GUIDEWIRE SOFTWARE: Management Discussion and Analysis of Financial Position and Operating Results (Form 10-K)

The following discussion and analysis should be read in conjunction with our
consolidated financial statements and related notes thereto included in Item 8
and the Risk Factors included in Item 1A of Part I of this Annual Report on Form
10-K. All information presented herein is based on our fiscal calendar. Unless
otherwise stated, references in this Annual Report on Form 10-K 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.
We have elected to omit discussion on the earliest of the three years covered by
the consolidated financial statements presented. Refer to Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations located
in our Form 10-K for the fiscal year ended July 31, 2020, filed on September 28,
2020, for reference to discussion of the fiscal year ended July 31, 2019, the
earliest of the three fiscal years presented.
Overview
Guidewire delivers a leading platform that P&C insurers trust to engage,
innovate, and grow efficiently. Guidewire's platform combines core operations,
digital engagement, analytics, and AI applications delivered as a cloud service
or self-managed software. As a partner to our customers, we continually evolve
to enable their success and assist them in navigating a rapidly changing
insurance market.

Our core operational services and products are InsuranceSuite via Guidewire
Cloud, InsuranceNow, and InsuranceSuite for self-managed installations. These
services and products are transactional systems of record that support the
entire insurance lifecycle, including insurance product definition,
distribution, underwriting, policyholder services, and claims management.
InsuranceSuite via Guidewire Cloud is a highly configurable and scalable
product, delivered as a service and primarily comprised of three core
applications (PolicyCenter, BillingCenter, and ClaimCenter) that can be
subscribed to separately or together. These applications are built on and
optimized for our Guidewire Cloud Platform ("GWCP") architecture and leverage
our in-house Guidewire Cloud operations team. InsuranceSuite via Guidewire 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 via Guidewire Cloud embeds digital and
analytics capabilities natively into our platform. Most new sales and
implementations are for InsuranceSuite via Guidewire Cloud. InsuranceNow is a
complete, cloud-based application that offers policy, billing, and claims
management functionality to insurers that have limited internal information
technology resources. InsuranceSuite for self-managed installations is comprised
of three core applications (PolicyCenter, BillingCenter, and ClaimCenter) that
can be licensed separately or together and can be deployed and updated by our
customers and their implementation partners. Our digital engagement applications
enable digital sales, omni-channel service, and enhanced claims experiences for
policyholders, agents, vendor partners, and field personnel. Our Analytics and
AI offerings enable insurers to manage data more effectively, gain insights into
their business, drive operational efficiencies, and underwrite new and evolving
risks. To support P&C insurers globally, we have localized, and will continue to
localize, our platform for use in a variety of international regulatory,
language, and currency environments.

Our customers range from some of the largest global insurance companies or their
subsidiaries to predominantly national or local insurers that serve specific
states and/or regions. Our customer engagement is led by our direct sales team
and supported by our SI partners. We maintain and continue to grow our sales and
marketing efforts globally, and maintain regional sales centers throughout the
world.
Because our platform is critical to our new and existing customers' businesses,
their decision-making and product evaluation process is long, which results in
an extended sales cycle. These evaluation periods can extend further if a
customer purchases multiple services and products or assesses the benefits of a
cloud-based subscription. Sales to new customers also involve extensive customer
due diligence and reference checks. Our sales cycle has lengthened due to the
COVID-19 pandemic. The success of our sales efforts relies on continued
improvements and enhancements to our current services and products, the
introduction of new services and products, efficient operation of our cloud
infrastructure, continued development of relevant local content and automated
tools for updating content, and successful implementations.
We sell our cloud-delivered offerings through subscription services and our
self-managed products through term licenses. We generally price our services and
products based on the amount of DWP that will be managed by our platform. Our
subscription, term license, and support fees are typically invoiced annually in
advance. Subscription services are generally sold with an initial term of
between three and five years with optional annual renewals commencing after the
initial term.

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Subscription revenue is recognized on a ratable basis over the committed term,
once all revenue recognition criteria is met including providing access to the
service. Term licenses are primarily sold with an initial two-year committed
term with optional annual 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 revenue is derived from perpetual licenses.
Term and perpetual license revenue are typically recognized when software is
made available to a 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.
Substantially all of our services revenue is billed monthly on a time and
materials basis.
Over the past few years, we have primarily been entering into cloud-based
subscription arrangements with our new and existing customers, and we anticipate
that subscription arrangements will be a majority of annual new sales going
forward. As this 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 product development and cloud operations to
enhance and improve our current services and products, introduce new services
and products, and advance our ability to cost-effectively deliver our services
in the cloud. Continued investment is critical as we seek to assist our
customers in achieving their technology goals, maintain our competitive
advantage, grow our revenue, expand internationally, and meet evolving customer
demands. In certain cases, we may also acquire skills and technologies to manage
our cloud infrastructure and accelerate our time to market for new services,
products, solutions, and 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
team and SI partners to ensure that teams with the right combination of product
and language skills are used in the most efficient way to meet our customers'
implementation needs. We have extensive relationships with SI, consulting,
technology, and industry partners. Our network of partners has expanded as
interest in and adoption of our platform has grown. We encourage our partners to
co-market, pursue joint sales initiatives, and drive broader adoption of our
technology, helping us grow our business more 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 partnerships with leading SI partners allow us to increase
efficiency and scale while reducing customer implementation costs. We continue
to invest time and resources to increase the number of qualified consultants
employed by our SI partners, develop relationships with new partners in existing
and new markets, and ensure that all SI partners are qualified 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 our business towards a subscription model with ratable
revenue recognition, increasing the overall adoption of our services and
products, and cost-effectively 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, including product development, cloud
operations, implementation services and sales and marketing.

COVID-19 Impact
In March 2020, the World Health Organization declared the outbreak of COVID-19 a
pandemic, which has continued to spread throughout the United States and the
world and has resulted in authorities implementing numerous measures to contain
the virus, including travel bans and restrictions, quarantines, shelter-in-place
orders, and business limitations and shutdowns. While we are unable to
accurately predict the full impact that COVID-19 will have on our results of
operations, financial condition, liquidity, and cash flows due to numerous
uncertainties, including the duration and severity of the pandemic, containment
measures, and if there are periods of increases in the number of COVID-19 cases
or future variants of the virus in areas in which we operate, our compliance
with containment measures has impacted our day-to-day operations and could
continue to disrupt our business and operations, as well as that of our key
customers, SI partners, vendors, and other counterparties, for an indefinite
period of time. To support the health and well-being of our employees,
customers, SI partners and communities, a vast majority of our employees are
working remotely. In addition, many of our existing and potential

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customers are working remotely, which may continue to delay the timing of new
orders and professional services engagements in the future.
Our business and financial results since the third fiscal quarter of 2020 have
been impacted due to these disruptions, including decreases in ARR growth rates,
services revenue and margins, operating cash flow and the change in fair value
of strategic investments. ARR and revenue, especially services revenue,
continued to be impacted in fiscal year 2021 as a result of the challenges
related to our compliance with government-mandated or recommended
shelter-in-place orders in jurisdictions in which we, our customers, SI partners
and vendors operate.
Although vaccines are making progress against the COVID-19 pandemic in the
United States and certain other parts of the world where vaccinations are widely
available, the economic impact of the pandemic on our business and the
businesses of our customers, SI partners, and vendors may continue into fiscal
year 2022, if not longer. We believe that new sales activities are being
delayed, not cancelled, and implementation engagements are being rescheduled to
later periods or being completed over a longer period of time. Certain marketing
events have or will be cancelled or postponed, while the majority are being
hosted virtually, like our customer conference, Connections. Our customers may
be unable to pay or may request amended payment terms for their outstanding
invoices due to the economic impacts from COVID-19, and we may need to increase
our accounts receivable allowances. A decrease in orders in a given period could
negatively affect our revenues and ARR in future periods, particularly if
experienced on a sustained basis, because a substantial proportion of our new
software subscription services orders is recognized as revenue over time. Also,
the pandemic's global economic impact could affect our customers' DWP, which
could ultimately impact our revenue as we generally price our services and
products based on the amount of DWP that will be managed by our platform.
Additionally, we may be required to record impairment related to our operating
lease assets, investments, long-lived assets, or goodwill.
In response to the pandemic, various government programs have been announced
which provide financial relief to affected businesses. As an example, the
Canadian Government enacted the Canada emergency Wage Subsidy ("CEWS") under
their COVID-19 Economic Response Plan to prevent layoffs and help employers
offset, for a limited time, a portion of their employee salaries and wages.
Beginning in January 2021, we have applied for the CEWS, to the extent we met
the requirements to receive a subsidy, and recorded a reduction of compensation
expense of approximately $3 million that is reflected in cost of revenue and
operating expenses in our consolidated statements of operations during fiscal
year 2021. We will continue to review and apply for additional subsidies or
relief, where applicable.
We will continue to evaluate the nature and extent of the impact of COVID-19 on
our business.
Key Business Metrics
We use certain key metrics and financial measures not prepared in accordance
with GAAP to evaluate and manage our business, including ARR 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."
Annual Recurring Revenue ("ARR")
We use ARR to quantify the annualized recurring value 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 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 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 only impacts the initial term of the contract. This
means that as we increase arrangements with multiple performance obligations
that include services at discounted rates, more of the total contract value will
be recognized as services revenue, but our reported ARR amount will not be
impacted. In fiscal year 2021, the recurring license and support or subscription
contract value recognized as services revenue was $5.5 million.

If a customer contract contains invoicing amounts that increase over the
contract term, then ARR reflects the annualized invoicing amount outlined in the
contract for the current reporting period. For example, given a contract with
annual invoicing of $1.0 million at the beginning of year one, $2.0 million at
the beginning of year two, and $3.0 million at the beginning of year three, and
the reporting period is subsequent to year two invoicing and prior to year three
invoicing, the reported ARR for that contract would be $2.0 million.


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As of July 31, 2021, ARR was $582 million, or $575 million based on currency
exchange rates as of July 31, 2020. We measure ARR on a constant currency basis
during the fiscal year and revalue ARR at year end to current currency rates.
ARR grew in fiscal year 2021 by 13%, or 12% on a constant currency basis.
Free Cash Flow
We monitor our free cash 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, amortization, and
stock-based compensation expenses. Additionally, free cash flow takes into
account the impact of changes in deferred revenue, which reflects the receipt of
cash payment for services and products before they are recognized as 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 activities is significantly impacted by the timing of
invoicing and collections of accounts receivable, the timing and amount of
annual bonus payments, as well as payroll and tax payments. Our capital
expenditures consist of purchases of property and equipment, primarily computer
hardware, software, leasehold improvements, and capitalized software development
costs. In the third fiscal quarter of 2020, free cash flow was impacted by a
$9.9 million partial early bonus payout, which correspondingly resulted in lower
bonus payments in the first fiscal quarter of 2021. This partial early bonus
payout was approved by our board of directors in order to support our employees
and, in turn, their local economies during the extraordinary situation created
by the COVID-19 pandemic. In the first fiscal quarter of 2022, we will pay the
entire bonus amount for fiscal year 2021 along with accrued vacation for U.S.
employees, as we have announced a move to an unlimited vacation policy. The
build out and furnishing of our corporate headquarters in San Mateo, California
impacted free cash flow by $11.1 million for the fiscal year ended July 31,
2020. The build out and furnishing of our new offices in Mississauga, Canada and
Dublin, Ireland impacted free cash flow by a total of $15.6 million for the
fiscal year ended July 31, 2021. For a further discussion of our operating cash
flows, see "Liquidity and Capital Resources - Cash Flows."
                                                              Fiscal years 

ended July 31,

                                                             2021                      2020

Net cash provided by (used in) operating activities $ 111,587

     $       113,066
Purchases of property and equipment                            (19,008)                 (21,377)
Capitalized software development costs                          (9,846)                  (4,283)
Free cash flow                                        $         82,733          $        87,406



Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP.
Accounting policies, methods, and estimates are an integral part of the
preparation of our consolidated financial statements in accordance with 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 our 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 consolidated financial statements, which are
described in Note 1 "The Company and a Summary of Significant Accounting
Policies and Estimates" to our consolidated financial statements included in
this Annual Report on Form 10-K, our revenue recognition policies are critical
to the periods presented.
Revenue Recognition
Revenue recognition requires judgment and the use of estimates, especially in
identifying and evaluating the various non-standard terms and conditions in our
contracts with customers as to their effect on reported revenue.
Our revenue is derived from contracts with customers. The majority of our
revenue is derived from subscriptions to our cloud services, licensing
arrangements for our software, and implementation and other professional
services arrangements. We account for revenue in accordance with Accounting
Standards Codification 606, Revenue from Contracts with Customers ("ASC 606").
The core principle of ASC 606 is to recognize revenue upon the transfer of
services or products to customers in an amount that reflects the consideration
we expect to be entitled to in exchange for those services or products. We apply
a five-step framework to recognize revenue as described in our Revenue
Recognition policy included in Note 1 of our consolidated financial statements
included in this Annual Report on Form 10-K.

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Our customers have significant negotiating power during the sales process, which
can and does result in terms and conditions that are different from our standard
terms and conditions. When terms and conditions of our customer contracts are
not standard, certain negotiated terms may require significant judgment in order
to determine the appropriate revenue recognition in accordance with ASC 606.
The estimates and assumptions requiring significant judgment under our revenue
policy in accordance with ASC 606 are as follows:
Allocation of the transaction price to the performance obligations in the
contract
If the contract contains a single performance obligation, the entire transaction
price is allocated to the single performance obligation. Contracts that contain
multiple performance obligations require an allocation of the transaction price
to each performance obligation based on its standalone selling price ("SSP") in
relation to the total fair value of all performance obligations in the
arrangement. Some of our performance obligations, such as support,
implementation services, and training services, have observable inputs that are
used to determine the SSP of those distinct performance obligations. Where SSP
is not directly observable, we determine the SSP using information that may
include market conditions and other observable inputs. In the circumstances when
available information to determine SSP is highly variable or uncertain, such as
for our term licenses, we will use the residual method.
The majority of our contracts contain multiple performance obligations, such as
when licenses are sold with support, implementation services or training
services. As customers enter into a subscription agreement to migrate from an
existing term license agreement, customers may be under contract for
self-managed licenses and support, in addition to subscription services, for a
period of time, which may require an allocation of the transaction price to each
performance obligation. Additionally, contract modifications for services and
products that are distinct but are not priced commensurate with their SSP or are
not distinct from the existing contract may affect the initial transaction price
or the allocation of the transaction price to the performance obligations in the
contract. In such cases, revenue recognized may be adjusted.
Changes from Prior Periodic Reports
In this Annual Report on Form 10-K, we have revised our disclosures to comply
with SEC Release No. 33-10825, "Modernization of Regulation S-K Items 101, 103,
and 105." In addition, we have early adopted the changes in the disclosure
standards included in SEC Release No. 33-10890, "Management's Discussion and
Analysis, Selected Financial Data, Supplementary Financial Information."
Modernization of Regulation S-K Items 101, 103, and 105
The SEC issued Release No. 33-10825, "Modernization of Regulation S-K Items 101,
103, and 105," effective for annual periods beginning subsequent to November
2020. This release was adopted to modernize the description of business, legal
proceedings, and risk factor disclosures that registrants are required to make
pursuant to Regulation S-K. Specifically, this release requires registrants to
provide disclosures relating to their human capital resources and to restructure
their risk factor disclosures. Additionally, the release increases the threshold
for disclosure of environmental proceedings to which the government is a party.
Management's Discussion and Analysis, Selected Financial Data, and Supplementary
Financial Information
The SEC issued Release No. 33-10890 "Management's Discussion and Analysis,
Selected Financial Data, Supplementary Financial Information" which became fully
effective on August 9, 2021. This release was adopted to modernize, simplify,
and enhance certain financial disclosure requirements in Regulation S-K.
Specifically, the SEC eliminated the requirement for selected financial data,
only requiring quarterly disclosure when there are retrospective changes
affecting comprehensive income, and amending the matters required to be
presented under Management's Discussion and Analysis ("MD&A") to, among other
things, eliminate the requirement of the contractual obligations table.

With the adoption of this version, we have removed from this document items mentioned above that are no longer required. Information on our contractual obligations is always disclosed in narrative form in the “Management analysis and analysis of the financial position and operating results” in point 7 of part II of this annual report on form 10-K.

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Recent Accounting Pronouncements
See Note 1 "The Company and Summary of Significant Accounting Policies and
Estimates" in the notes to the consolidated financial statements in Item 8 of
Part II of this Annual Report on Form 10-K, for a full description of recent
accounting pronouncements adopted, including the dates of adoption, which is
incorporated herein by reference.


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Results of Operations
The following table sets forth our results of operations for the years
presented. The data has been derived from the consolidated financial statements
contained in this Annual Report on Form 10-K which, in the opinion of our
management, reflect all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position and results of
operations for the fiscal years presented. The operating results for any period
should not be considered indicative of results for any future period.

                                                                                     Fiscal years ended July 31,
                                                                                     As a % of                               As a % of
                                                                  2021             Total Revenue            2020           Total Revenue
                                                                                  (in thousands except percentages)
Revenue:
Subscription and support                                    $     252,358                   34  %       $ 203,473                   27  %
License                                                           303,792                   41            331,554                   45
Services                                                          187,117                   25            207,280                   28
Total revenue                                                     743,267                  100            742,307                  100
Cost of revenue:
Subscription and support                                          164,983                   22            117,158                   16
License                                                            10,569                    1             11,566                    2
Services                                                          199,502                   27            209,291                   28
Total cost of revenue                                             375,054                   50            338,015                   46
Gross profit:
Subscription and support                                           87,375                   12             86,315                   11
License                                                           293,223                   39            319,988                   43
Services                                                          (12,385)                  (2)            (2,011)                   -
Total gross profit                                                368,213                   49            404,292                   54
Operating expenses:
Research and development                                          219,494                   30            200,575                   27
Sales and marketing                                               160,544                   22            142,420                   19
General and administrative                                         93,759                   13             85,183                   11
Total operating expenses                                          473,797                   65            428,178                   57
Income (loss) from operations                                    (105,584)                 (16)           (23,886)                  (3)
Interest income                                                     7,395                    1             24,705                    3
Interest expense                                                  (18,711)                  (3)           (17,945)                  (2)
Other income (expense), net                                        12,619                    2             (7,205)                  (1)

Profit (loss) before provision for (profit) of income taxes

                                                            (104,281)                 (16)           (24,331)                  (3)
Provision for (benefit from) income taxes                         (37,774)                  (7)             2,867                    -
Net income (loss)                                           $     (66,507)                  (9) %       $ (27,198)                  (3) %


Comparison of the Fiscal Years Ended July 31, 2021 and 2020
Revenue
We derive our revenue primarily from delivering cloud-based services, licensing
our software applications, providing support, and delivering professional
services.

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Subscription and Support
A growing portion of our revenue consists of fees for our subscription services,
which are generally priced based on the amount of DWP that is managed by our
subscription services. Subscription revenue is recognized ratably over the term
of the arrangement, beginning at the point in time our provisioning process has
been completed and access has been made available to the customer. The initial
term of such arrangements is generally from three to five years. Subscription
agreements contain optional annual renewals commencing upon the expiration of
the initial contract term. A majority of our subscription customers are billed
annually in advance. In some arrangements with multiple performance obligations,
a portion of recurring subscription contract value may be allocated to license
revenue or services revenue for revenue recognition purposes. 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.
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.
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 sold
under a two-year initial term with optional annual renewals after the initial
term. However, we do enter into license arrangements that have an initial term
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.
Perpetual license revenue is generally recognized upon delivery. We invoice our
perpetual license customers either in full at contract signing or on an
installment basis.
Services
Our services revenue is primarily derived from implementation services performed
for our customers, reimbursable travel expenses, and training fees. A
substantial majority of our services engagements are billed and recognized on a
time and materials basis upon providing our services.
                                                                    Fiscal years ended July 31,
                                                          2021                                         2020                                   Change
                                                                  % of total                                 % of total
                                             Amount                 revenue               Amount               revenue                ($)               (%)
                                                                                   (in thousands, except percentages)
Revenue:
Subscription and support:
Subscription                            $     168,649                      23  %       $ 119,658                      16  %       $ 48,991                 41  %
Support                                        83,709                      11             83,815                      11              (106)                 -
License:
Term license                                  303,309                      41            328,489                      44           (25,180)                (8)
Perpetual license                                 483                       -              3,065                       1            (2,582)               (84)
Services                                      187,117                      25            207,280                      28           (20,163)               (10)
Total revenue                           $     743,267                     100  %       $ 742,307                     100  %       $    960                  -  %


Subscription and Support
We anticipate subscriptions will continue to represent a majority of new
arrangements, including customers migrating from existing term license
arrangements to subscription services, in future periods. Due to the ratable
recognition of subscription revenue, growth in subscription revenue will lag
behind the growth of subscription orders and will impact the comparative growth
of our reported revenue. 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 the fourth fiscal quarter, our historically largest
quarter for new orders, is not reflected in revenues until the following fiscal
year.

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Subscription revenue increased by $49.0 million, compared to the prior year,
primarily due to the impact of new subscription services agreements for
InsuranceSuite via Guidewire Cloud entered into and provisioned since July 31,
2020.
License support revenue was flat, compared to the prior year. 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 continue to reduce the growth
in, or 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 $25.2 million, compared to the prior year,
primarily driven by lower revenue from new term licenses of $12.4 million and
term license renewals of $12.3 million. Included in these amounts is the impact
of term license contracts with an initial term of greater than two years or a
renewal term of greater than one year. The impact on term license revenue from
contracts that deviated from our standard contract durations was $23.4 million
in fiscal year 2021 compared with $37.6 million in the prior year.
Perpetual license revenue decreased by $2.6 million, compared to the prior year,
and accounted for less than 1% of total revenue in fiscal year 2021. We expect
perpetual license revenue to continue to represent a small percentage of our
total revenue. Perpetual license revenue may potentially be volatile across
periods due to the large amount of perpetual revenue that may be generated from
a single customer order.
Services Revenue
Services revenue decreased $20.2 million, compared to the prior year. The
decrease is primarily driven by contracts with lower average services billing
rates and increased investments in customer implementations to accelerate their
transition to the cloud, and to a lesser extent a $6.8 million reduction in
revenue from billable travel costs due to travel restrictions associated with
the COVID-19 pandemic during fiscal year 2021.
We expect modestly higher levels of variability in our services revenue in
future periods. As we successfully leverage our SI partners to lead more
implementations, our services revenue could decrease further. We expect
challenges related to COVID-19 will also continue to negatively impact services
revenue. As we continue to expand into new markets and develop new services and
products, we have, and may continue to, enter into contracts with lower average
billing rates, make investments in customer implementation and migration
engagements, and enter into fixed price contracts, which may impact services
revenue and services margins.
Cost of Revenue and Gross Profit
Our cost of subscription and support revenue consists of personnel costs for our
cloud operations and technical support teams, cloud infrastructure costs,
development of online training curriculum, amortization of our intangible
assets, and royalty fees paid to third parties. Our cost of license revenue
primarily consists of development of online training curriculum, royalty fees
paid to third parties, and amortization of our intangible assets. Our cost of
services revenue primarily consists of personnel costs for our professional
service employees, third-party contractors, and travel-related costs. In
instances where we have primary responsibility for the delivery of services,
subcontractor fees are expensed as cost of services revenue. In each case,
personnel costs include salaries, bonuses, benefits, and stock-based
compensation.
We allocate overhead such as information technology support, information
security, facilities, and other administrative costs to all functional
departments based on headcount. As such, these general overhead expenses are
reflected in cost of revenue and each functional operating expense.

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Cost of Revenue:
                                                                   Fiscal years ended July 31,
                                                          2021                                        2020                                 Change
                                                                  % of total                                 % of total
                                             Amount                 revenue               Amount              revenue                ($)              (%)
                                                                                 (In thousands, except percentages)
Cost of revenue:
Subscription and support                $     164,983                      22  %       $ 117,158                     16  %       $ 47,825              41  %
License                                        10,569                       1             11,566                      2              (997)             (9)
Services                                      199,502                      27            209,291                     28            (9,789)             (5)
Total cost of revenue                   $     375,054                      50  %       $ 338,015                     46  %       $ 37,039              11  %

Includes stock-based compensation of:
Cost of subscription and support
revenue                                 $      11,231                                  $   7,575                                 $  3,656
Cost of license revenue                           770                                        769                                        1
Cost of services revenue                       21,809                                     20,816                                      993
Total                                   $      33,810                                  $  29,160                                 $  4,650



Cost of subscription and support revenue increased by $47.8 million primarily
due to increases of $33.1 million in personnel costs due to our continued
investment in our cloud operations to increase operational efficiency and scale
and $16.3 million in cloud infrastructure costs for our growing cloud customer
base. The increase in personnel costs is net of a $1.6 million benefit related
to CEWS received in fiscal year 2021.
Due to our growth in cloud operations, new cloud-based customers, and increased
usage from existing cloud-based customers, the costs to provide our subscription
services increased. We expect our cost of subscription revenue to increase as we
continue to invest in our cloud operations and incur higher cloud infrastructure
costs to support our growing cloud customer base, to improve efficiencies, and
to continuously improve and maintain secure environments. However, we believe
that the cost of subscription revenue will grow at a slower rate than
subscription revenue in future years as we achieve economies of scale and other
efficiencies. Cost of support revenue is expected to remain flat or slightly
decrease over time as term license customers transition to the cloud. The
short-term impact of these trends along with mix within subscription and support
revenue may result in a decline in subscription and support gross margin even
though subscription and support gross profit increases in absolute dollars.
The $1.0 million decrease in our cost of license revenue was primarily
attributable to decreases in amortization of acquired intangible assets of $1.3
million, partially offset by costs associated with the development of online
training curriculum included with the latest releases of InsuranceSuite. We
continue to anticipate lower cost of license revenue over time as our term
license customers transition to cloud subscription agreements.
The $9.8 million decrease in cost of services revenue was primarily attributable
to decreases of $8.2 million in billable subcontractor expenses, $7.4 million in
employee and third party consultant travel-related costs resulting from COVID-19
travel restrictions, and $1.0 million in professional services, general office
and software costs, partially offset by an increase of $6.9 million in
personnel-related costs mainly due to higher bonus attainment based on company
performance. The increase in personnel-related costs is net of a $0.4 million
benefit related to the CEWS received in fiscal year 2021.
We had 600 cloud operations and technical support employees and 657 professional
service employees at July 31, 2021 compared to 378 cloud operations and
technical support employees and 758 professional services employees at July 31,
2020. In fiscal year 2020, certain professional services employees supported our
cloud operations and research and development activities, and the related
personnel costs were reflected within cost of subscription revenue and research
and development expense. Since July 31, 2020, approximately 115 employees have
been transferred from professional services to cloud operations and research and
development to support the growth in our cloud customers.

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Gross Profit
                                                                  Fiscal years ended July 31,
                                                         2021                                       2020                                  Change
                                             Amount               margin %              Amount             margin %               ($)                (%)
                                                                                 (In thousands, except percentages)
Gross profit:
Subscription and support                $      87,375                    35  %       $  86,315                    42  %       $   1,060                  1  %
License                                       293,223                    97            319,988                    97            (26,765)                (8)
Services                                      (12,385)                   (7)            (2,011)                   (1)           (10,374)               516
Total gross profit                      $     368,213                    50  %       $ 404,292                    54  %       $ (36,079)                (9) %



Our gross profit decreased $36.1 million compared to the prior year. Gross
profit was impacted by the decrease in term license revenue due to lower impact
of multi-year term license arrangements entered into in fiscal year 2021
compared to fiscal year 2020 and decreases in professional services revenue
driven by contracts with lower average services billing rates and increased
investment in implementation engagements.
Our gross margin decreased to 50% in fiscal year 2021, as compared to 54% in
fiscal year 2020. Gross margin was impacted by lower subscription and support
gross margins resulting from increasing investments in cloud operations and
lower services gross margin resulting from contracts with lower average services
billing rates and investments in implementation engagements.
We expect subscription and support gross margins will fluctuate as our
subscription revenue increases and we continue to invest in our cloud
operations. However, as we gain efficiencies and increase the number of cloud
customers, we expect subscription gross margins to improve over time. In
addition to the impact of our investment in customer migrations and
implementations, challenges related to COVID-19 may negatively impact services
gross margin beyond this fiscal year. We expect license gross margin will
fluctuate based on changes in revenue due to the timing of delivery of new
multi-year term licenses and the execution of multi-year term license renewals,
as cost of license revenue is expected to be relatively consistent with prior
years in the future. Overall, we expect gross margins to decline in the
short-term primarily due to the mix between license revenue and subscription and
support revenue.

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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 personnel costs for our employees and, to a lesser extent,
professional services. In each case, personnel costs include salaries, bonuses,
commissions, benefits, and stock-based compensation. We allocate overhead such
as information technology support, information security, facilities, and other
administrative costs to all functional departments based on headcount. As a
result, general overhead expenses are reflected in cost of revenue and each
functional operating expense.
                                                                      

Closed exercises July 31,

                                                            2021                                         2020                                   Change
                                                                    % of total                                 % of total
                                               Amount                 revenue               Amount               revenue                ($)               (%)
                                                                                    (In thousands, except percentages)
Operating expenses:
Research and development                  $     219,494                      30  %       $ 200,575                      27  %       $ 18,919                 9  %
Sales and marketing                             160,544                      22            142,420                      19            18,124                13
General and administrative                       93,759                      13             85,183                      11             8,576                10
Total operating expenses                  $     473,797                      65  %       $ 428,178                      57  %       $ 45,619                11  %

Includes stock-based compensation of:
Research and development                  $      29,524                                  $  26,324                                  $  3,200
Sales and marketing                              25,820                                     21,260                                     4,560
General and administrative                       25,855                                     25,073                                       782
Total                                     $      81,199                                  $  72,657                                  $  8,542



Research and Development
Our research and development expenses primarily consist of personnel costs for
our technical staff and consultants providing professional services.
The $18.9 million increase in research and development expenses was primarily
due to increases of $17.6 million in personnel costs associated with higher
headcount and bonus attainment that is based on company performance in fiscal
year 2021, $2.6 million of cloud infrastructure costs for our development
environments, and $0.8 million in professional services costs for consultants
that support the development of our subscription offerings, information security
requirements and cloud strategy. The increase in personnel costs is net of a
$1.2 million benefit related to the CEWS received in fiscal 2021. These
increases were partially offset by a decrease in travel costs of $2.1 million
due to COVID-19 travel restrictions.
Our research and development headcount was 853 as of July 31, 2021 compared with
809 as of July 31, 2020.
We expect our research and development expenses to increase in absolute dollars
as we continue to hire and dedicate internal resources to develop, improve, and
expand the functionality of our solutions and migrating 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 for our
sales and marketing employees. 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 is to be approximately
five years. Sales and marketing expenses also includes travel expenses,
professional services for marketing activities, and amortization of certain
acquired intangibles.
The $18.1 million increase in sales and marketing expenses was primarily due to
increases of $23.0 million in personnel costs due to higher headcount to sell
and market our services and products, including an increase of $3.5 million
related to the net effect of the capitalization and amortization of contract
acquisition costs (primarily commissions), and $1.0 million in professional
services costs to assist in the development of business strategies and customer
success alliances. The increase in personnel costs is net of a $0.2 million
benefit related to the CEWS received in fiscal year 2021. These increases were
partially offset by decreases of $5.3 million in travel costs due to COVID-19
travel restrictions, $0.7 million in marketing and advertising costs mainly due
to the hosting of Connections Reimagined as a series of virtual events in fiscal
year 2021 compared to an in-person event in fiscal year 2020, and $0.7 million
due to lower amortization of acquired intangible assets.

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Our sales and marketing headcount was 426 as of July 31, 2021 compared with 399
as of July 31, 2020.
We expect our sales and marketing expenses to continue to increase in absolute
dollars as we continue to invest in sales and marketing activities to support
our business growth and objectives. Additionally, we anticipate that Connections
will be an in-person event in the future, supplemented by virtual content, which
may contribute to an increase in sales and marketing expenses.

General and Administrative
Our general and administrative expenses include executive, finance, human
resources, legal, and corporate development and strategy functions, and
primarily consist of personnel costs, as well as professional services.
The $8.6 million increase in our general and administrative expenses was
primarily due to increases of $7.0 million in personnel-related costs due to
higher headcount and bonus attainment that is based on company performance and
$1.3 million increase in software and professional services costs to support our
growth and remote environment.
Our general and administrative headcount was 406 as of July 31, 2021 compared
with 346 as of July 31, 2020. General and administrative headcount includes
personnel in information technology support, information security, facilities,
and recruiting whose costs are allocated across all functional departments.
We expect that our general and administrative expenses will increase in absolute
dollars as we continue to invest in personnel, corporate infrastructure, and
systems required to support our strategic initiatives, the growth of our
business, and our compliance and reporting obligations.
Other Income (Expense)
                                    Fiscal years ended July 31,
                                        2021                  2020                Change
                                       Amount                Amount           ($)          (%)
                                              (In thousands, except percentages)
Interest income               $        7,395               $  24,705      $ (17,310)      (70) %
Interest expense              $      (18,711)              $ (17,945)     $    (766)        4  %
Other income (expense), net   $       12,619               $  (7,205)     $ 

19,824,275%


Interest Income
Interest income represents interest earned on our cash, cash equivalents, and
investments.
Interest income decreased by $17.3 million in fiscal year 2021, primarily due to
lower yields on invested funds and, to a lesser extent, lower funds available
for investment due to our share repurchase program.
Interest Expense
Interest expense includes both stated interest and the amortization of debt
discount and issuance costs associated with the $400.0 million aggregate
principal amount of our Convertible Senior Notes. The amortization of debt
discount and issuance costs are recognized on an effective interest basis.
Stated interest expense is consistent in the comparative periods as the
outstanding principal and stated interest rate have not changed.
Interest expense for fiscal years 2021 and 2020 consist of non-cash interest
expense related to the amortization of debt discount and issuance costs of $13.6
million and $12.9 million, respectively, and stated interest of $5.0 million in
both periods.
Other Income (Expense), Net
Other income (expense), net includes foreign exchange gains and losses resulting
from fluctuations in foreign exchange rates on monetary asset and monetary
liability balances that are denominated in currencies other than the functional
currency of the entity in which they are recorded. Our monetary assets and
liabilities denominated in currencies in other than the functional currency of
the entity in which they are recorded consist primarily of trade accounts
receivable, unbilled accounts receivable and intercompany receivables and
payables. We currently have entities with a functional currency of the Argentine
Peso, Australian Dollar, Brazilian Real, British Pound, Canadian Dollar, Danish
Kroner, Euro, Indian Rupee, Japanese Yen, Malaysian Ringgit, New Zealand Dollar,
Polish Zloty, Russian Ruble, and Swiss Franc.
Other income (expense), net in fiscal year 2021 was income of $12.6 million,
compared to expense of $7.2 million in fiscal year 2020, which included a
$10.7 million reduction in fair value of one of our strategic investments.
Excluding the effect of the reduction in strategic investment fair value, other
income increased $9.1 million primarily due to gains from exchange rate
movements on monetary assets and monetary liabilities denominated in currencies
other than the functional currency of the entity in which they were recorded.

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Provision for (benefit from) Income Taxes

We are subject to taxes in the United States as well as other tax jurisdictions
and countries in which we conduct business. Earnings from our non-U.S.
activities are subject to local country income tax and may be subject to current
U.S. income tax.
                                                   Fiscal years ended July 31,
                                                     2021                  2020                          Change
                                                    Amount                Amount              ($)                   (%)
                                                                     (In thousands, except percentages)
Provision for (benefit from) income taxes     $      (37,774)          $   2,867          $ (40,641)                 (1,418) %
Effective tax rate                                        36   %             (12) %



We recognized an income tax benefit of $37.8 million for fiscal year 2021
compared to an income tax provision of $2.9 million for fiscal year 2020. The
increase in our income tax benefit for fiscal year 2021 was primarily due to an
increase in pre-tax net loss, the release of a reserve for an uncertain tax
position, and the impact related to the tax status change of certain foreign
subsidiaries for U.S. tax purposes, partially offset by an increase in the
valuation allowance.
As of July 31, 2021, we had unrecognized tax benefits of $10.9 million that, if
recognized, would affect our effective tax rate as certain unrecognized tax
benefits have a valuation allowance.
The effective tax rate of 36% for fiscal year 2021 differs from the statutory
U.S. Federal income tax rate of 21% mainly due to permanent differences for
stock-based compensation, including excess tax benefits, the release of a
reserve for an uncertain tax position, research and development credits, the tax
status change of certain foreign subsidiaries, change in valuation allowance,
and certain non-deductible expenses including executive compensation.
Comparison of the Fiscal Years Ended July 31, 2020 and 2019
Refer to Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations located in our 10-K for the fiscal year ended July 31,
2020, filed on September 28, 2020, for the discussion of the comparison of the
fiscal year ended July 31, 2020 to the fiscal year ended July 31, 2019, the
earliest of the three fiscal years presented in the consolidated financial
statements.

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Quarterly Results of Operations

Our quarterly results of operations may fluctuate significantly due to a variety
of factors, many of which are outside of our control, making our results of
operations variable and difficult to predict. Such factors include those
discussed above and those set forth in "Risk Factors-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" and "Risk
Factors-Risks Related to our Business and Industry-Seasonal sales patterns 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" in Item 1A of Part I of this Annual Report on Form
10-K. One or more of these factors may cause our results of operations to vary
widely. As such, we believe that our quarterly results of operations may vary
significantly in the future and that sequential quarterly comparisons of our
results of operations may not be meaningful and should not be relied upon as an
indication of future performance.


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Non-GAAP Financial Measures
In addition to the key business metrics presented above, we believe that the
following non-GAAP financial measures provide useful information to management
and investors regarding certain financial and business trends relating to our
financial condition and results of operations. 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 investors. However, our management does not consider these non-GAAP measures
in isolation or as an alternative to financial measures determined in accordance
with GAAP.
The non-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
that are required by GAAP to be recorded in our financial statements. In
addition, they are subject to inherent limitations as they 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 reconciliation of non-GAAP financial measures to the comparable GAAP
financial measures included herein and not to rely on any single financial
measure to evaluate the Company's business.
The following table reconciles the specific items excluded from GAAP in the
calculation of non-GAAP financial measures for the periods indicated below:
                                                                          Fiscal years ended
                                                                               July 31,
                                                                                    2021                2020
Gross profit reconciliation:
GAAP gross profit                                                               $  368,213          $ 404,292
Non-GAAP adjustments:
Stock-based compensation                                                            33,810             29,160
Amortization of intangibles                                                         13,175             19,221
  COVID-19 Canada Emergency Wage Subsidy benefit(1)                                 (1,975)                 -
Non-GAAP gross profit                                                       

$ 413,223 $ 452,673

Income (loss) from operations reconciliation:
GAAP income (loss) from operations                                              $ (105,584)         $ (23,886)
Non-GAAP adjustments:
Stock-based compensation                                                           115,009            101,817
Amortization of intangibles                                                         19,965             26,834
  COVID-19 Canada Emergency Wage Subsidy benefit(1)                                 (3,396)                 -
Non-GAAP income (loss) from operations                                      

$ 25,994 $ 104,765

Net income (loss) reconciliation:
GAAP net income (loss)                                                          $  (66,507)         $ (27,198)
Non-GAAP adjustments:
Stock-based compensation                                                           115,009            101,817
Amortization of intangibles                                                         19,965             26,834
Amortization of debt discount and issuance costs                                    13,617             12,886
Changes in fair value of strategic investment(2)                                         -             10,672
COVID-19 Canada Emergency Wage Subsidy benefit(1)                                   (3,396)                 -
Tax impact of non-GAAP adjustments(3)                                              (37,379)           (19,243)
Non-GAAP net income (loss)                                                  

$ 41,309 $ 105,768

Tax provision (benefit) reconciliation:
GAAP tax provision (benefit)                                                    $  (37,774)         $   2,867
Non-GAAP adjustments:
Stock-based compensation                                                           (20,979)            16,453


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Amortization of intangibles                                                            (4,220)                4,334
Amortization of debt discount and issuance costs                                       (2,555)                2,080
Changes in fair value of strategic investment(2)                                            -                 1,418
COVID-19 Canada Emergency Wage Subsidy benefit(1)                                        (135)                    -
Tax impact of non-GAAP adjustments(3)                                                  65,268                (5,042)

Non-GAAP tax provision (benefit)                                            

$ (395) $ 22,110

Net income (loss) per share reconciliation:
GAAP net income (loss) per share - diluted                                       $      (0.79)         $      (0.33)
Non-GAAP adjustments:
Stock-based compensation                                                                 1.39                  1.23
Amortization of intangibles                                                              0.25                  0.33
Amortization of debt discount and issuance costs                                         0.16                  0.16
Changes in fair value of strategic investment(2)                                            -                  0.13
COVID-19 Canada Emergency Wage Subsidy benefit(1)                                       (0.04)                    -
Tax impact of non-GAAP adjustments(3)                                                   (0.45)                (0.23)

Non-GAAP dilutive shares excluded from the calculation of net income (loss) per share in accordance with GAAP (4)

                                                                    (0.03)                (0.03)
Non-GAAP net income (loss) per share - diluted                              

$ 0.49 $ 1.26

Equities used in the calculation of non-GAAP income (loss) per share: average GAAP weighted stocks – diluted

                                             83,577,375            82,855,392

Non-GAAP dilutive shares excluded from the calculation of earnings (loss) per share GAAP (4)

                                                                        805,747               834,002
Pro forma weighted average shares - diluted                                        84,383,122            83,689,394



(1) Effective the second fiscal quarter of 2021, the COVID-19 Canada Emergency
Wage Subsidy benefit was included as a non-GAAP adjustment. Prior to the second
fiscal quarter of 2021, this program was not available.
(2) Effective the third fiscal quarter of 2020, changes in fair value of
strategic investments are excluded from non-GAAP measures. Prior to the third
fiscal quarter of 2020, there were no changes in fair value of strategic
investments in any periods presented.
(3) Adjustments reflect the impact on the tax benefit (provision) resulting from
all non-GAAP adjustments.
(4) Due to the occurrence of a net loss on a GAAP basis, potentially dilutive
securities were excluded from the calculation of GAAP net income (loss) per
share, as they would have an anti-dilutive effect. However, these shares have a
dilutive effect on non-GAAP net income (loss) per share and, therefore, are
included in the non-GAAP net income (loss) per share calculation.

Liquidity and Capital Resources
Our principal sources of liquidity are as follows (in thousands):
                                              July 31, 2021       July 31, 

2020

Cash, cash equivalents and investments $ 1,346,591 $ 1,434,267
Working capital

                              $    1,054,971      $    1,118,020


Cash, Cash Equivalents, and Investments
Our cash equivalents are comprised of 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 July 31, 2021, approximately $58.7 million of our cash and cash
equivalents were domiciled in various foreign jurisdictions. While we have no
current plans to repatriate these funds to the United States, we may repatriate
foreign earnings in the future to the extent that the repatriation is not
restricted by local laws or there are no substantial incremental costs
associated with such repatriation.
Share Repurchase Program
In October 2020, our board of directors authorized and approved a stock
repurchase program of up to $200.0 million of our outstanding common stock.
During the fiscal year ended July 31, 2021, we repurchased 1,488,991 shares of
common stock

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at an average price of $109.17 per share for an aggregate purchase price of
$162.5 million. As of July 31, 2021, $37.5 million 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 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, although this may fluctuate significantly on a quarterly basis. In
particular, we typically use more cash during the first fiscal quarter ended
October 31, as we generally pay cash bonuses to our employees for the prior
fiscal year during that period and seasonally higher sales commissions from
increased customer orders booked in our fourth fiscal 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 cash 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 and operating costs, and expansion into
other markets. We also may invest in or acquire complementary businesses,
applications or technologies, or may expand our board-authorized stock
repurchase program, which may require the use of significant cash resources
and/or additional financing.
The following summary of cash flows for the periods indicated has been derived
from our consolidated financial statements included elsewhere in this Annual
Report on Form 10-K (in thousands):
                                                                            

Closed exercises July 31,

                                                                              2021                  2020
Net cash provided by (used in) operating activities                    $       111,587          $  113,066
Net cash provided by (used in) investing activities                    $        64,191          $   (5,801)
Net cash provided by (used in) financing activities                    $    

(159,387) $ 4,955


Cash Flows from Operating Activities
Net cash provided by operating activities decreased by $1.5 million in fiscal
year 2021 as compared to fiscal year 2020. The decrease in operating cash was
primarily attributable to a $55.7 million increase in net loss after excluding
the impact of non-cash charges such as deferred taxes, stock-based compensation
expense, depreciation and amortization expense, change in fair value of our
strategic investments, and other non-cash items, partially offset by a
$54.2 million increase in cash provided by working capital activity as compared
to the prior year.
Cash Flows from Investing Activities
Net cash provided by investing activities increased by $70.0 million in fiscal
year 2021 as compared to fiscal year 2020. The increase in net cash provided by
investing activities was primarily due to an increase of $73.4 million in net
cash flows from marketable securities transactions and lower office build out
costs of $2.4 million after completing the build out and furnishing of our
corporate headquarters in San Mateo, California in fiscal year 2020, offset by a
$5.6 million increase in capitalized cloud software development costs and a $0.2
million increase related to strategic investments.
Cash Flows from Financing Activities
Net cash used in financing activities increased by $164.3 million in fiscal year
2021 as compared to fiscal year 2020. The increase in net cash used in financing
activities was due to $161.3 million of repurchased common stock under our share
repurchase program and, to a lesser extent, a decrease in proceeds from option
exercises of $3.0 million
Contractual Obligations
Our estimated future obligations consist of leases, royalties, purchase
obligations, debt, and unrecognized tax benefits as of July 31, 2021. Refer to
Note 8 "Commitments and Contingencies" and Note 10 "Income Taxes" to our
consolidated financial statements included in this Annual Report on Form 10-K
for more information.


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Off-Balance Sheet Arrangements
Through July 31, 2021, we did not have any relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities, which would have been
established for the purpose of facilitating off-balance sheet arrangements or
other contractually narrow or limited purposes.

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