Attached files
| file | filename |
|---|---|
| 8-K/A - 8-K/A - Guidewire Software, Inc. | cyenceacquisition8-ka.htm |
| EX-23.1 - CONSENT OF BDO, LLP - Guidewire Software, Inc. | ex-231consentofbdollp.htm |
| EX-99.2 - CYENCE INTERIM FINANCIALS JULY 31, 2017 - Guidewire Software, Inc. | ex-992cyenceinterimfinanci.htm |
| EX-99.1 - CYENCE AUDITED FINANCIALS JANUARY 31, 2017 - Guidewire Software, Inc. | ex-991cyenceauditedfinanci.htm |
Exhibit 99.3
GUIDEWIRE SOFTWARE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On November 1, 2017 (the “Acquisition Date”), pursuant to the Agreement and Plan of Reorganization entered into on October 5, 2017, Guidewire Software, Inc., a Delaware corporation (hereinafter referred to as “Guidewire”, “the Company”, “we”, “our”, “us” and similar terms unless the context indicates otherwise) completed its acquisition of Cyence, Inc., a Delaware corporation (“Cyence”) (the “Acquisition”). The following unaudited pro forma condensed combined financial information presents the historical condensed combined financial statements of Guidewire and Cyence after giving effect to Guidewire’s acquisition of Cyence based on the assumptions, reclassifications and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial information.
The unaudited pro forma condensed combined balance sheet as of July 31, 2017 is presented as if the Acquisition occurred on July 31, 2017. The unaudited pro forma condensed combined statements of income for the year ended July 31, 2017 is presented as if the Acquisition occurred on August 1, 2016, the first day of our 2017 fiscal year.
The unaudited pro forma condensed combined financial information was prepared in accordance with Article 11 of Regulation S-X. The unaudited pro forma adjustments reflecting the Acquisition have been prepared in accordance with business combination accounting guidance as provided in Accounting Standards Codification 805, Business Combinations, and reflect the preliminary allocation of the purchase price to the acquired assets and assumed liabilities based on a preliminary estimate of fair values, using available information and the assumptions set forth in the notes to the unaudited pro forma condensed combined financial information. These preliminary values may change in future reporting periods upon finalization of the valuation, which will occur no later than the first quarter of fiscal 2019.
The unaudited pro forma condensed combined financial information included herein was derived from our audited historical consolidated financial statements. We have a fiscal year end of July 31 whereas Cyence has historically had a fiscal year end of January 31. In order to conform the Cyence historical financial information to our fiscal year end, the Cyence historical financial information included herein is derived from the Cyence historical results as of and for the twelve months ended July 31, 2017. Additionally, we have reclassified certain line items within the Cyence historical financial information to conform to the presentation of our consolidated financial statements.
The historical condensed combined financial information has been adjusted to give effect to pro forma events that are (1) directly attributable to the Acquisition, (2) factually supportable, and (3) with respect to the unaudited pro forma condensed combined statement of income, expected to have a continuing impact on the combined results. The unaudited pro forma condensed combined financial information should be read in conjunction with the Company’s audited historical consolidated financial statements included in the Company’s Annual Report on Form 10-K as of and for the year ended July 31, 2017 and the audited historical financial statements of Cyence as of and for the year ended January 31, 2017, and the unaudited historical condensed financial statements of Cyence as of and for the six month period ended July 31, 2017, contained in this Form 8-K/A.
The unaudited pro forma adjustments are not necessarily indicative of or intended to represent the results that would have been achieved had the Acquisition been consummated as of the dates indicated or that may be achieved in the future. The actual results reported by the combined company in periods following the Acquisition may differ significantly from that are reflected in the unaudited pro forma condensed combined financial information for a number of reasons, including the effects of applying final purchase accounting and the incremental costs incurred to integrate the two companies. The unaudited pro forma condensed combined financial information does not reflect any cost savings or associated costs to achieve such savings from operating efficiencies, synergies, or other restructuring that may result from the Acquisition.
1
GUIDEWIRE SOFTWARE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
AS OF JULY 31, 2017
(in thousands)
Historical | Pro Forma Adjustments | ||||||||||||||
Guidewire | Cyence | Pro Forma | |||||||||||||
(As reported) | (As adjusted) | Combined | |||||||||||||
ASSETS | |||||||||||||||
CURRENT ASSETS: | |||||||||||||||
Cash and cash equivalents | $ | 263,176 | $ | 18,824 | $ | (147,383 | ) | (a) | $ | 134,617 | |||||
Short-term investments | 310,027 | — | — | 310,027 | |||||||||||
Accounts receivable | 79,433 | 3,141 | — | 82,574 | |||||||||||
Prepaid expenses and other current assets | 26,604 | 1,002 | (482 | ) | (b)(c) | 27,124 | |||||||||
Total current assets | 679,240 | 22,967 | (147,865 | ) | 554,342 | ||||||||||
Long-term investments | 114,585 | — | — | 114,585 | |||||||||||
Property and equipment, net | 14,376 | 134 | (134 | ) | (d) | 14,376 | |||||||||
Intangible assets, net | 71,315 | — | 51,900 | (e) | 123,215 | ||||||||||
Deferred tax assets, net | 37,430 | — | (8,531 | ) | (f) | 28,899 | |||||||||
Goodwill | 141,851 | 148 | 199,476 | (g) | 341,475 | ||||||||||
Other assets | 20,104 | 323 | (54 | ) | (h) | 20,373 | |||||||||
TOTAL ASSETS | $ | 1,078,901 | $ | 23,572 | $ | 94,792 | $ | 1,197,265 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||
CURRENT LIABILITIES: | |||||||||||||||
Accounts payable | $ | 13,416 | $ | 422 | $ | — | $ | 13,838 | |||||||
Accrued employee compensation | 48,882 | 789 | — | 49,671 | |||||||||||
Deferred revenues, current | 91,243 | 3,279 | (944 | ) | (i) | 93,578 | |||||||||
Other current liabilities | 10,075 | 1,328 | 459 | (j)(k) | 11,862 | ||||||||||
Total current liabilities | 163,616 | 5,818 | (485 | ) | 168,949 | ||||||||||
Deferred revenues, noncurrent | 19,892 | — | — | 19,892 | |||||||||||
Other liabilities | 2,112 | 15 | — | 2,127 | |||||||||||
Total liabilities | 185,620 | 5,833 | (485 | ) | 190,968 | ||||||||||
STOCKHOLDERS’ EQUITY: | |||||||||||||||
Series A convertible preferred stock | — | 5,709 | (5,709 | ) | (l) | — | |||||||||
Series B convertible preferred stock | — | 31,807 | (31,807 | ) | (l) | — | |||||||||
Common stock | 8 | 12 | (12 | ) | (l) | 8 | |||||||||
Additional paid-in capital | 830,014 | 500 | 117,765 | (l)(m)(n) | 948,279 | ||||||||||
Shareholders' notes receivable | — | (120 | ) | 120 | (l) | — | |||||||||
Accumulated other comprehensive loss | (5,796 | ) | (2 | ) | 2 | (l) | (5,796 | ) | |||||||
Retained earnings | 69,055 | (20,167 | ) | 14,918 | (l)(n)(o) | 63,806 | |||||||||
Total stockholders’ equity | 893,281 | 17,739 | 95,277 | 1,006,297 | |||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,078,901 | $ | 23,572 | $ | 94,792 | $ | 1,197,265 | |||||||
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Information.
2
GUIDEWIRE SOFTWARE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED JULY 31, 2017
(in thousands, except share and per share amounts)
Historical | Pro Forma Adjustment | Pro Forma Combined | ||||||||||||||
Guidewire | Cyence | |||||||||||||||
(As reported) | (As adjusted) | |||||||||||||||
Revenues: | ||||||||||||||||
License and other | $ | 271,462 | $ | 10,449 | $ | (631 | ) | (p) | $ | 281,280 | ||||||
Maintenance | 68,643 | — | — | 68,643 | ||||||||||||
Services | 174,179 | — | — | 174,179 | ||||||||||||
Total revenues | 514,284 | 10,449 | (631 | ) | 524,102 | |||||||||||
Cost of revenues: | ||||||||||||||||
License and other | 17,046 | 1,557 | 5,700 | (q) | 24,303 | |||||||||||
Maintenance | 13,397 | — | — | 13,397 | ||||||||||||
Services | 161,116 | — | — | 161,116 | ||||||||||||
Total cost of revenues | 191,559 | 1,557 | 5,700 | 198,816 | ||||||||||||
Gross profit: | ||||||||||||||||
License and other | 254,416 | 8,892 | (6,331 | ) | 256,977 | |||||||||||
Maintenance | 55,246 | — | — | 55,246 | ||||||||||||
Services | 13,063 | — | — | 13,063 | ||||||||||||
Total gross profit | 322,725 | 8,892 | (6,331 | ) | 325,286 | |||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 130,323 | 11,282 | 9,827 | (r) | 151,432 | |||||||||||
Sales and marketing | 109,239 | 4,944 | 9,568 | (q)(r) | 123,751 | |||||||||||
General and administrative | 56,551 | 2,450 | 3,619 | (r) | 62,620 | |||||||||||
Total operating expenses | 296,113 | 18,676 | 23,014 | 337,803 | ||||||||||||
Income (loss) from operations | 26,612 | (9,784 | ) | (29,345 | ) | (12,517 | ) | |||||||||
Interest income, net | 5,854 | 15 | — | 5,869 | ||||||||||||
Other income, net | 811 | — | — | 811 | ||||||||||||
Income (loss) before income taxes | 33,277 | (9,769 | ) | (29,345 | ) | (5,837 | ) | |||||||||
Provision for (benefit from) income taxes | 12,053 | 41 | (10,843 | ) | (s) | 1,251 | ||||||||||
Net income (loss) | $ | 21,224 | $ | (9,810 | ) | $ | (18,502 | ) | $ | (7,088 | ) | |||||
Net income (loss) per share: | ||||||||||||||||
Basic | $ | 0.29 | $ | (0.10 | ) | (t) | ||||||||||
Diluted | $ | 0.28 | $ | (0.10 | ) | (t) | ||||||||||
Shares used in computing net income (loss) per share: | ||||||||||||||||
Basic | 73,994,577 | 74,043,319 | (t) | |||||||||||||
Diluted | 75,328,343 | 74,043,319 | (t) | |||||||||||||
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Information.
3
GUIDEWIRE SOFTWARE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. BASIS OF PRO FORMA PRESENTATION
The historical financial information has been adjusted to give pro forma effect to events that are: (a) directly attributable to the Acquisition, (b) factually supportable, and (c) with respect to the unaudited pro forma condensed combined statement of income, expected to have a continuing impact on the combined results. The unaudited pro forma adjustments are preliminary and based on estimates of the fair value and useful lives of the assets acquired and liabilities assumed, and have been prepared to illustrate the estimated effect of the Acquisition. The final determination of the purchase price allocation will be based on the final valuation of the fair values of assets acquired and liabilities assumed in the Acquisition.
The unaudited pro forma condensed combined financial information included herein was derived from our historical consolidated financial statements. We have a fiscal year end of July 31 whereas Cyence has historically had a fiscal year end of January 31. In order to conform the Cyence historical financial information to our fiscal periods, the Cyence historical financial information included herein is derived from the Cyence historical results as of and for the twelve months ended July 31, 2017. Additionally, we have reclassified certain line items within the Cyence historical financial information to conform to the presentation of our consolidated financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
The unaudited pro forma condensed combined financial information has been compiled using the significant accounting policies as set forth in our audited consolidated financial statements for the year ended July 31, 2017. Based on the procedures performed to date, we determined that the accounting policies of Cyence are similar in material respects to those of ours. As more information becomes available, we will complete a more detailed review of the Cyence accounting policies. As a result of that review, differences may be identified between the accounting policies of the two companies that, when conformed, could have a material impact on the combined financial statements.
3. PRELIMINARY PURCHASE CONSIDERATION AND PURCHASE PRICE ALLOCATION
The gross purchase price of the Acquisition was $275.0 million, subject to certain adjustments including a net working capital adjustment. These adjustments reflected herein to determine the purchase consideration are preliminary 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 $260.5 million as follows:
Preliminary Purchase Consideration | |||
(in thousands) | |||
Cash consideration paid at close | $ | 142,612 | |
Equity issued to preferred shareholders | 102,493 | ||
Issuance of replacement awards | 15,441 | ||
Total preliminary purchase consideration | $ | 260,546 | |
The Acquisition was accounted for as a business combination. As part of the preliminary purchase price allocation, the Company determined that Cyence’s separately identifiable intangible assets were developed technology, customer contracts and related relationships, order backlog, and trade names. 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 estimate 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 value 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 about 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
4
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 used lives as set forth in the table below.
The allocation of purchase consideration is preliminary pending the final valuation of intangible and tangible assets acquired and liabilities assumed 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 tangible assets, net of assumed liabilities | $ | 9,022 | ||||
Developed technology | 28,500 | 5 | ||||
Customer contracts and related relationships | 17,600 | 5 | ||||
Order backlog | 3,300 | 2 | ||||
Trademarks | 2,500 | 7 | ||||
Goodwill | 199,624 | |||||
Total preliminary purchase consideration | $ | 260,546 | ||||
The goodwill of $199.6 million arising from the 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 not expected to be deductible for income tax purposes.
4. UNAUDITED PRO FORMA ADJUSTMENTS
The following is a description of the unaudited pro forma adjustments reflected in the unaudited pro forma condensed combined financial statements:
Adjustments to the unaudited pro forma condensed combined balance sheet as of July 31, 2017 (in thousands):
(a) To record the reduction in cash paid for the Acquisition of $142,612 and estimated transaction costs incurred and paid subsequent to the balance sheet date of $4,771.
(b) To record the write off of $283 of short term deferred costs which hold no future benefit to Guidewire.
(c) To record the write off of $199 of prepaid expenses to conform accounting policies.
(d) To record the fair value adjustment of ($134) to Cyence depreciable property and equipment.
(e) To record the estimated fair value of acquired intangible assets as set forth below:
Developed technology | $ | 28,500 | ||
Customer contracts and related relationships | 17,600 | |||
Order backlog | 3,300 | |||
Trademark | 2,500 | |||
Total acquired intangible assets | $ | 51,900 | ||
(f) To record a net deferred tax liability of $8,531 related to the fair value of acquired intangible assets and acquired net operating losses.
(g) To record the preliminary estimate of goodwill recognized as a result of the Acquisition, which represents the amount by which the estimated consideration transferred exceeds the fair value of Cyence’s assets acquired and liabilities assumed set forth in Note 3.
(h) To record the write off of $54 of long-term deferred costs which hold no future benefit to Guidewire.
(i) To record the fair value adjustment to deferred revenue of ($944).
5
(j) To record a liability of $312 for Cyence transaction costs that were unpaid as of the Acquisition date.
(k) To record a liability of $147 related to liability classified awards issued for the Acquisition.
(l) To record the elimination of Cyence historical equity.
(m) To record equity issued for the Acquisition of $117,787 related to equity awards exchanged and new awards granted by Guidewire to retained Cyence employees.
(n) To record the acceleration of stock-based compensation expense of $478.
(o) To record the payment of estimated transaction costs of $4,771.
Adjustments to the unaudited pro forma condensed combined statements of income for the fiscal year ended July 31, 2017 (in thousands):
(p) To record a reduction in revenue of $631 related to the estimated fair value of the acquired deferred revenue.
(q) To record the estimated amortization expense related to the intangible assets acquired utilizing the estimated useful lives as set forth in Note 3:
Year ended July 31, 2017 | ||||
Cost of license and other revenue | $ | 5,700 | ||
Sales and marketing | 5,527 | |||
Total amortization adjustment | $ | 11,227 | ||
(r) To record the estimated adjustment to stock-based compensation expense related to equity awards exchanged and new awards granted by Guidewire to retained Cyence employees:
Year ended July 31, 2017 | ||||
Research and development | $ | 9,827 | ||
Sales and marketing | $ | 4,041 | ||
General and administrative | $ | 3,619 | ||
Total stock-based compensation | $ | 17,487 | ||
(s) To record the tax effects of the unaudited pro forma adjustments calculated at the statutory tax rate.
(t) Basic and diluted earnings per share has been calculated by dividing the net loss for the year by the weighted average shares outstanding. The adjustment for weighted average shares issued gives effect to the number of shares issued that we expect to vest in the year following the acquisition. The following table shows the calculation of EPS:
6
Basic | Diluted | |||||||
Proforma net loss | $ | (7,088 | ) | $ | (7,088 | ) | ||
Historical shares used in computing net earnings per share | 73,994,577 | 75,328,343 | ||||||
Weighted average shares issued | 48,742 | 48,742 | ||||||
Proforma shares in computing earnings per share | 74,043,319 | 74,043,319 | ||||||
Proforma earnings per share | $ | (0.10 | ) | $ | (0.10 | ) | ||
7