed on different technology platforms, potentially adding material time and expense to our development cycles. The nature of these development cycles may cause us to experience delays between the time we hireincur expenses associated with research and train additionaldevelopment and the time we generate revenue, if any, from such expenses.
If we fail to develop new services personneland products, enhance our existing services and products, or migrate our products to the cloud, our business could be adversely affected, especially if our competitors are able to introduce services and products with enhanced functionality in the cloud. It is critical to our success for us to anticipate changes in technology, industry standards and 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. We have invested and intend to increase investments in research and development and cloud operations to meet these challenges.Revenue may not be sufficient to support customer demand, enter new markets, or if we require additional personnel on challenging projects to ensure customer success. In some cases, customer success will requirethe future product development that is required for us to remain competitive. If we fail to develop services and products in a timely manner that are competitive in technology and price or develop services and products that fail to meet customer demands, our market share will decline and our business and results of operations could be harmed.If our development efforts do not develop services, products or features that our customers find valuable, then we might incur impairment charges related to our capitalized software development costs.
Real or perceived errors or failures in our services and products, including implementation services, may affect our reputation, cause us to lose customers, and reduce sales and renewal rates, which may harm our business and results of operations and subject us to liability for breach of warranty claims.
Because we offer complex services and products, undetected errors or failures may exist or occur, especially when services and products are first introduced or when new versions or updates are released. Our services and products are often installed and used in large-scale computing environments with different operating systems, system management software, and equipment and networking configurations, which may cause errors or failures in our services and products or may expose undetected errors, failures, or bugs in our services and products. Despite testing by us, we may not identify all errors, failures, or bugs in new services and products or releases until after commencement of commercial sales or installation. In the past, we have discovered software errors, failures, and bugs in some of our offerings after their introduction. Additionally, our Guidewire Cloud offerings rely on third-party hosting services, primarily AWS.Any material disruption or slowdown in these services or the systems of third parties who we depend upon could cause outages or delays in our services, which could harm our reputation and adversely affect our results of operations.
We provide additional services personnel at significantly reduced rates. Services margins may also decline if we are required to defer services revenues in connectionour customers with an engagement. This may happen for a number of reasons, including if there is a specific product deliverable associated with a broader services engagement. In these situations, we would defer onlyupfront estimates regarding the directduration, resources, and costs associated with the engagement. Deferringmigration andimplementation of our services and products. Failure to meet these upfront estimates and the expectations of our customers could result from our product capabilities or service engagements performed by us, our SI partners, or our customers’ employees, the latter two of which are beyond our direct control. The consequences could include, and have included, monetary credits for current or future service engagements, reduced fees for additional services or product sales or upon renewals of existing licenses or services, renegotiation or modification of existing contracts that could potentially result in reversals of previously recognized revenue, or a customer’s refusal to pay its contractually-obligated fees. In addition, time-consuming or difficult migrations and implementations may also increase the amount of services personnel we must allocate to the project, potentially without commensurate compensation, thereby increasing our costs, lowering our services margin, and adversely affecting our business, results of operations, and financial condition.
The license, subscription, and support of our services and products creates the risk of significant liability claims against us. Our license and subscription agreements with our customers contain provisions designed to limit our exposure to potential liability claims. It is possible, however, that the limitation of liability provisions contained in such agreements may not be enforced as a result of international, federal, state, and local laws or ordinances or unfavorable judicial decisions. Breach of warranty or damage liability, or injunctive relief resulting from such claims, could harm our results of operations and financial condition.
Our ability to sell our services and products is highly dependent on the quality of our professional services and technical support services and the support of our SI partners, and the failure of us or our SI partners to offer high-quality professional services or technical support services could damage our reputation and adversely affect our ability to sell our services and products to new customers and renew agreements with our existing customers.
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If we or our SI partners do not effectively assist our customers in deploying our services and products, successfully help our customers quickly resolve post-deployment issues, assist our customers in migrating from self-managed licenses to subscription services, and provide effective ongoing support, our ability to renew existing agreements and sell additional services and products to existing customers would be adversely affected and our reputation with potential customers could be damaged. Once our services and products are deployed and integrated with our customers’ existing information technology environment, our customers may depend on our technical support services and/or the support of SI partners or internal resources to resolve any issues relating to our services and products. High-quality support is critical for the continued successful marketing and sale of our services and products. In addition, as we continue to expand our operations internationally, our support organization will face additional challenges, including those associated with delivering support, training, and documentation in multiple languages. Many enterprise customers require higher levels of support than smaller customers. If we fail to meet the requirements of our larger customers, it may be more difficult to sell additional services and products to these customers or to transition existing license customers to subscription services, a key strategy for the growth of our revenue and profitability. In addition, as we further expand our cloud-based services and products, our professional services, cloud operations and support organizations will face new challenges, including hiring, training, and integrating a large number of new personnel with experience in delivering high-quality services and support for cloud-based offerings. Further, as we continue to rely on SIs to provide deployment, migration, and on-going services, our ability to ensure a high level of quality in addressing customer issues and providing a maintainable and efficient cloud environment could be diminished as we may be unable to control the quality or timeliness of the implementation of our services and products by our SI partners. Our failure to maintain high-quality implementation and support services, or to ensure that SIs provide the same, could have a material adverse effect on our business, results of operations, financial condition, and growth prospects.
Issues in the development and use of AI, combined with an uncertain regulatory environment, may result in reputational harm, liability, or other adverse consequences to our business operations.
We use machine learning and AI technologies in our offerings and business, and we are making investments in expanding our AI capabilities in our products, services, and tools, including ongoing deployment and improvement of existing machine learning and AI technologies, as well as developing new product features using generative AI technologies. AI technologies are complex and generative AI technologies, in particular, are rapidly evolving. We face significant competition from other companies as well as an evolving regulatory landscape in relation to these technologies. The introduction of AI technologies, including generative AI, into new or existing products may result in new or enhanced governmental or regulatory scrutiny, litigation, confidentiality or security risks, ethical concerns, or other complications that could adversely affect our business, reputation, or financial results. The intellectual property ownership and license rights, including without limitation copyright, surrounding AI technologies generally, and generative AI technologies specifically, has not been fully addressed by competent legal tribunals or applicable laws or regulations. Further, the use or adoption of third-party AI technologies, including generative AI technologies, into our products and services may result in exposure to claims of copyright infringement or other intellectual property-related causes of action.
Uncertainty around new and emerging AI technologies, such as generative AI, may require additional investment in the development and maintenance of proprietary datasets and machine learning models, development of new approaches and processes to provide attribution or remuneration to creators of training data, and development of appropriate protections and safeguards for handling the use of customer data with such technologies, which may be costly and could impact our expenses if we decide to expand AI technologies, including generative AI, into our product offerings. AI technologies, including without limitation generative AI, may create content that appears facially correct but is factually inaccurate or flawed. Our customers or others may rely on or use such factually incorrect or flawed content to their detriment, which may expose us to brand or reputational harm, competitive harm, and/or legal liability. In all events, the development, marketing and use of AI technologies, including, in particular, generative AI, presents emerging ethical and social issues, and if we enable or offer solutions that draw scrutiny or controversy due to their perceived or actual impact on customers or on society as a whole, we may experience brand or reputational harm, competitive harm, and/or legal liability.
We may expand through acquisitions or partnerships with other companies, which may divert our management’s attention and result in unexpected operating and technology integration difficulties, increased costs, and dilution to our stockholders.
Our business strategy includes the potential acquisition of shares or assets of companies with software, cloud-based services, technologies, or businesses complementary to ours. Our strategy also includes alliances with such companies. For example, we have made several acquisitions in the past, including most recently in August 2021, we acquired HazardHub, Inc., a leading insurtech provider of property risk insights. Acquisitions and alliances, such as our strategic partnerships with One Inc. and Smart Communications, may result in unforeseen operating difficulties and expenditures, be dilutive to earnings, and may not result in the benefits anticipated by such corporate activity. In particular, we may fail to assimilate or integrate the businesses, technologies, services, products, personnel, or operations of the acquired companies, retain key personnel necessary to favorably execute the combined companies’ business plan, or retain existing customers or sell acquired services and products to new customers. Acquisitions and alliances may also disrupt our ongoing business, divert our resources, and require significant management attention that would otherwise be available for ongoing development of our current business. In addition, we may be required to make additional capital investments or undertake remediation efforts to ensure the success of our acquisitions, which may reduce the benefits of such acquisitions. We also may be required to use a substantial amount of our cash or issue debt or equity securities to
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complete an acquisition or realize the potential of an alliance, which could deplete our cash reserves and/or dilute our existing stockholders. Following an acquisition or the establishment of an alliance offering new services and products, the timing of revenue but only direct costs will reducefrom the sale of services marginsand products that we acquired or that result from the alliance, or from the sale of a bundle of services and products that includes such new services and products, may be different than the timing of revenue from existing services and products. In addition, our ability to maintain favorable pricing of new services and products may be challenging if we bundle such services and products with existing services and products. A delay in those periods; however, the eventual recognition of those deferred revenuesrevenue from sales of acquired or alliance services and products, or reduced pricing due to bundled sales, may cause fluctuations in our quarterly financial results, may adversely affect our operating margins, and may reduce the benefits of such acquisitions or alliances.
Additionally, competition within the software industry for acquisitions of businesses, technologies, and assets has been, and may continue to be, intense. As such, even if we are able to identify an acquisition that we would like to pursue, the target may be acquired by another strategic buyer or financial buyer such as a private equity firm, or we may otherwise not be able to complete the acquisition on commercially reasonable terms, if at all. Moreover, in addition to our failure to realize the anticipated benefits of any acquisition, including our revenue or return on investment assumptions, we may be exposed to unknown liabilities or impairment charges to acquired intangible assets and goodwill as a result of acquisitions we do complete.
If we are unable to continue the successful development of our global direct costssales force and the expansion of our relationships with our strategic partners, sales of our services and products will suffer and our growth could be slower than we project.
We believe that our future growth will depend on the continued recruiting, retention, and training of our global direct sales force and their ability to obtain new customers, both large and small P&C insurers, and to manage our existing customer base. New hires require significant training and may, in some cases, take more than a year before becoming productive, if at all. If we are unable to hire and develop sufficient numbers of productive global direct sales personnel, sales of our services and products will suffer and our growth will be impeded.
Our SI partners help us reach additional customers. We believe our future growth also will depend on the retention and expansion of successful relationships with SI partners, including with SI partners that will focus on services and products we may acquire in the future. Our growth in revenue, particularly in international markets, will be influenced by the development and maintenance of relationships with SI partners, including regional and local SI partners. Although we have a positive impactestablished relationships with some of the leading SI partners, our services and products may compete directly against services and products that such leading SI partners support or market. Additionally, we are unable to control the quantity or quality of 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 margins.our SI partners. If our partners do not commit sufficient or qualified resources to these activities, our customers will be less satisfied, be less supportive with references, or may require the investment of our resources at discounted rates. These, and other failures by our partners to successfully implement our services and products, would have an adverse effect on our business and our results of operations could fail to grow in line with our projections.
Our international sales and operations subject us to additional risks that can adversely affect our business, results of operations, and financial condition.
We sell our services and products to customers located outside the United States, and we are continuing to expand our international operations as part of our growth strategy. In fiscal year 2017, for example, we deferredyears 2023, 2022, and 2021, $331.5 million, $296.2 million, and $271.1 million of our revenue, respectively, was from customers outside of the United States. Our current international operations and our plans to expand our international operations subject us to a significant amountvariety of revenuerisks, including:
•increased management, travel, infrastructure, legal, and directcompliance costs associated with one project,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 and certain governments, such as Argentina, which reduced marginshave placed controls on sending U.S. dollars outside of the country, resulting in extended collection periods and reportedwhich may limit the collectibility of accounts receivable;
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•geographic and political conflicts, such as the wars between Israel and Hamas and between Russia and Ukraine and the escalating tensions in the South China Sea;
•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. Foreign Corrupt Practices Act of 1977, as amended, the U.K. Bribery Act of 2010 and other anti-corruption regulations, particularly in emerging market countries;
•compliance by international staff with accounting practices generally accepted in the United States, including adherence to our accounting policies and internal controls;
•import and export license requirements, tariffs, taxes and other trade barriers;
•increased financial accounting, tax and reporting burdens and complexities;
•weaker protection of intellectual property rights in some countries;
•multiple and possibly overlapping tax regimes, 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.
As we increase the number of products we offer, increase the number of countries in which we operate, and incorporate new technologies and capabilities into our products (including, without limitation, the use of AI, generative AI and machine learning technologies), the complexity of adjusting our offerings to comply with legal and regulatory changes will increase.
As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international operations. Any of these risks could harm our international operations and reduce our international sales, adversely affecting our business, results of operations, financial condition and growth prospects.
Incorrect or improper use of our services revenues during fiscal year 2017, butand 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 environments. The proper use of our services and products requires training of the customer. If our services and products are not used correctly or as intended, inadequate performance may result. Our services and products may also be intentionally misused or abused by customers or their employees or third parties who are able to access or use our services and products. Because our customers rely on our services, products, and support to manage a wide range of operations, the incorrect or improper use of our services and products, our failure to properly train customers on how to efficiently and effectively use our services and products, or our failure to properly provide services to our customers may result in negative publicity or legal claims against us. Also, any failure by us to properly provide training or other services to existing customers will likely result in lost opportunities for follow-on and increased sales of our services and products.
In addition, if there is currentlysubstantial turnover of customer personnel responsible, especially at the executive level, for the use and support of our services and products, or if customer personnel are not well trained in the use and support of our services and products, customers may defer the deployment of our services and products, may deploy them in a more limited manner than originally anticipated, or may not deploy them at all. Further, if there is substantial turnover of the customer personnel responsible for use of our services and products, our ability to renew existing licenses and make additional sales may be substantially limited.
We may not be able to obtain capital when desired on favorable terms, if at all, and we may not be able to obtain capital or complete acquisitions through the use of equity without dilution to our stockholders.
We may need additional financing to execute on our current or future business strategies, including to develop new or enhance existing services and products, acquire businesses and technologies, or otherwise to respond to competitive pressures.
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If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our existing stockholders could be significantly diluted, and newly-issued securities may have rights, preferences, or privileges senior to those of existing stockholders. If we accumulate additional funds through debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, thus limiting funds available for our business activities. We cannot be assured that additional financing will be available on terms favorable to us, or at all. If adequate funds are not available, or are not available on acceptable terms, when we desire them, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our services and products, or otherwise respond to competitive pressures would be significantly limited. Any of these factors could harm our results of operations.
Risks Related to Data Security and Privacy, Intellectual Property, and Information Technology
If our products or cloud-based services experience 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, 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 recognizedsecure, customers may reduce the use of or stop using our services, we may incur significant liabilities, and our reputation could be harmed. Our software and cloud services involve the storage and transmission of customer data (including, in fiscal year 2018.some cases, personal data), are involved in the collection and distribution of funds, and may provide business critical analytics necessary for our customers’ operations. Security breaches could result in public disclosure of confidential information, loss or modification of data affecting our customers’ operations, fraud or theft, ransom demands, or other misuse of confidential information, which in turn could result in litigation, breach of contract claims, indemnity obligations, additional reporting requirements and/or oversight, restrictions on processing customer data, and other liabilities for our Company.While we have taken, and are continually updating and enhancing, steps to protect the confidential information and customer data to which we have access, including confidential information we may obtain through our customer support services or customer usage of our cloud-based services, our security measures or the security measures of companies we rely on, such as AWS, could be breached. We rely on third-party technology and systems for a variety of services, including, without limitation, encryption and authentication technology, employee email, content delivery to customers, back-office support, and other functions, and our ability to control or prevent breaches of any of these systems may be beyond our control. Because techniques used to obtain unauthorized access or infiltrate systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures despite our efforts in implementing and deploying security measures. The use of constantly evolving technologies by threat actors are sophisticated and complex and may increase the velocity of such threats, frequency of incident cases, and otherwise magnifying the risks associated with these types of attacks. Although we have developed systems and processes designed to protect our and our customers’ data, prevent loss or unauthorized modification of data, ensure only authorized use of services, and other cybersecurity breaches, including systems and processes designed to reduce the impact of a security breach at a third-party vendor, such measures cannot provide absolute security. Any or all of these issues could negatively impact our ability to attract new customers or to increase engagement with existing customers, could cause existing customers to elect not to renew their term licenses or subscription agreements, or could subject us to third-party lawsuits, regulatory fines or other action or liability, thereby adversely affecting our results of operations and reputation.
Gross marginsPrivacy concerns could result in regulatory changes and impose additional costs and liabilities on us, limit our use of information, and adversely affect our business.
As adoption of our cloud-based services occurs, the amount of customer data, including customer personal information, that we manage, hold, and/or collect continues to increase.In addition, our services and products may collect, process, store, and use transaction-level data aggregated across insurers using our common data model. We anticipate that over time we will also decline should license margins decline.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.
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Many federal, state, and foreign legislatures and government agencies have imposed, are considering imposing, or are considering changing restrictions and requirements about the collection, use, and disclosure of personal information. Changes to laws or regulations affecting privacy could impose additional costs and liabilities, including fines, on us and could limit our use of such information to add value for customers, including for example, the California Consumer Privacy Act and the California Privacy Rights Act, which substantially went into effect on January 1, 2023, other state privacy laws enacted in recent years, and the Court of Justice of the EU’s invalidation of the Privacy Shield framework in July 2020. On July 16, 2020, the Court of Justice of the EU issued a verdict that ruled that the EU-US Privacy Shield, on which many companies relied on to transfer their data between the EU and the U.S., was invalidated due to concerns around surveillance by U.S. state and law enforcement agencies, known as the Schrems II decision.Schrems II now requires companies to conduct case-by-case assessments of each data transfer to a non-EU country in order to ensure that such data is adequately protected. In July of 2023, the European Commission adopted a new adequacy decision in relation to the EU-US Data Privacy Framework (“DPF”), rendering the DPF effective as a General Data Protection Regulation 2016/679 (“GDPR”) transfer mechanism to U.S. entities self-certified under the DPF. We expect the DPF Adequacy Decision to be challenged and international transfers to the U.S. and to other jurisdictions more generally to continue to be subject to enhanced scrutiny by regulators. If we were required to change our business activities or revise or eliminate services, or to implement burdensome compliance measures, our business and results of operations could be harmed. We may be subject to fines, penalties, and potential litigation if we fail to comply with applicable privacy and/or data security laws, regulations, standards, and other requirements. The costs of compliance with and other burdens imposed by privacy-related laws, regulations, and standards may limit the use and adoption of our services and products and reduce overall demand.
Furthermore, concerns regarding data privacy and/or security may cause our customers’ customers to resist providing the data and information necessary to allow our customers to use our services and products effectively. Even the perception that the privacy and/or security of personal information is not satisfactorily managed, or does not meet applicable legal, regulatory, and other requirements, could inhibit sales of our services or products, and could limit adoption of our solutions, resulting in a negative impact on our sales, reputation, and results from operations.
Emerging policy and regulatory responses to AI and machine learning and their potential implications for the fields of information technology, data privacy and security may result in increased compliance costs and associated concerns for us.
At present, multiple jurisdictions are taking a heightened interest in AI and machine learning, which we make use of. There has been a recent wave of policy and regulatory responses from various governments rolling out action plans for risk mitigation to legislation being introduced to generally oversee the use of AI. For example, on October 30, 2023, the President of the United States issued an executive order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence, which issued guidelines and standards to certain executive departments for development and deployment of AI. Further, in 2021, the European Commission proposed a regulation seeking to establish a comprehensive, risk-based governance framework for AI in the EU market. The regulation is intended to apply to companies that develop, use and/or provide AI in the EU and includes requirements around transparency, conformity assessments and monitoring, risk assessments, human oversight, security and accuracy. In addition, in 2022, the European Commission proposed two directives seeking to establish a harmonized civil liability regime for AI in the EU, in order to facilitate civil claims in respect of harm caused by AI and to include AI-enabled products within the scope of the EU’s existing strict liability regime.
Compliance with such global laws and regulations, if adopted, including those relating to rapidly evolving generative AI, has and will continue to require valuable management and employee time and resources, and any actual or perceived failure to comply with these laws and regulations could include severe penalties, reputational harm, and reduce demand for our products.
Privacy concerns in the EU and the U.K. are evolving and we may face fines and other penalties, as well as reputational harm, if we fail to comply with these current and evolving laws, and compliance with these laws may increase our expenses and adversely affect our business and results of operations.
On April 27, 2016, the EU adopted the GDPR, that took effect on May 25, 2018. The GDPR applies to any company established in the European Economic Area (“EEA”) as well as to those outside the EEA if they carry out processing of personal data of individuals in the EEA that is related to the offering of goods or services to them or the monitoring of their behavior. The GDPR has enhanced data protection obligations for processors and controllers of personal data, including, for example, expanded disclosures about how personal data is to be used, limitations on retention of personal data, enhanced data subject rights, mandatory data breach notification requirements, and onerous new obligations on data processors. Non-compliance with the GDPR can trigger fines of up to €20 million, or 4% of total worldwide annual revenues, whichever is higher. Given the breadth and depth of changes in data protection obligations, complying with GDPR requirements has caused us to expend significant investmentsresources and such expenditures are likely to continue into the near future as we respond to new interpretations, regulatory guidance, and enforcement decisions and as we continue to negotiate data processing agreements with our customers and business partners.
In addition, the GDPR restricts transfers of personal data outside of the EEA to countries deemed to lack adequate privacy protections, including the U.S., unless an appropriate safeguard specified by the GDPR is implemented, such as the Standard
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Contractual Clauses (“SCCs”) approved by the European Commission and, until July 16, 2020, the Privacy Shield for EU–U.S. data transfers. On July 16, 2020, the European Court of Justice (“ECJ”) invalidated the EU-U.S. Privacy Shield, but it deemed that SCCs are valid, provided additional safeguards are in place. However, the ECJ ruled that transfers made pursuant to SCCs and other alternative transfer mechanisms need to be analyzed on a case-by-case basis to ensure EU standards of data protection are met in the jurisdiction where the data importer is based, and there continue to be concerns about whether SCCs will face additional challenges.For transfers to the U.S., the European Commission has now adopted an Adequacy Decision for entities self-certified under the new DPF, rendering the DPF effective as a GDPR transfer mechanism for such entities. However, we expect the existing legal complexity and uncertainty regarding international personal data transfers to continue. In particular, we expect the DPF Adequacy Decision to be challenged and international transfers to the United States and to other jurisdictions more generally to continue to be subject to enhanced scrutiny by regulators. Moreover, on September 8, 2020, the Swiss Federal Data Protection and Information Commissioner announced that it no longer considers the Swiss-U.S. Privacy Shield to provide adequate protections for transfers of Swiss personal data to the U.S., following the invalidation of the EU-U.S. Privacy Shield by the ECJ. Further, on June 4, 2021, the European Commission published revised standard contractual clauses for data transfers from the EEA. We are required to implement the revised standard contractual clauses in relation to our cloudcustomer arrangements within the relevant time frames, which could increase our compliance costs and adversely affect our business. We (and many other companies) may be required to adopt additional measures to accomplish and maintain legitimate means for the transfer and receipt of personal data from the EU to the United States and other countries.As data protection authorities continue to issue further guidance and orders on personal data export mechanisms and/or continue taking enforcement action, we could suffer additional costs, complaints and/or regulatory 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 Guidewire Productioncould adversely affect our financial results.
We may experience hesitancy, reluctance, or refusal by European or multi-national customers to continue to use our services divisionsdue to the potential risk exposure to such customers as a result of such developments and the data protection obligations imposed on them by various data protection authorities. Such customers may also view any alternative approaches to the transfer of any personal data as being too costly, too burdensome, or otherwise objectionable, and therefore may decide not to do business with us.
Given our current transition to more cloud-based services and the current data protection landscape in the EU, we may be subject to greater risk of potential inquiries and/or enforcement actions from regulators. We may find it necessary to establish alternative systems to maintain EEA personal data within the EEA, which may involve substantial expense and may cause us to need to divert resources from other aspects of our business, all of which may adversely affect our results from operations. Further, any inability to adequately address privacy concerns in connection with our cloud-based services, or comply with applicable privacy or data protection laws, regulations, and policies, could result in additional cost and liability to us, including fines and harm to our reputation, and adversely affect our ability to offer cloud-based services.
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. As we are subject to the supervision of relevant data protection authorities under both the GDPR and UK GDPR, we could be fined under each of those regimes independently in respect of the same breach. The U.K. GDPR mirrors the data protection obligations and fines under the GDPR, but there may be further developments about the regulation of particular issues such as U.K. data exports. The United Kingdom’s Information Commissioner’s Office has published new data transfer standard contracts for transfers from the U.K. under the U.K. GDPR. This new documentation will decrease license margins.be mandatory for relevant data transfers from September 21, 2022; existing standard contractual clauses arrangements must be migrated to the new documentation by March 21, 2024. We will be required to implement the latest U.K. data transfer documentation for data transfers subject to the U.K. GDPR, in relation to relevant existing contracts and certain additional contracts and customer arrangements, within the relevant time frames. On June 28, 2021, the European Commission adopted an adequacy decision in favor of the U.K., enabling data transfers from EEA member states to the U.K. without additional safeguards. However, the U.K. adequacy decision will automatically expire in June 2025 unless the European Commission re-assesses and renews/extends that decision, and it remains under review by the Commission during this period. In September 2021, the U.K. government launched a consultation on its proposals for wide-ranging reform of U.K. data protection laws following Brexit. There is a risk that any material changes which are made to the U.K. data protection regime could result in the Commission reviewing the U.K. adequacy decision, and the U.K. losing its adequacy decision if the Commission deems the U.K. to no longer provide adequate protection for personal data.These changes may lead to additional costs and increase our overall risk exposure.
Anticipated further evolution of EU and U.K. regulations on data privacy and security and any related changes to the regulatory framework in these or other countries may increase substantially our risk exposure to the penalties to which we could be subject in the event of any non-compliance. We may incur substantial expense in complying with the new obligations to be imposed by new regulations and interpretations of existing regulations and we may be required to make significant changes to our software applications and expanding business operations, all of which may adversely affect our results of operations.
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Assertions by third parties of infringement or other violation by us of their intellectual property rights could result in significant costs and substantially harm our business and results of operations.
The software industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patents and other intellectual property rights. In particular, leading companies in the software industry own large numbers of patents, copyrights, trademarks, and trade secrets, which they may use to assert claims against us. From time to time, third parties holding such intellectual property rights, including leading companies, competitors, patent holding companies, and/or non-practicing entities, may assert patent, copyright, trademark, or other intellectual property claims against us, our customers and partners, and those from whom we license technology and intellectual property.
Although we believe that our productsservices and servicesproducts do not infringe upon the intellectual property rights of third parties, we cannot assure that we are not infringing or otherwise violating any third-party intellectual property rights or that third parties will not assert infringement or misappropriation claims against us with respect to current or future productsservices or services,products, or that any such assertions will not require us to enter into royalty arrangements, or result in costly litigation, or result in us being unable to use certain intellectual property. We cannot assure that we are not infringing or otherwise violating any third-party intellectual property rights. Infringement assertions from third parties may involve patent holding companies or other patent owners who have no relevant product revenues,revenue, and therefore our own issued and pending patents may provide little or no deterrence to these patent owners in bringing intellectual property rights claims against us.
If we are forced to defend against any infringement or misappropriation claims, whether they are with or without merit, are settled out of court, or are determined in our favor, we may be required to expend significant time and financial resources on the defense of such claims. Furthermore, an adverse outcome of a dispute may require us to pay damages, potentially including treble damages and attorneys’ fees, if we are found to have willfully infringed a party’s intellectual property; cease making, licensing, or using our productsservices or servicesproducts that are alleged to infringe or misappropriate the intellectual property of others; expend additional development resources to redesign our productsservices or services;products; enter into potentially unfavorable royalty or license agreements in

order to obtain the right to use necessary technologies or works; and to indemnify our partners, customers, and other third parties. Any of these events could seriously harm our business, results of operations, and financial condition.
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, technologies or businesses complementary to ours. Our strategy also includes alliances with such companies. For example, in March 2016, we acquired EagleEye Analytics Inc., a provider of cloud-based predictive analytics products designed for P&C insurers; in August 2016, we acquired FirstBest Systems, Inc., a provider of an underwriting management system for P&C insurers; in February 2017, we acquired ISCS, Inc., a provider of a cloud-based, all-in-one platform that offers policy, billing, and claims management functionality for P&C insurers; and in November 2017, we acquired Cyence, a software company that applies data science and risk analytics to enable P&C insurers to underwrite “21st century risks.” Each of these acquisitions was initially dilutive to earnings. Acquisitions and alliances may result in unforeseen operating difficulties and expenditures and may not result in the benefits anticipated by such corporate activity. In particular, we may fail to assimilate or integrate the businesses, technologies, services, products, personnel or operations of the acquired companies; retain key personnel necessary to favorably execute the combined companies’ business plan, or retain existing customers or sell acquired products to new customers. Acquisitions and alliances may also disrupt our ongoing business, divert our resources and require significant management attention that would otherwise be available for ongoing development of our current business. In addition, we may be required to make additional capital investments or undertake remediation efforts to ensure the success of our acquisitions, which may reduce the benefits of such acquisitions. We also may be required to use a substantial amount of our cash or issue debt or equity securities to complete an acquisition or realize the potential of an alliance, which could deplete our cash reserves and/or dilute our existing stockholders. Following an acquisition or the establishment of an alliance offering new products, we may be required to defer the recognition of revenues that we receive from the sale of products that we acquired or that result from the alliance, or from the sale of a bundle of products that includes such new products, if we have not established vendor-specific objective evidence (“VSOE”) for the undelivered elements in the arrangement. In addition, our ability to maintain favorable pricing of new products may be challenging if we bundle such products with sales of existing products. A delay in the recognition of revenues from sales of acquired or alliance products, or reduced pricing due to bundled sales, may cause fluctuations in our quarterly financial results, may adversely affect our operating margins and may reduce the benefits of such acquisitions or alliances.
Additionally, competition within the software industry for acquisitions of businesses, technologies and assets has been, and may continue to be, intense. As such, even if we are able to identify an acquisition that we would like to pursue, the target may be acquired by another strategic buyer or financial buyer such as a private equity firm, or we may otherwise not be able to complete the acquisition on commercially reasonable terms, if at all. Moreover, in addition to our failure to realize the anticipated benefits of any acquisition, including our revenues or return on investment assumptions, we may be exposed to unknown liabilities or impairment charges as a result of acquisitions we do complete.
We face intense competition in our market, which could negatively impact our business, results of operations and financial condition and cause our market share to decline.
The market for our software and services is intensely competitive. The competitors we face in any sale may change depending on, among other things, the line of business purchasing the software, the application being sold, the geography in which we are operating, and the size of the insurance carrier to which we are selling. For example, we are more likely to face competition from small independent firms when addressing the needs of small insurers. These competitors may compete on the basis of price, the time and cost required for software implementation, custom development, or unique product features or functions. Outside of the United States, we are more likely to compete against vendors that may differentiate themselves based on local advantages in language, market knowledge, and pre-built content applicable to that jurisdiction. We also complete with vendors of horizontal software products that may be customized to address needs of the P&C insurance industry.
Additionally, many of our prospective customers operate firmly entrenched legacy systems, some of which have been in operation for decades. Our implementation cycles may be lengthy, variable and require the investment of significant time and expense by our customers. These expenses and associated operating risks attendant on any significant process of re-engineering and technology implementation exercise, may cause customers to prefer maintaining legacy systems. Also, maintaining these legacy systems may be so time consuming and costly for our customers that they do not have adequate resources to devote to the purchase and implementation of our products. We also compete against technology consulting firms that either helped create such legacy systems or may own, in full or in part, subsidiaries that develop software and systems for the P&C insurance industry.
As we expand our product portfolio, we may begin to compete with software and service providers we have not competed against previously. Such potential competitors offer data and analytics tools that may, in time, become more competitive with our offerings.

We expect the intensity of competition to remain high in the future as the amount of capital invested in current and potential competitors has increased significantly in recent years, and this may lead to improved product or sales capabilities, which in turn could lead to new or expanded partnerships with systems integrators. Continuing intense competition could result in increased pricing pressure, increased sales and marketing expenses, and greater investments in research and development, each of which could negatively impact our profitability. In addition, the failure to increase, or the loss of, market share, would harm our business, results of operations, financial condition and/or future prospects. Our larger current and potential competitors may be able to devote greater resources to the development, promotion and sale of their products than we can devote to ours, which could allow them to respond more quickly than we can to new technologies and changes in customer needs, thus leading to their wider market acceptance. We may not be able to compete effectively, and competitive pressures may prevent us from acquiring and maintaining the customer base necessary for us to increase our revenues and profitability.
In addition, our industry is evolving rapidly, and we anticipate the market for cloud-based solutions will become increasingly competitive. If our current and potential customers move a greater proportion of their data and computational needs to the cloud, new competitors may emerge that offer services either comparable or better suited than ours to address the demand for such cloud-based solutions, which could reduce demand for our offerings. To compete effectively we will likely be required to increase our investment in research and development, as well as the personnel and third-party services required to improve reliability and lower the cost of delivery of our cloud-based solutions. This may increase our costs more than we anticipate and may adversely impact our results of operations.
Our current and potential competitors may also establish cooperative relationships among themselves or with third parties to further enhance their resources and offerings. Current or potential competitors may be acquired by other vendors or third parties with greater available resources. As a result of such acquisitions, our current or potential competitors might be more able than we are to adapt quickly to new technologies and customer needs, to devote greater resources to the promotion or sale of their products and services, to initiate or withstand substantial price competition, or to take advantage of emerging opportunities by developing and expanding their product and service offerings more quickly than we can. Additionally, they may hold larger portfolios of patents and other intellectual property rights as a result of such relationships or acquisitions. If we are unable to compete effectively with these evolving competitors for market share, our business, results of operations, and financial condition could be materially and adversely affected.
If our products or cloud-based services experience data security breaches, and there is unauthorized access to our customers’ data, we may lose current or future customers and our reputation and business may be harmed.
If our security measures are breached or unauthorized access to customer data is otherwise obtained, our products may be perceived as not being secure, customers may reduce the use of or stop using our products, and we may incur significant liabilities. Our software and cloud services involve the storage and transmission of data, including in some cases, personal data, and security breaches could result in the loss of this information, which in turn could result in litigation, breach of contract claims, indemnity obligations, and other liability for our company. While we have taken steps to protect the confidential information to which we have access, including confidential information we may obtain through our customer support services or customer usage of our cloud-based services, our security measures could be breached. We rely on third-party technology and systems for a variety of services, including, without limitation, encryption and authentication technology, employee email, content delivery to customers, back-office support, and other functions, and our ability to control or prevent breaches of any of these systems may be beyond our control. Because techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Although we have developed systems and processes that are designed to protect customer information and prevent data loss and other security breaches, including systems and processes designed to reduce the impact of a security breach at a third-party vendor, such measures cannot provide absolute security. Any or all of these issues could negatively impact our ability to attract new customers or to increase engagement by existing customers, could cause existing customers to elect not to renew their term licenses, or could subject us to third-party lawsuits, regulatory fines or other action or liability, thereby adversely affecting our results of operations.
We have implemented a new enterprise resource planning system and are in the process of implementing other accounting and sales IT systems. If these new systems prove ineffective, or if we experience issues with the transition from our current systems, we may be unable to timely or accurately prepare financial reports, or invoice and collect from our customers.
In fiscal year 2017, we began the process of implementing a new enterprise resource planning (“ERP”) system and other accounting systems, including a new revenue reporting system in advance of the adoption of ASC 606 in fiscal year 2019.  These systems are critical for accurately maintaining books and records and preparing our financial statements. We have completed implementation and transitioned to our new ERP system and intend to transition our revenue and other accounting systems during our current fiscal year 2018. While we have and will continue to invest significant amounts, including for additional personnel and third-party consultants, to implement these systems, we cannot assure you that the implementation will be successful or that

we will not experience difficulties following the transition. Any delay or error in the implementation or transition could adversely affect our operations, including our ability to accurately report our financial results in a timely manner, file our quarterly or annual reports with the SEC, and invoice and collect from our customers, each of which may harm our operations and reduce investor confidence. Even if we are able to complete the implementation, data integrity problems or other issues may subsequently be discovered which, if not corrected, could impact our business, reputation, or results of operations. If we encounter unforeseen difficulties, there will be additional demands on our management team and our business, operations and results of operations could be adversely affected.
Our customers may defer or forego purchases of our products or services in the event of weakened global economic conditions, political transitions and industry consolidation.
General worldwide economic conditions remain unstable. Prolonged economic uncertainties or downturns could harm our business operations or financial results. For example, the decision by referendum to withdraw the United Kingdom (U.K.) from the European Union (“Brexit”) in June 2016 caused significant volatility in global stock markets and fluctuations in currency exchange rates and the impending Brexit has arguably caused and may continue to cause delays in purchasing decisions by our potential and current customers affected by this transition. The results of this referendum, or other global events, may continue to create global economic uncertainty not only in the U.K., but in other regions in which we have significant operations. These conditions make it difficult for our customers and us to forecast and plan future business activities accurately, and they could cause our customers to reevaluate their decision to purchase our products, which could delay and lengthen our sales cycles or result in cancellations of planned purchases. Furthermore, during challenging economic times our customers may face issues in gaining timely access to sufficient credit, which could result in an impairment of their ability to make timely payments to us. If that were to occur, we may be required to record an allowance for doubtful accounts, which would adversely affect our financial results. A substantial downturn in the P&C insurance industry may cause firms to react to worsening conditions by reducing their capital expenditures in general or by specifically reducing their spending on information technology. P&C insurance companies may delay or cancel information technology projects or seek to lower their costs by renegotiating vendor contracts. Negative or worsening conditions in the general economy both in the United States and abroad, including conditions resulting from financial and credit market fluctuations, could cause a decrease in corporate spending on enterprise software in general, and in the insurance industry specifically, and negatively affect the rate of growth of our business.
The increased pace of consolidation in the P&C insurance industry may result in reduced overall spending on our products. Acquisitions of customers can delay or cancel sales cycles and because we cannot predict the timing or duration of such acquisitions, our results of operations could be materially impacted by the change in the industry.
Factors outside of our control including but not limited to natural catastrophes and terrorism may adversely impact the P&C insurance industry, preventing us from expanding or maintaining our existing customer base and increasing our revenues.
Our customers are P&C insurers which have experienced, and will likely experience in the future, losses from catastrophes or terrorism that may adversely impact their businesses. Catastrophes can be caused by various events, including, without limitation, hurricanes, tsunamis, floods, windstorms, earthquakes, hail, tornadoes, explosions, severe weather, and fires. Global warming trends are contributing to an increase in erratic weather patterns globally and intensifying the impact of certain types of catastrophes. Moreover, acts of terrorism or war could cause disruptions to our business or our customers’ businesses or the economy as a whole. The risks associated with natural catastrophes and terrorism are inherently unpredictable, and it is difficult to forecast the timing of such events or estimate the amount of losses they will generate. In 2017, for example, parts of the United States suffered extensive damage due to multiple hurricanes and fires. We anticipate the combined effect of those losses on P&C insurers to be very large. Such losses and losses due to future events may adversely impact our current or potential customers, which may prevent us from maintaining or expanding our customer base and increasing our revenues as such events may cause customers to postpone purchases of new offerings and professional service engagements or to discontinue existing projects.
Our sales and implementation cycles are lengthy and variable, depend upon factors outside our control, and could cause us to expend significant time and resources prior to generating revenues.
The typical sales cycle for our products and services is lengthy and unpredictable, requires pre-purchase evaluation by a significant number of employees in our customers’ organizations, and often involves a significant operational decision by our customers. Our sales efforts involve educating our customers about the use and benefits of our products, including the technical capabilities of our products and the potential cost savings achievable by organizations deploying our products. Customers typically undertake a significant evaluation process, which frequently involves not only our products, but also those of our competitors and can result in a lengthy sales cycle. We spend substantial time, effort, and money in our sales efforts without any assurance that our efforts will produce sales. Even if we succeed at completing a sale, we may be unable to predict the size of an initial license until very late in the sales cycle. In addition, we sometimes commit to include specific functions in our base product offering at

the request of a customer or group of customers and are unable to recognize license revenues until the specific functions have been added to our products. Providing this additional functionality may be time consuming and may involve factors that are outside of our control. Customers may also insist that we commit to certain time frames in which systems built around our products will be operational, or that once implemented our products will be able to meet certain operational requirements. Our ability to meet such timeframes and requirements may involve factors that are outside of our control, and failure to meet such timeframes and requirements could result in us incurring penalties, costs and/or additional resource commitments, which would adversely affect our business and results of operations.
The implementation and testing of our products by our customers typically lasts 6 to 24 months or longer and unexpected implementation delays and difficulties can occur. Implementing our products typically involves integration with our customers’ and third-parties’ systems, as well as adding customer and third-party data to our platform. This can be complex, time consuming, and expensive for our customers and can result in delays in the implementation and deployment of our products. Failing to meet the expectations of our customers for the implementation of our products could result in a loss of customers and negative publicity about us and our products and services. Such failure could result from deficiencies in our product capabilities or inadequate service engagements by us, our system integrator partners or our customers’ IT employees, the latter two of which are beyond our direct control. The consequences of such failure could include, and have included: monetary credits for current or future service engagements, reduced fees for additional product sales or upon renewal of existing licenses, and a customer’s refusal to pay their contractually-obligated license, maintenance, or service fees. In addition, time-consuming implementations may also increase the amount of services personnel we must allocate to each customer, thereby increasing our costs and adversely affecting our business, results of operations, and financial condition.
If we are unable to continue the successful development of our global direct sales force and the expansion of our relationships with our strategic partners, sales of our products and services will suffer and our growth could be slower than we project.
We believe that our future growth will depend on the continued recruiting, retention, and training of our global direct sales force and their ability to obtain new customers, both large and small P&C insurers, and to manage our existing customer base. Our ability to achieve significant growth in revenues in the future will depend, in large part, on our success in recruiting, training, and retaining a sufficient number of global direct sales personnel. New hires require significant training and may, in some cases, take more than a year before becoming productive, if at all. If we are unable to hire and develop sufficient numbers of productive global direct sales personnel, sales of our products and services will suffer and our growth will be impeded.
We believe our future growth also will depend on the retention and expansion of successful relationships with system integrators, including with system integrators that will focus on InsuranceNow and other products we may acquire in the future. Our system integrators as channel partners help us reach additional customers. Our growth in revenues, particularly in international markets, will be influenced by the development and maintenance of this indirect sales channel which, in some cases, may require the establishment of effective relationships with regional systems integrators. Although we have established relationships with some of the leading system integrators, our products and services may compete directly against products and services that such leading system integrators support or market. We are unable to control the quantity or quality of resources that our system integrator partners commit to implementing our products, or the quality or timeliness of such implementation. If our partners do not commit sufficient or qualified resources to these activities, our customers will be less satisfied, be less supportive with references, or may require the investment of our resources at discounted rates. These, and other failures by our partners to successfully implement our products, will have an adverse effect on our business and our results of operations could fail to grow in line with our projections.
Our large customers have substantial negotiating leverage, which may require that we agree to terms and conditions that result in increased cost of sales, decreased revenues and lower average selling prices and gross margins, all of which could harm our results of operations.
Some of our customers include the world’s largest P&C insurers. These customers have significant bargaining power when negotiating new licenses or subscriptions, or renewals of existing agreements, and have the ability to buy similar products from other vendors or develop such systems internally. These customers have and may continue to seek advantageous pricing and other commercial terms and may require us to develop additional features in the products we sell to them. We have been required to, and may continue to be required to, reduce the average selling price or increase the average cost of our products in response to these pressures. If we are unable to avoid reducing our average selling prices or increasing our average costs, our results of operations could be harmed.
Failure of any of our established products or services to satisfy customer demands or to maintain market acceptance would harm our business, results of operations, financial condition and growth prospects.
We derive a significant majority of our revenues and cash flows from our established product offerings, including InsuranceSuite, Insurance Now, and our Digital and Data Products. We expect to continue to derive a substantial portion of our revenues from these sources. As such, continued market acceptance of these products is critical to our growth and success. Demand

for our products is affected by a number of factors, some of which are beyond our control, including the successful implementation of our products, the timing of development and release of new products by us and our competitors, technological advances which reduce the appeal of our products, and the growth or contraction in the worldwide market for technological solutions for the P&C insurance industry. If we are unable to continue to meet customer demands, to achieve and maintain a technological advantage over competitors, or to maintain market acceptance of our products, our business, results of operations, financial condition, and growth prospects may be adversely affected.
Our business depends on customers renewing and expanding their license, maintenance and subscription contracts for our products. A decline in our customer renewals and expansions could harm our future results of operations.
Our customers have no obligation to renew their term licenses or subscriptions after their contract period expires, and these licenses and subscriptions, if renewed, may be done so on less favorable terms. Moreover, under certain circumstances, our customers have the right to cancel their licenses or subscriptions before they expire. We may not accurately predict future trends in customer renewals. In addition, our term and perpetual license customers have no obligation to renew their maintenance arrangements after the expiration of the initial contractual period. Our customers’ renewal rates may fluctuate or decline because of several factors, including their satisfaction or dissatisfaction with our products and services, the prices of our products and services, the prices of products and services offered by our competitors or reductions in our customers’ spending levels due to the macroeconomic environment or other factors, or the sale of their operations to a buyer that is not a current customer.
Also in some cases, our customers have a right to exercise a perpetual buyout of their term licenses at the end of the initial contract term, which if exercised would eliminate future term license payments. If our customers do not renew their term licenses or subscriptions for our solutions or renew on less favorable terms, our revenues may decline or grow more slowly than expected and our profitability may be harmed.
If we are unable to develop, introduce and market new and enhanced versions of our products, we may be put at a competitive disadvantage.
Our success depends on our continued ability to develop, introduce, and market new and enhanced versions of our products to meet evolving customer requirements. Because some of our products are complex and require rigorous testing, development cycles can be lengthy, taking us multiple years to develop and introduce new products or provide updates to our existing products. Additionally, market conditions may dictate that we change the technology platform underlying our existing products or that new products be developed on different technology platforms, potentially adding material time and expense to our development cycles. The nature of these development cycles may cause us to experience delays between the time we incur expenses associated with research and development and the time we generate revenues, if any, from such expenses.
If we fail to develop new products or enhancements to our existing products, our business could be adversely affected, especially if our competitors are able to introduce products with enhanced functionality. 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 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 to meet these challenges. Revenues may not be sufficient to support the future product development that is required for us to remain competitive. If we fail to develop products in a timely manner that are competitive in technology and price or develop products that fail to meet customer demands, our market share will decline and our business and results of operations could be harmed.
Real or perceived errors or failures in our products or implementation services may affect our reputation, cause us to lose customers and reduce sales which may harm our business and results of operations and subject us to liability for breach of warranty claims.
Because we offer complex products, undetected errors or failures may exist or occur, especially when products are first introduced or when new versions are released. Our products are often installed and used in large-scale computing environments with different operating systems, system management software, and equipment and networking configurations, which may cause errors or failures in our products or may expose undetected errors, failures, or bugs in our products. Despite testing by us, we may not identify all errors, failures, or bugs in new products or releases until after commencement of commercial sales or installation. In the past, we have discovered software errors, failures, and bugs in some of our product offerings after their introduction.
We provide our customers with upfront estimates regarding the duration, resources, and costs associated with the implementation of our products. Failure to meet these upfront estimates and the expectations of our customers could result from our product capabilities or service engagements by us, our system integrator partners, or our customers’ IT employees, the latter two of which are beyond our direct control. The consequences could include, and have included: monetary credits for current or future service engagements, reduced fees for additional product sales, and a customer’s refusal to pay their contractually-obligated license, maintenance, or service fees. In addition, time-consuming implementations may also increase the amount of services

personnel we must allocate to each customer, thereby increasing our costs and adversely affecting our business, results of operations, and financial condition.
The license and support of our software creates the risk of significant liability claims against us. Our license and subscription agreements with our customers contain provisions designed to limit our exposure to potential liability claims. It is possible, however, that the limitation of liability provisions contained in such agreements may not be enforced as a result of international, federal, state, and local laws or ordinances or unfavorable judicial decisions. Breach of warranty or damage liability, or injunctive relief resulting from such claims, could harm our results of operations, and financial condition.
Failure to protect our intellectual property could substantially harm our business and results of operations.
Our success depends in part on our ability to enforce and defend our intellectual property rights. We rely upon a combination of trademark, trade secret, copyright, patent, and unfair competition laws, as well as license agreements and other contractual provisions, to do so.
We have filed, and may in the future file, patent applications related to certain of our innovations. We do not know whether those patent applications will result in the issuance of a patent or whether the examination process will require us to narrow our claims. In addition, we may not receive competitive advantages from the rights granted under our patents and other intellectual property. Our existing patents and any patents granted to us or that we otherwise acquire in the future, may be contested, circumvented, or invalidated, and we may not be able to prevent third parties from infringing these patents. Therefore, the extent of the protection afforded by these patents cannot be predicted with certainty. In addition, given the costs, effort, risks, and downside of obtaining patent protection, including the requirement to ultimately disclose the invention to the public, we may choose not to seek patent protection for certain innovations; however, such patent protection could later prove to be important to our business.
We also rely on several registered and unregistered trademarks to protect our brand. Nevertheless, competitors may adopt service names similar to ours, or purchase our trademarks and confusingly similar terms as keywords in Internetinternet search engine advertising programs, thereby impeding our ability to build brand identity and possibly leading to confusion in the marketplace. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our trademarks. Any claims or customer confusion related to our trademarks could damage our reputation and brand and substantially harm our business and results of operations.
We attempt to protect our intellectual property, technology, and confidential information by generally requiring our employees and consultants to enter into confidentiality agreements and assignment of inventions agreements and third parties to enter into nondisclosure agreements, all of which offer only limited protection. These agreements may not effectively prevent unauthorized use or disclosure of our confidential information, intellectual property or technology and may not provide an adequate remedy in the event of unauthorized use or disclosure of our confidential information, intellectual property, or technology. Despite our efforts to protect our confidential information, intellectual property, and technology, unauthorized third parties may gain access to our confidential proprietary information, develop and market productsservices or servicesproducts similar to ours, or use trademarks similar to ours, any of which could materially harm our business and results of operations. In addition, others may independently discover our trade secrets and confidential information, and in such cases, we could not assert any trade secret rights against such parties. Existing U.S.United States federal, state, and international intellectual property laws offer only limited protection. The laws of some foreign countries do not protect our intellectual property rights to as great an extent as the laws of the United States, and many foreign countries do not enforce these laws as diligently as governmental agencies and private parties in the United States. Moreover, policing our intellectual property rights is difficult, costly, and may not always be effective.
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From time to time, legal action by us may be necessary to enforce our patents and other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the intellectual property rights of others, or to defend against claims of infringement or invalidity. Such litigation could result in substantial costs and diversion of resources and could negatively affect our business, reputation, results of operations, and financial condition. If we are unable to protect our technology and to adequately maintain and protect our intellectual property rights, we may find ourselves at a competitive disadvantage to others who need not incur the additional expense, time, and effort required to create the innovative services and products that have enabled us to be successful to date.
We may be obligated to disclose our proprietary source code to our customers, which may limit our ability to protect our intellectual property and could reduce the renewals of our support and maintenance services.
Our software license agreements typically contain provisions permitting the customer to become a party to, or a beneficiary of, a source code escrow agreement under which we place the proprietary source code for our applicable products in escrow with a third party. Under these escrow agreements, the source code to the applicable product may be released to the customer, typically for its use to maintain, modify, and enhance the product, upon the occurrence of specified events, such as our filing for bankruptcy, discontinuance of our maintenance services and breaching our representations, warranties, or covenants of our agreements with

our customers. Additionally, in some cases, customers have the right to request access to our source code upon demand. Some of our customers have obtained the source code for certain of our products by exercising this right, and others may do so in the future.
Disclosing the content of our source code may limit the intellectual property protection we can obtain or maintain for that source code or the products containing that source code and may facilitate intellectual property infringement claims against us. It also could permit a customer to which a product’s source code is disclosed to support and maintain that software product without being required to purchase our support or maintenance services. Each of these could harm our business, results of operations and financial condition.
We and our customers rely on technology and intellectual property of third parties, the loss of which could limit the functionality of our services and products and disrupt our business.
We use technology and intellectual property licensed from unaffiliated third parties in certain of our services and products, and we may license additional third-party technology and intellectual property in the future. Any errors, defects or defectssecurity issues in this third-party technology and intellectual property or the integration of third-party technology and intellectual property with our services and products could result in errors that could harm our brand and business. In addition,Moreover, licensed technology and intellectual property may not continue to be available on commercially reasonable terms, or at all.all, or otherwise will be subject to restrictions that under applicable law could adversely affect our proprietary software. The loss of the right to license and distribute this third-party technology could limit the functionality of our services and products and might require us to redesign our services and products.
In addition, our Guidewire Cloud offerings rely on third-party hosting and infrastructure services provided by AWS, for the continuous, reliable, and secure operation of servers, related hardware and software, and network infrastructure. A prolonged AWS service disruption or slowdown for any reason could damage our reputation with current and potential customers, expose us to liability, cause us to lose customers, or otherwise harm our business.
Some of our services and technologies may use “open source” software, which may restrict how we use or distribute our services or require that we release the source code of certain services and products subject to those licenses.
Some of our services and technologies may incorporate software licensed under so-called “open source” licenses. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on origin of the software. Additionally, some open source licenses require that source code subject to the license be made available to the public and that any modifications or derivative works to open source software continue to be licensed under open source licenses. These open source licenses typically mandate that proprietary software, when combined in specific ways with open source software, become subject to the open source license. If we combine our proprietary software in such ways with open source software, we could be required to release the source code of our proprietary software. Further, this third-party technology and intellectual property has the potential for security-related concerns, given that we do not create or maintain such third-party technology and intellectual property that may be exposed to unknown future security risks, such as the Log4j vulnerability.
We take steps to ensure that our proprietary software is not combined with, and does not incorporate, open source software in ways that would require our proprietary software to be subject to many of the restrictions in an open source license. However, few courts have interpreted open source licenses, and the manner in which these licenses may be interpreted and enforced is therefore subject to some uncertainty. Additionally, we rely on hundreds of software programmers to design our proprietary technologies, and although we take steps to prevent our programmers from including objectionable open source software in the technologies and software code that they design, write and modify, we do not exercise complete control over the development efforts of our programmers and we cannot be certain that our programmers have not incorporated such open source software into our proprietary services and products and technologies or that they will not do so in the future. In the event that portions of our proprietary technology are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, re-engineer all or a portion of our technologies, or otherwise be limited in the licensing of our technologies, each of which could reduce or eliminate the value of our services and technologies and materially and adversely affect our business, results of operations, and prospects.
Incorrect or improper use ofWe may be obligated to disclose our products or our failure to properly train customers on how to utilize our products could result in customer dissatisfaction and negatively affect our business, results of operations, financial condition and growth prospects.
Our products are complex and are deployed in a wide variety of network environments. The proper use of our products requires training of the customer. If our products are not used correctly or as intended, inadequate performance may result. Our products may also be intentionally misused or abused by customers or their employees or third parties who are able to access or use our products. Because our customers rely on our products, services and maintenance support to manage a wide range of operations, the incorrect or improper use of our products, our failure to properly train customers on how to efficiently and effectively use our products, or our failure to properly provide maintenance servicesproprietary source code to our customers, which may resultlimit our ability to protect our intellectual property and could reduce the renewals of our support services.
Our software license agreements typically contain provisions permitting the customer to become a party to, or a beneficiary of, a source code escrow agreement under which we place the proprietary source code for our applicable services and products in negative publicityescrow with a third party. Under these escrow agreements, the source code to the applicable product may be released to the customer, typically for its use to maintain, modify, and enhance the product, upon the occurrence of specified events, such as our filing for bankruptcy, discontinuance of our support services, and breaching our representations, warranties, or legalcovenants of our agreements with our customers. Additionally, in some cases, customers have the right to request access to our source code upon demand. Some of our customers have obtained the source code for certain of our services and products by exercising this right, and others may do so in the future.
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Disclosing the content of our source code may limit the intellectual property protection we can obtain or maintain for that source code or the services and products containing that source code and may facilitate intellectual property infringement claims against us. Also, as we continueIt also could permit a customer to expand our customer base, any failure by uswhich a product’s source code is disclosed to properly provide these services will likely result in lost opportunities for follow-on sales of our productssupport and services.
In addition, if there is substantial turnover of customer personnel responsible for use of our products, or if customer personnel are not well trained in the use of our products, customers may defer the deployment of our products, may deploy them in a more limited manner than originally anticipated or may not deploy them at all. Further, if there is substantial turnover of the customer personnel responsible for use of our products, our abilitymaintain that software product without being required to make additional sales may be substantially limited.

Our ability to sell our products is highly dependent on the quality of our professional services and technical support services and the support of our system integration providers, and the failure of us or our system integration providers to offer high-quality professional services or technical support services could damage our reputation and adversely affect our ability to sell our products and services to new customers and renew agreements with our existing customers.
If we or our system integration providers do not effectively assist our customers in deploying our products, succeed in helping our customers quickly resolve post-deployment issues, and provide effective ongoing support, our ability to sell additional products and services to existing customers would be adversely affected and our reputation with potential customers could be damaged. Once our products are deployed and integrated with our customers’ existing information technology investments and data, our customers may depend on our technical support services and/or the support of system integrators or internal resources to resolve any issues relating to our products. High-quality support is critical for the continued successful marketing and sale of our products. In addition, as we continue to expand our operations internationally,purchase our support organization will face additional challenges, including those associated with delivering support, training, and documentation in languages other than English. Many enterprise customers require higher levels of support than smaller customers. If we fail to meet the requirements of our larger customers, it may be more difficult to increase our penetration with larger customers, a key group for the growth of our revenues and profitability. In addition, as we further expand our products to include a cloud-based offering, our professional services and support organization will face new challenges, including hiring, training, and integrating a large number of new professional services personnel with experience in delivering high-quality support for cloud-based offerings. Alleviating anyservices. Each of these problems could require significant capital expenditures which could adversely affect our growth prospects. Further, as we continue to rely on system integrators to provide deployment and on-going services, our ability to ensure a high level of quality in addressing customer issues is diminished. Our failure to maintain high-quality implementation and support services, or to ensure that system integrators provide the same, could have a material adverse effect on our business, results of operations, financial condition, and growth prospects.
If we are unable to retain our personnel and hire and integrate additional skilled personnel, we may be unable to achieve our goals and our business will suffer.
Our future success depends upon our ability to continue to attract, train, integrate, and retain highly skilled employees, particularly those on our management team, including Marcus Ryu, one of our co-founders and our current president and chief executive officer, and our sales and marketing personnel, professional services personnel, and software engineers. Our inability to attract and retain qualified personnel, or delays in hiring required personnel, may seriously harm our business, results of operations, and financial condition. U.S. immigration policy is currently being reviewed by the federal government, which may or may not result in significant changes
Risks Related to Legal, Regulatory, Accounting, and could hamper our efforts to hire highly skilled foreign employees. If future changes to U.S. immigration policy restrict our access to highly specialized engineers, our business would be adversely impacted.Tax Matters
Any one of our executive officers and other key employees could terminate his or her relationship with us at any time. The loss of any member of our senior management team could significantly delay or prevent us from achieving our business and/or development objectives, and could materially harm our business.
We face competition for qualified individuals from numerous software and other technology companies. Competition for qualified personnel is particularly intense in the San Francisco Bay Area, where our headquarters are located, though we also face significant competition in all of our domestic and foreign development centers. Further, significant amounts of time and resources are required to train technical, sales, services, and other personnel. We may incur significant costs to attract, train, and retain such personnel, and we may lose new employees to our competitors or other technology companies before we realize the benefit of our investment after recruiting and training them.
Also, to the extent that we hire personnel from competitors, we may be subject to allegations that such personnel have been improperly solicited or have divulged proprietary or other confidential information. In addition, we have a limited number of sales people and the loss of several sales people within a short period of time could have a negative impact on our sales efforts. We may be unable to attract and retain suitably qualified individuals who are capable of meeting our growing technical, operational, and managerial requirements, or we may be required to pay increased compensation in order to do so.
Our ability to expand geographically depends, in large part, on our ability to attract, retain, and integrate managers to lead the local business and employees with the appropriate skills. Similarly, our profitability depends on our ability to effectively utilize personnel with the right mix of skills and experience to perform services for our clients, including our ability to transition employees to new assignments on a timely basis. If we are unable to effectively deploy our employees globally on a timely basis to fulfill the needs of our clients, our reputation could suffer and our ability to attract new clients may be harmed.
Because of the technical nature of our products and services and the dynamic market in which we compete, any failure to attract, integrate, and retain qualified direct sales, professional services, and product development personnel, as well as our contract workers, could harm our ability to generate sales or successfully develop new products, customer and consulting services, and enhancements of existing products.

Failure to manage our expanding operations effectively could harm our business.
We have experienced consistent growth and expect to continue to expand our operations, among other factors, in the number of employees and in the locations and scope of our international operations. This expansion has placed, and will continue to place, a significant strain on our operational and financial resources and our personnel. To manage our anticipated future operational expansion effectively, we must continue to maintain and may need to enhance our information technology infrastructure, financial and accounting systems and controls, and manage expanded operations and employees in geographically distributed locations. For example, in fiscal 2018, we have implemented a new enterprise resource planning system and are implementing related revenue recognition modules. Our growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of new products. If we increase the size of our organization without experiencing an increase in sales of our products and services, we will experience reductions in our gross and operating margins and net income. If we are unable to effectively manage our expanding operations and related system implementations, our expenses may increase more than expected, our revenues could decline or grow more slowly than expected and we may be unable to implement our business strategy.
Our international sales and operations subject us to additional risks that can adversely affect our business, results of operations and financial condition.
We sell our products and services to customers located outside the United States and Canada, and we are continuing to expand our international operations as part of our growth strategy. In fiscal years 2017, 2016, and 2015, $162.1 million, $148.8 million, and $134.6 million of our revenues, respectively, were derived from outside of the United States and Canada. 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 products and licensing and subscription programs for international customers;
lack of familiarity with and unexpected changes in foreign regulatory requirements;
increased exposure to fluctuations in currency exchange rates;
the burdens and costs of complying with a wide variety of foreign laws and legal standards;
compliance with the U.S. Foreign Corrupt Practices Act of 1977, as amended (“FCPA”), the U.K. Bribery Act 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 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; and
political, social, and economic instability abroad, terrorist attacks, and security concerns in general.
As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international operations. Any of these risks could harm our international operations and reduce our international sales, adversely affecting our business, results of operations, financial condition, and growth prospects.
Our revenues, results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Canadian dollar, Australian dollar, Euro, British Pound, Japanese Yen, Polish Zloty and Brazilian Real.
The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. Although we believe our operating activities act as a natural hedge for a substantial portion of our foreign currency exposure at the cash flow or operating income level because we typically collect revenues and incur costs in the currency in the location in which we provide our application, our contracts with our customers are long term in nature so it is difficult to predict if our operating activities will provide a natural hedge in the future. In addition, because our contracts are characterized by large annual payments, significant fluctuations in foreign currency exchange rates that coincide with annual payments may affect our revenues or financial results in such quarter. Our results of operations may also be impacted by transaction gains or losses related to revaluing certain current asset and liability balances that are denominated in currencies other than the functional currency of the entities in which they are recorded. Moreover, significant and unforeseen changes in foreign currency exchange rates may cause us to fail to achieve our stated projections for revenue and operating income, which could have an adverse effect on our stock price. We will continue to experience fluctuations in foreign currency exchange rates, which, if material, may harm our revenues or results of operations.

Privacy concerns could result in regulatory changes and impose additional costs and liabilities on us, limit our use of information, and adversely affect our business.
Our current and predominant business model does not significantly collect and transfer personal information from our customers to us, however, as adoption of our cloud-based services occurs, the amount of customer data we manage, hold and/or collect will increase significantly. In addition, a limited number of our product solutions may collect, process, store, and use transaction-level data aggregated across insurers using our common data model.  We anticipate that over time we will 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 personal privacy has become a significant issue in the United States, Europe, and many other jurisdictions where we operate. Many federal, state, and foreign legislatures and government agencies have imposed or are considering imposing restrictions and requirements about the collection, use, and disclosure of personal information.
Changes to laws or regulations affecting privacy could impose additional costs and liabilities on us and could limit our use of such information to add value for customers. If we were required to change our business activities or revise or eliminate services, or to implement burdensome compliance measures, our business and results of operations could be harmed. In addition, we may be subject to fines, penalties, and potential litigation if we fail to comply with applicable privacy and/or data security laws, regulations, standards, and other requirements. The costs of compliance with and other burdens imposed by privacy-related laws, regulations, and standards may limit the use and adoption of our product solutions and reduce overall demand.
Furthermore, concerns regarding data privacy and/or security may cause our customers’ customers to resist providing the data and information necessary to allow our customers to use our product solutions effectively. Even the perception that the privacy and/or security of personal information is not satisfactorily managed, or does not meet applicable legal, regulatory, and other requirements, could inhibit sales of our products or services, and could limit adoption of our solutions, resulting in a negative impact on our sales and results from operations.
Privacy concerns in the European Union are evolving and we may face fines and other penalties if we fail to comply with these evolving standards, and compliance with these standards may increase our expenses and adversely affect our business and results of operations.
In the European Community, Directive 95/46/EC (the “Directive”) has required European Union member states to implement data protection laws to meet the strict privacy requirements of the Directive, which has resulted in changes in previously accepted practices.
Among other changes, EU Commission has formally adopted a new mechanism for the transfer of personal data from the European Union (the “EU”) to the United States, branded the “EU-US Privacy Shield” (“Privacy Shield”). We are currently certified with the U.S. Department of Commerce (“DOC”) to comply with the Privacy Shield a Framework, however, companies will continue to face uncertainty to the extent they operate in both jurisdictions and transfer any Personal Data between the two. If we are investigated by a European data protection authority and found to be out of compliance, we could face fines and other penalties. Any such investigation or charges by European data protection authorities could have a negative effect on our existing business and on our ability to attract and retain new customers.
While we will continue to undertake efforts to conform to current regulatory obligations and evolving best practices, we may be unsuccessful in conforming to means of transferring Personal Data from the EEA. We may also experience hesitancy, reluctance, or refusal by European or multi-national customers to continue to use some of our services due to the potential risk exposure of Personal Data transfers and the current data protection obligations imposed on them by certain data protection authorities. Such customers may also view any alternative approaches to the transfer of any Personal Data as being too costly, too burdensome, or otherwise objectionable, and therefore may decide not to do business with us if the transfer of Personal Data is a necessary requirement.
Though our current and predominant business model does not significantly collect and transfer personal information from our customers to us, the potential transition to more cloud-based services, and the current data protection landscape in the EU may subject us to greater risk of potential inquiries and/or enforcement actions. We may find it necessary to establish alternative systems to maintain Personal Data originating from the EU in the EEA, which may involve substantial expense and may cause us to need to divert resources from other aspects of our business, all of which may adversely affect our results from operations. Further, any inability to adequately address privacy concerns in connection with our cloud-based services, or comply with applicable privacy or data protection laws, regulations and policies, could result in additional cost and liability to us, and adversely affect our ability to offer cloud-based services.
Anticipated further evolution of EU regulations on this topic may increase substantially the penalties to which we could be subject in the event of any non-compliance. We may incur substantial expense in complying with the new obligations to be imposed by new regulations and we may be required to make significant changes to our software applications and expanding business operations, all of which may adversely affect our results of operations.

The nature of our business requires the application of complex revenue and expense recognition rulesaccounting guidance that requirerequires management to make estimates and assumptions. Additionally, the current legislative and regulatory environment affecting U.S.Reported results under United States Generally Accepted Accounting Principles (GAAP) is uncertain and significant(“GAAP”) may vary from key metrics used to measure our business. Additionally, changes in currentaccounting guidance may cause us to experience greater volatility in our quarterly and annual results.If we are unsuccessful in adapting to and interpreting the requirements of new guidance, or in clearly explaining to stockholders how new guidance affects reporting of our results of operations, our stock price may decline.
We prepare our consolidated financial statements to conform to GAAP. These accounting principles are subject to interpretation by the SEC, Financial Accounting Standards Board (“FASB”), and various bodies formed to interpret and create accounting rules and regulations. Accounting standards, such as ASC 606 - Revenue from Contracts with Customers or ASC 842 - Leases, or the guidance relating to interpretation and adoption of standards could have a significant effect on our financial results and could affect our business. Additionally, the FASB and the SEC are focused on the integrity of financial reporting, and our accounting policies are subject to scrutiny by regulators and the public.
We cannot predict the impact of future changes to accounting principles or our related accounting policies on our financial statements going forward. In addition, were we to change our accounting estimates, including those related to the timing of revenue recognition and those used to allocate revenue between various performance obligations, our reported revenue and results of operations could be significantly impacted. If we are unsuccessful in adapting to the requirements of any new standard, or if changes to our go-to-market strategy create new risks, then we may experience greater volatility in our quarterly and annual results, which may cause our stock price to decline.
The preparation of financial statements in conformity with U.S.In addition, GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenuesrevenue, and expenses that are not readily apparent from other sources.
While we believeFurther, revenue recognition standards require significant judgment and estimates that our financial statements have been prepared in accordance with accounting principles generally accepted in the United States, we cannot predict the impact of future changes to accounting principles or our accounting policies on our financial statements going forward. In addition, were we to change our critical accounting estimates, including the timing of recognition of license revenue and other revenue sources, our reported revenuesrevenue and results of operations could be significantly impacted.
The accounting rulesoperations. Additionally, reported revenue has and regulations that we must complywill vary from the ARR, a non-GAAP metric, and cash flow associated with are complex. Additionally, the Financial Accounting Standards Board (the "FASB")each customer agreement.For example, for some arrangements with multiple performance obligations, a portion of recurring license and the Securities and Exchange Commission have focused on the integrity of financial reporting. In addition, many companies' accounting policies are being subjectsupport or subscription contract value is allocated to heightened scrutiny by regulators and the public. Further, the accounting rules and regulations are continually changing in ways that could materially impact our financial statements.
The FASB issued new accounting guidance onservices revenue for revenue recognition that becomes effectivepurposes, but does not get allocated for us beginning August 1, 2018. The standard permits the usepurposes of either the full retrospective or cumulative effect transition method. We currently intend to select the cumulative effect transition method. While we continue to evaluate the impact this guidance will have on our financial condition and results of operations, any change in how we recognize revenues can have a significant impact on our quarterly or annual financial results from operations. In order to reduce the risk of financial statement volatility, we revised our contracting practices primarily by shorteningcalculating ARR. This revenue allocation only impacts the initial non-refundable term of our licenses. Ifthe contract. This means that as we are unsuccessful in adapting our business to the requirementsincrease arrangements with multiple performance obligations that include services at discounted rates, more of the newtotal contract value will be recognized as services revenue, standard, or if changes tobut our go-to-market strategy create new risks, then wereported ARR amount will not be impacted. This potential difference and variability in the trends of reported amounts may experience greatercause volatility in our quarterly and annual results, which may cause our stock price to decline. In addition to greater volatility, the application of this new standard may result in the exclusion of a portion of the licensing revenues from contracts in effect prior to the adoption date, which, despite no change in associated cash flows, could have a material adverse effect on our recognized revenues and net income.price.
If we fail to maintain effective internal control over financial reporting or identify a material weakness in our internal control over financial reporting, our ability to report our financial condition and results of operations in a timely and accurate manner could be adversely affected, investor confidence in our Company could diminish, and the future, the accuracy and timingvalue of our financial reportingcommon stock may be adversely affected.decline.
Preparing our consolidated financial statements involves a number of complex manual and automated processes, which are dependent upon individual data input or review and require significant management judgment. One or more of these elementsprocesses may result in errors that may not be detected and could result in a material misstatement of our consolidated financial statements. The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires, among other things, that as a publicly-traded company we disclose whether our internal control over financial reporting and disclosure controls and procedures are effective.
IfA material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement occurs in the future, we may fail to meetof our future reporting obligations. For example, we may fail to file periodic reports inannual or interim financial statements will not be prevented or detected on a timely manner or may needbasis.
While we continually undertake steps to restate our financial results, either of which may cause the price of our common stock to decline. Any failure of our internal controls could also adversely affect the results of the periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness ofimprove our internal control over financial reporting thatas our business changes, we may not be successful in making the improvements and changes necessary to be able to identify and remediate control deficiencies or material weaknesses on a timely basis. If we are required under Section 404 ofunable to successfully remediate any future material weaknesses in our internal control over financial reporting, the Sarbanes-Oxley Act. Effective internal controls are necessary for us to produce reliable financial reportsaccuracy and are important to helping prevent financial fraud. Furthermore, transition in enterprise resource planning or other major operational systems could impact the timely generationtiming of our financial statements. In fiscal 2017, we began implementing a new financial management system, as well as applicationsreporting may be adversely affected; our liquidity, access to help us manage the recognitioncapital markets and perceptions of our revenues under a new standard. In November 2017,creditworthiness may be adversely affected; we completedmay be unable to maintain compliance with securities laws, stock exchange listing requirements and debt instruments covenants regarding the implementationtimely filing of the new systemperiodic reports; we
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may be subject to regulatory investigations and are continuing efforts towards implementation of other accounting systems, including a revenue reporting system. We currently anticipate completing implementation of these applications by the third quarter of fiscal year 2018. As a result of implementing this new system or otherwise, we cannot provide timely reliable financial reports, our business and results of operations could be harmed,penalties; investors couldmay lose confidence in our reported financial information,reporting; we may suffer defaults under our debt instruments; and the trading price of our stock could drop significantly.price may decline.
If tax laws change or we experience adverse outcomes resulting from examination of our income tax returns, it could adversely affect our results of operations.
We are subject to federal, state, and local income taxes in the United States and in foreign jurisdictions. Our future effective tax rates and the value of our deferred tax assets could be adversely affected by changes in, interpretations of, and guidance regarding tax laws, including impacts of the

recently enacted Tax Cuts and Jobs Act of 2017 (the “Tax Act”), the consequencesCoronavirus Aid, Relief, Economic Security Act of which have not yet been fully determined. 2020, the Inflation Reduction Act of 2022, and certain OECD proposals, including the implementation of the global minimum tax under the Pillar Two model rules.
In addition, we are subject to the examination of our income tax returns by the Internal Revenue ServiceIRS and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from such examinations to determine the adequacy of our provision for income taxes. Significant judgment is required in determining our worldwide provision for income taxes. Although we believe we have made appropriate provisions for taxes in the jurisdictions in which we operate, changes in the tax laws or challenges from tax authorities under existing tax laws could adversely affect our business, financial condition and results of operations.
We may not be ableRisks Related to obtain capital when desired on favorable terms, if at all, and we may not be able to obtain capital or complete acquisitions through the useOwnership of equity without dilution to our stockholders.
We may need additional financing to execute on our current or future business strategies, including to develop new or enhance existing products and services, acquire businesses and technologies, or otherwise to respond to competitive pressures.
If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders. If we accumulate additional funds through debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, thus limiting funds available for our business activities. We cannot assure you that additional financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, when we desire them, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our products and services, or otherwise respond to competitive pressures would be significantly limited. Any of these factors could harm our results of operations.
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 corporate headquarters and the majority of our operations are located in the San Francisco Bay Area, a region known for seismic activity. A significant natural disaster, such as an earthquake, tsunami, fire or a flood, 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. To the extent that such disruptions result in delays or cancellations of customer orders or collections, or the deployment of our products, our business, results of operations and financial condition would be adversely affected.Common Stock
Our stock price may be volatile, which could result in securities class action litigation against us.
The market price of our common stock could be subject to wide fluctuations in response to, among other things, the risk factors described in this report, the timing and amount of any share repurchases by us, and other factors beyond our control, such as fluctuations in the valuation of companies perceived by investors to be comparable to us and research analyst coverage about our business.
Furthermore, the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political, and market conditions, such as recessions, interest rate changes, inflation or deflation, armed conflict, or international currency fluctuations, have and may continue to affect the market price of our common stock.
In the past, we and many companiesthat have experienced volatility in the market price of their stock have been subject to securities class action litigation. Welitigation and we may become the target of complaints of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from otherour business, concerns, which could seriously harm our business.business, results of operations, and financial condition.
We currently do not intend to pay dividends on our common stock and, consequently, yourthe only opportunity to achieve a return on your investment is if the price of our common stock appreciates.
We currently do not plan to declare dividends on shares of our common stock in the foreseeable future. Consequently, the only opportunity to achieve a return on investment in our companyCompany will be if the market price of our common stock appreciates and shares are sold at a profit.
Certain provisions of our certificate of incorporation and bylaws and of Delaware law could prevent a takeover that stockholders consider favorable and could also reduce the market price of our stock.
Our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that could delay or prevent a merger, acquisition, or other change in control that stockholders may consider favorable, including transactions

in which stockholders might otherwise receive a premium for their shares. These provisions may also prevent or delay attempts by stockholders to replace or remove our current management or members of our board of directors. These provisions include:
providing for a classified board of directors with staggered three-year terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;
•not providing for cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
•authorizing our board of directors to issue, without stockholder approval, preferred stock rights senior to those of common stock, which could be used to significantly dilute the ownership of a hostile acquirer;
•prohibiting stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;
•limiting the persons who may call special meetings of stockholders, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and
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•requiring advance notification of stockholder nominations and proposals, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.
The affirmative vote of the holders of at least 66 2/3%a majority of our shares of capital stock entitled to vote is generally necessary to amend or repeal the above provisions that are contained in our amended and restated certificate of incorporation. Also, absent approval of our board of directors, our amended and restated bylaws may only be amended or repealed by the affirmative vote of the holders of at least 50% of our shares of capital stock entitled to vote.
In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding common stock, from engaging in certain business combinations without approval of substantially all of our stockholders for a certain period of time.
These and other provisions in our amended and restated certificate of incorporation, our amended and restated bylaws, and under Delaware law could discourage potential takeover attempts, reduce the price that investors might be willing to pay for shares of our common stock in the future and result in the market price of our shares being lower than it would be without these provisions.

Our amended and restated bylaws designate certain state or federal courts as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any state law claim for:
•any derivative action or proceeding brought on our behalf;
•any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees to us or our stockholders;
•any action asserting a claim arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws; or
•any action asserting a claim that is governed by the internal affairs doctrine (the “Delaware Forum Provision”).
The Delaware Forum Provision will not apply to any causes of action arisingunder the Securities Act or the Exchange Act.Further, our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the United States District Court for the Northern District of California will be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act (the “Federal Forum Provision”), as we are based in the State of California. In addition, our amended and restated bylaws provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the Delaware Forum Provision and the Federal Forum Provision; provided, however, that stockholders cannot and will not be deemed to have waived our compliance with the U.S. federal securities laws and the rules and regulations thereunder.
The Delaware Forum Provision and the Federal Forum Provision in our amended and restated bylaws may impose additional litigation costs on stockholders in pursuing any such claims. Additionally, these forum selection clauses may limit our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers or employees (including, without limitation, any claims in respect of stockholder nominations of directors as permitted under our amended and restated bylaws), which may discourage the filing of lawsuits against us and our directors, officers and employees, even though an action, if successful, might benefit our stockholders. In addition, while the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court are “facially valid” under Delaware law, there is uncertainty as to whether other courts will enforce our Federal Forum Provision. If the Federal Forum Provision is found to be unenforceable, we may incur additional costs associated with resolving such matters. The Federal Forum Provision may also impose additional litigation costs on stockholders who assert that the provision is not enforceable or invalid. The Court of Chancery of the State of Delaware and the United States District Court for the Northern District of California may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders.
We cannot guarantee that any share repurchase program will be fully consummated or it will enhance stockholder value, and share repurchases could affect the price of our common stock
In September 2022, our board of directors authorized and approved a share repurchase program of up to $400.0 million of our outstanding common stock. As of October 31, 2023, $138.2 million of the share repurchase program remained available for future
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repurchases. Share repurchases under the program may be made from time to time, in the open market, in privately negotiated transactions and otherwise, at the discretion of management and in accordance with applicable federal securities laws, including Rule 10b-18 of the Exchange Act, and other applicable legal requirements. Such repurchases may also be made in compliance with Rule 10b5-1 trading plans entered into by us. The timing, pricing, and size of these repurchases will depend on a number of factors, including the market price of our common stock and general market and economic conditions. The share repurchase program does not obligate us to repurchase any dollar amount or number of shares, and the program may be suspended or discontinued at any time, which may result in a decrease in the price of our common stock. The share repurchase program could affect the price of our common stock, increase volatility, and diminish our cash reserves.
General Risk Factors
If we are unable to retain our personnel and hire and integrate additional skilled personnel, we may be unable to achieve our goals and our business will suffer.
Our future success depends upon our ability to continue to attract, train, integrate, and retain highly skilled employees, particularly our executive officers, sales and marketing personnel, professional services personnel, cloud operations personnel, and software engineers, especially as we transition to a business model focused on delivering cloud-based offerings. Additionally, our stakeholders increasingly expect us to have a culture that embraces diversity, inclusion, and belonging. Our inability to attract and retain diverse and qualified personnel, or delays in hiring required personnel, may seriously harm our business, results of operations, and financial condition. If U.S. immigration policy related to skilled foreign workers were materially adjusted, such a change could hamper our efforts to hire highly skilled foreign employees, including highly specialized engineers, which would adversely impact our business.
Any one of our executive officers and other key employees could terminate his or her relationship with us at any time. The loss of one or more of our executive officers or key employees, and any failure to have in place and execute an effective succession plan for key executive officers, could significantly delay or prevent us from achieving our business and/or development objectives and could disrupt or materially harm our business.Although we strive to reduce the challenges of any transition, failure to ensure effective transfer of knowledge and a smooth transition could disrupt or adversely affect our business, results of operations, financial condition, and prospects.
We face competition for qualified individuals from numerous software and other technology companies. Competition for qualified personnel is particularly intense in the San Francisco Bay Area, where our headquarters are located, though we also face significant competition in all of our domestic and foreign development centers. Further, significant amounts of time and resources are required to train technical, sales, services, operations, and other personnel. We may incur significant costs to attract, train, and retain such personnel, and we may lose new employees to our competitors or other technology companies before we realize the benefit of our investment after recruiting and training them.
Also, to the extent that we hire personnel from competitors, we may be subject to allegations that such personnel have been improperly solicited or have divulged proprietary or other confidential information. In addition, we have a limited number of sales people and the loss of several sales people within a short period of time could have a negative impact on our sales efforts. Additionally, current global events and recent economic conditions have increased attrition and decreased the number of available candidates for open positions, which has increased the time to identify and hire new employees. We may be unable to attract and retain suitably qualified individuals who are capable of meeting our growing technical, operational, and managerial requirements, including managing employees and contractors remotely or in a hybrid environment, or we may be required to pay increased compensation in order to do so.
Further, our ability to expand geographically depends, in large part, on our ability to attract, retain, and integrate managers with the appropriate skills to lead the local business and employees. Similarly, our profitability depends on our ability to effectively utilize personnel with the right mix of skills and experience to perform services for our clients, including our ability to transition employees to new assignments on a timely basis. If we are unable to effectively deploy our employees globally on a timely basis to fulfill the needs of our clients, our reputation could suffer and our ability to attract new clients may be harmed.
Because of the technical nature of our services and products and the dynamic market in which we compete, any failure to attract, integrate, and retain qualified direct sales, professional services, cloud operations, and product development personnel, as well as our contract workers, could harm our ability to generate sales, deliver consulting services, manage our customers’ cloud environments, or successfully develop new services and products and enhancements of existing services and products.
Increased and complex scrutiny of environmental, social, and governance (“ESG”) matters may require us to incur additional costs or otherwise adversely impact our business.
Increased investor, governmental, and societal attention to and expectations around the wide range of issues generally referred to as ESG matters and our response to the same, may result in increased costs (including, but not limited to, increased costs related to
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compliance, stakeholder engagement and contracting), impact our reputation, or otherwise negatively affect our business performance. In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on ESG matters, while other organizations are pushing corporations not to focus on ESG matters in decision making. Both unfavorable ESG ratings and engaging in activities designed to improve such ratings could lead to negative investor sentiment toward us and/or our industry, which could have a negative impact on our access to and costs of capital. To the extent ESG matters negatively impact our reputation, we may also not be able to compete as effectively to recruit or retain employees. We may take certain actions in relation to ESG matters in response to stakeholder demand; however, such actions may be costly or be subject to numerous conditions that are outside our control, and we cannot guarantee that such actions will have the desired effect or outcome.
Moreover, while we may create and publish voluntary disclosures regarding ESG matters (in particular, information related to environmental and human capital matters) from time to time, many of the statements in such voluntary disclosures are based on certain expectations and assumptions that may or may not be representative of current or actual risks or events or forecasts of expected risks or events, including the costs associated therewith. Such expectations and assumptions are necessarily uncertain and may be prone to error or subject to misinterpretation given the long timelines involved and the lack of an established single approach to identifying, measuring and reporting on many environmental and human capital matters. Such disclosures may also be at least partially reliant on third-party information that we have not independently verified or that otherwise cannot be independently verified.
Statements about our environmental and human capital initiatives and goals, and progress against those goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. If our related data, processing and reporting are incomplete or otherwise inaccurate, or if we fail to achieve progress on certain metrics on a timely basis, our reputation, business, financial performance and growth could be adversely affected.
In addition, we expect there will likely be increasing levels of regulation, disclosure-related and otherwise, with respect to ESG matters, and increased regulation will likely lead to increased compliance costs as well as scrutiny that could heighten all of the associated risks identified in this risk factor. Such compliance matters may also impact our customers, which could adversely impact our business, financial condition, or results of operations.
Our customers may defer or forego purchases of our services or products in the event of weakened global economic conditions, political transitions, and industry consolidation.
General worldwide economic conditions remain unstable, and prolonged economic uncertainties or downturns could harm our business, results of operations, or financial condition. In particular, global inflation concerns, the ongoing wars between Israel and Hamas and between Russia and Ukraine, the recent pandemic, and escalating tensions in the South China Sea, have created and may continue to create global economic uncertainty in regions in which we have significant operations. These conditions may make it difficult for our customers and us to forecast and plan future business activities accurately, and could cause our customers to reevaluate their decision to purchase our 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. Moreover, during challenging economic times our customers may face issues in gaining timely access to sufficient credit, which could result in an impairment of their ability to make timely payments to us. If that were to occur, we may not receive amounts owed to us and may be required to record an accounts receivable allowance, which would adversely affect our financial results. A substantial downturn in the P&C insurance industry may cause firms to react to worsening conditions by reducing their capital expenditures, reducing their spending on information technology, delaying or canceling information technology projects, or seeking to lower their costs by renegotiating vendor contracts. Negative or worsening conditions in the general economy both in the United States and abroad, including conditions resulting from financial and credit market fluctuations and inflation, could cause a decrease in corporate spending on enterprise software in general, and in the insurance industry specifically, and negatively affect the rate of growth of our business.
Furthermore, the increased pace of consolidation in the P&C insurance industry may result in reduced overall spending on our services and products. Acquisitions of customers or potential customers can delay or cancel sales cycles or result in existing arrangements not being renewed and because we cannot predict the timing or duration of such acquisitions, our results of operations could be materially impacted.
Factors outside of our control, including, but not limited to, natural catastrophes, the geopolitical landscape, and terrorism may adversely impact the P&C insurance industry, preventing us from expanding or maintaining our existing customer base and increasing our revenue. Our business is subject to the risks of earthquakes, fire, floods, and other natural catastrophic events, and to interruption by man-made problems such as computer viruses.
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Our customers are P&C insurers that have experienced, and will likely experience in the future, losses from catastrophes or terrorism that may adversely impact their businesses. Catastrophes 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. Moreover, acts of terrorism or armed conflict or uncertainty in the geopolitical landscape, including as a result of escalation in the ongoing wars between Israel and Hamas and between Russia and Ukraine as well as the escalation of tensions in the South China Sea, could cause disruptions to our business or our customers’ businesses or the economy as a whole. The risks associated with natural catastrophes, the geopolitical landscape, and terrorism are inherently unpredictable, and it is difficult to forecast the timing of such events or estimate the amount of losses they will generate. Recently, for example, various parts of the United States have suffered extensive damage due to hurricanes, droughts, floods, severe heat and cold events, fires, and other natural disasters, the island of Maui in the State of 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. The combined and expected effect of those losses on P&C insurers is significant. Such losses and losses due to future events may adversely impact our current or potential customers, which may prevent us from maintaining or expanding our customer base and increasing our revenue, as such events may cause customers to postpone purchases and professional service engagements or to discontinue existing projects.
Our corporate headquarters and the majority of our operations are located in the San Francisco Bay Area, a region known for seismic activity and near an area subject to severe fire damage. A significant natural disaster, such as an earthquake, 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. To the extent that such disruptions result in delays or cancellations of customer orders or collections, or the deployment or availability of our services and products, our business, results of operations, and financial condition would be adversely affected.
Adverse developments affecting certain financial institutions, as well as the banking system as a whole, could negatively affect our current and projected business operations and our financial condition and results of operations.
Adverse developments that may affect certain financial institutions and the banking system as a whole, such as events involving liquidity that are either rumored or actual, have in the past and may in the future lead to bank failures and market-wide liquidity concerns. On March 10, 2023, Silicon Valley Bank was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation as receiver. Up until March of 2023, our primary banking partner in the United States was Silicon Valley Bank. Since such time, we have further diversified our banking relationships. In connection with such developments, we have not experienced any material adverse impact to our cash flow or to our current and projected business operations, financial condition or results of operations. Although we are continuing to evaluate and diversify our banking relationships, uncertainty remains over liquidity concerns in the broader financial services industry. As a consequence, our business, our business partners, or industry as a whole may be adversely impacted in ways that we cannot predict at this time. Uncertainty remains over liquidity concerns in the broader financial services industry, and there may be additional impacts to our business and our industry that we cannot currently predict. Further, a significant portion of our assets are held in cash, cash equivalent and marketable securities. If any financial uncertainty were to impact a broad segment of the financial services industry, our enterprise value and our future prospects could be harmed or otherwise negatively impacted.
Our revenue, results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Australian Dollar, British Pound, Canadian Dollar, Euro, Indian Rupee, and Polish Zloty.
The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. Although we believe our operating activities act as a natural hedge for a majority of our foreign currency exposure at the cash flow or operating income level because we typically collect revenue and incur costs in the currency of the location in which we provide our software and services, our relationships with our customers are long-term in nature so it is difficult to predict if our operating activities will provide a natural hedge in the future. In addition, because our contracts are characterized by large annual payments, significant fluctuations in foreign currency exchange rates that coincide with annual payments may affect our cash flows, revenue or financial results in such quarter. Our results of operations may also be impacted by transaction gains or losses related to revaluing certain current asset and liability balances that are denominated in currencies other than the functional currency of the entity in which they are recorded. Moreover, significant and unforeseen changes in foreign currency exchange rates may cause us to fail to achieve our stated projections for revenue, ARR, and operating income, which could have an adverse effect on our stock price. We do business in Argentina, which is experiencing extremely high inflation and currency fluctuations. The Argentina government has placed restrictions on sending U.S. dollars outside of the country, which has impacted our customers’ timeliness in paying their obligations to us and could impact the collectibility of our accounts receivable in such respects. While we have limited currency exchange exposure to the Russian Ruble, we expect global exchange rates for various currencies may be more volatile than normal as a result of the ongoing wars between Israel
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and Hamas and between Russia and Ukraine and related events. We will continue to experience fluctuations in foreign currency exchange rates, which, if material, may harm our revenue or results of operations.
Servicing our indebtedness requires a significant amount of cash. We may not have sufficient cash flow from our business to pay our substantial indebtedness, and we may not have the ability to raise the funds necessary to settle for cash conversions of the Convertible Senior Notes or to repurchase the Convertible Senior Notes upon a fundamental change, which could adversely affect our business and results of operations.
As of October 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 indebtedness may increase our vulnerability to any generally adverse economic and industry conditions, and we and our subsidiaries may, subject to the limitations in the terms of our existing and future indebtedness, incur additional debt, secure existing or future debt, or recapitalize our debt. If we incur additional indebtedness, the risks related to our business would increase and our ability to service or repay our indebtedness may be adversely impacted.
Pursuant to their terms, holders may convert their Convertible Senior Notes at their option prior to the scheduled maturities of their Convertible Senior Notes under certain circumstances. Upon conversion of the Convertible Senior Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be obligated to make cash payments. In addition, holders of our Convertible Senior Notes will have the right to require us to repurchase their Convertible Senior Notes upon the occurrence of a fundamental change (as defined in the Indenture, dated as of March 13, 2018, between the Company and U.S. Bank National Association, as trustee (the “Trustee”) (the “Base Indenture”), as amended and supplemented by the First Supplemental Indenture, dated as of March 13, 2018, between the Company and the Trustee (together with the Base Indenture, the “Indenture”)) at a repurchase price equal to 100% of the principal amount of the Convertible Senior Notes to be repurchased, plus accrued and unpaid interest, if any, to, but not including, the fundamental change purchase date. Although it is our intention and we currently expect to have the ability to settle the Convertible Senior Notes in cash, there is a risk that we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Convertible Senior Notes surrendered therefor or Convertible Senior Notes being converted. In addition, our ability to make payments may be limited by law, by regulatory authority, or by agreements governing our future indebtedness. Our failure to repurchase Convertible Senior Notes at a time when the repurchase is required by the Indenture or to pay any cash payable on future conversions of the Convertible Senior Notes as required by such Indenture would constitute a default under such Indenture. A default under the Indenture or the fundamental change itself could also lead to a default under agreements governing our future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Convertible Senior Notes or make cash payments upon conversions thereof.
Our ability to make scheduled payments of the principal and interest on our indebtedness when due or to make payments upon conversion or repurchase demands with respect to our Convertible Senior Notes, or to refinance our indebtedness as we may need or desire, depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to satisfy our obligations under our existing indebtedness, and any future indebtedness we may incur, and to make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as reducing or delaying investments or capital expenditures, selling assets, refinancing, or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance existing or future indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our existing or future indebtedness and have a material adverse effect on our business, results of operations, and financial condition.
The conditional conversion feature of the Convertible Senior Notes, if triggered, may adversely affect our financial condition and results of operations.
In the event the conditional conversion feature of the notes is triggered, holders of our Convertible Senior Notes will be entitled to convert the Convertible Senior Notes at any time during specified periods at their option. If one or more holders elect to convert their Convertible Senior Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Convertible Senior Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.
Transactions relating to our Convertible Senior Notes may affect the value of our common stock.
The conversion of some or all of the Convertible Senior Notes would dilute the ownership interests of existing stockholders to the extent we satisfy our conversion obligation by delivering shares of our common stock upon any conversion of such Convertible Senior Notes. Our Convertible Senior Notes may become in the future convertible at the option of their holders under certain circumstances. If holders of our Convertible Senior Notes elect to convert their notes, we may settle our conversion obligation by delivering to them a significant number of shares of our common stock, which would cause dilution to our existing stockholders.
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In connection with the issuance of the Convertible Senior Notes, we entered into capped call transactions with certain financial institutions (the “option counterparties”). The capped call transactions are expected generally to reduce the potential dilution to our common stock upon any conversion of the notes and/or offset any cash payments we are required to make in excess of the principal amount of converted notes, as the case may be, with such reduction and/or offset subject to a cap.
From time to time, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivative transactions with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the Convertible Senior Notes. This activity could cause a decrease in the market price of our common stock.
The accounting method for convertible debt securities that may be settled in cash, such as the Convertible Senior Notes, could have a material effect on our reported financial results.
In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), which we adopted on August 1, 2022. The ASU simplifies the accounting for convertible instruments, and among other things, eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. When calculating diluted EPS, the if-converted method requires us to assume that convertible debt instruments (and any applicable conversion premium) are converted to common stock as of the beginning of the period presented regardless of the price of our stock in periods that we have net income. Additionally, the if-converted method does not allow us to offset the impact of our capped call transactions on the calculation. We expect that such calculations will negatively affect our reported diluted EPS in the periods that we have net income irrespective of actual conversion of the Convertible Senior Notes.
We are subject to counterparty risk with respect to the capped call transactions.
The option counterparties are financial institutions, and we will be subject to the risk that any or all of them might default under the capped call transactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. Past and recent global economic conditions have resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the capped call transactions with such option counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market price and in the volatility of our common stock. In addition, upon a default by an option counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the option counterparties.
ITEM 5.Other Information
For purposes of this Item 5, “Net Shares” shall mean the shares of our common stock that are received by the holder thereof in a given vesting period for RSUs after such holder first engages in a sell-to-cover transaction to cover the holder’s tax liability associated with the vesting of such RSUs.
On October 12, 2023, James Winston King, Chief Administrative Officer and General Counsel, adopted a Rule 10b5-1 trading arrangement (“10b5-1 Plan”) that is intended to satisfy the affirmative defense of Rule 10b5-1(c) of the Exchange Act. The 10b5-1 Plan allows for the sale of up to: (i) 105 stock option shares, plus (ii) 100% of the Net Shares acquired by Mr. King resulting from the vesting of 11,100 RSUs during the term of such 10b5-1 Plan, plus (iii) 75% of the Net Shares acquired by Mr. King resulting from the vesting of 8,899 RSUs during the term of such 10b5-1 Plan; with the specific amount of shares to be sold being dependent on the market price of the shares of our common stock and certain specified values, commencing on January 11, 2024 and continuing through December 31, 2024.
On October 12, 2023, Jeff Cooper, Chief Financial Officer, adopted a 10b5-1 Plan that is intended to satisfy the affirmative defense of Rule 10b5-1(c) of the Exchange Act. The 10b5-1 Plan allows for the sale of 50% of the Net Shares acquired by Mr. Cooper from the vesting of 39,574 RSUs during the term of such 10b5-1 Plan at then current market prices of the shares of our common stock, commencing on January 16, 2024 and continuing through December 31, 2024.




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ITEM 6.Exhibits
ITEM 6.     Exhibits
The exhibits listed below are filed or incorporated by reference as part of this Report.
Exhibit
Number		DescriptionIncorporated by
Reference From
Form		Incorporated
by Reference
From
Exhibit
Number		Date Filed        
3.1
Amended and Restated Certificate of Incorporation8-K3.1December 21, 2022
3.2
Amended and Restated Bylaws8-K3.2December 21, 2022
4.1
Form of Common Stock Certificate of the RegistrantS-1/A4.1January 9, 2012
31.1
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley ActFiled herewith
31.2
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley ActFiled herewith
32.1*
Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley ActFurnished herewith
101.INSInline XBRL Instance DocumentFiled herewith
101.SCHInline XBRL Taxonomy Extension Schema DocumentFiled herewith
101.CALInline XBRL Taxonomy Extension Calculation Linkbase DocumentFiled herewith
101.DEFInline XBRL Taxonomy Extension Definition Linkbase DocumentFiled herewith
101.LABInline XBRL Taxonomy Extension Label Linkbase DocumentFiled herewith
101.PREInline XBRL Taxonomy Extension Presentation Linkbase DocumentFiled herewith
104Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)Filed herewith

*    The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.



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Exhibit
Number
 Description 
Incorporated by
Reference From
Form
 
Incorporated
by Reference
From
Exhibit
Number
 Date Filed        
3.1
 Amended and Restated Certificate of Incorporation 10-Q 3.1 March 14, 2012
3.2
 Amended and Restated Bylaws 8-K 3.1 December 5, 2016
4.1
 Form of Common Stock certificate of the Registrant S-1/A 4.1 January 9, 2012
31.1
 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act Filed herewith    
31.2
 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act Filed herewith    
32.1*
 Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act Furnished herewith    
101.INS XBRL Instance Document Filed herewith    
101.SCH XBRL Taxonomy Extension Schema Document Filed herewith    
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith    
101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed herewith    
101.LAB XBRL Taxonomy Extension Label Linkbase Document Filed herewith    
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith    

*
The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 

Date:December 7, 2023GUIDEWIRE SOFTWARE, INC.
Date:March 6, 2018GUIDEWIRE SOFTWARE, INC.By:/s/ JEFF COOPER
Jeff Cooper
By:/s/ Richard Hart
Richard Hart
Chief Financial Officer

(Principal Financial and Accounting Officer)


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