Guidewire Gearing For IPO; Looks Solid

Not only are Internet companies vying for the stock market, other software companies are also lining up. Earlier this year, insurance technology provider Guidewire Software filed their S-1 to raise more than $100 million to expand business. Guidewire’s offerings cater to a market that Gartner estimated was worth $14.5 billion last year, of which $4 billion was spent on software.

Guidewire Software’s Financials
Based in San Mateo, California, Guidewire Software was co-founded in 2001 by former Ariba VP, Marcus Ryu. Guidewire was founded to provide software solutions to the insurance sector. Today, Guidewire’s offerings focus on software for property, casualty, and workers compensation insurance providers. Guidewire offers a web-based platform that supports claims system for personal, commercial, and workers compensation insurance, enterprise applications for transaction recording and executing, and an underwriting and policy administration system.

Guidewire earns software license revenues through annual fees charged during multiyear contracts. According to their S-1 filing, Guidewire’s average customer contract are renewable and initially last five years. Over the past year, Guidewire has generated $144.7 million in revenues. During the first nine months ended April of this year, they reported revenues of $121.5 million. Over the same period, net income grew from $15.5 million for 2010 to $33.5 million. As of July 2011, Guidewire had 101 customers ranging from global insurance companies like Tokio Marine & Nichido Fire Insurance Co., Ltd. and Zurich Financial Services Group Ltd. to national carriers such as Nationwide Mutual Insurance Company.

To date, Guidewire has received $30 million in funding from its co-founders and funds, which include U.S. Venture Partners, Bay Partners, and Battery Ventures.

Guidewire Expansion Plans
Guidewire plans to use the IPO funds to expand their technology leadership in the property and casualty insurance sector. They are focused on developing newer products and pursuing newer customers by expanding their sales and marketing organization.

As part of their market growth plan, they recently expanded their global partner program, PartnerConnect, by adding a new affiliate partner level focused on IT and consulting services companies. The new level should enable their IT services partners to acquire the necessary skills and credentials required to better help customers. The new tier provides members with the benefits of a methodology to strengthen their working relationship with Guidewire, deepen their knowledge of the company’s products, and build their insurance practice. They launched the program by tying up with outsourcing solutions providers Cognizant and HCL Technologies.

Guidewire’s IPO is expected to come by early 2012. Unlike other recently listed IPO companies, Guidewire’s financials look robust. The company has seen both revenues and earnings grow over the past three years. This is one company whose IPO will not make me nervous given that they have a good product supporting those financials.