Guidewire (GWRE) Earnings & Revenues Top Estimates in Q4

Guidewire Software, Inc. GWRE reported fourth-quarter fiscal 2019 non-GAAP earnings of 56 cents per share, outpacing the Zacks Consensus Estimate of 50 cents. The figure also came ahead of management’s guided range of 47-53 cents per share. However, the bottom line also decreased from the year-ago quarter’s figure of 81 cents per share.

The company reported revenues of $207.8 million, declining 13% from the year-ago quarter. However, the figure surpassed the Zacks Consensus Estimate of $205 million. Further, the bottom line came slightly above the higher end of management’s guided range of $199-$207 million. The decrease can primarily be attributed to lower Services and License revenues.

Nonetheless, management remains confident regarding strong adoption of its several cloud-based products. Deployment of the Guidewire’s ClaimCenter solution remains a key catalyst. Moreover, the company added six additional InsuranceSuite Cloud customers, which is a positive.

The company had adopted a new revenue recognition standard — ASC 606 — which came into effect from first-quarter fiscal 2019.

Shares of Guidewire have returned approximately 18.9% on a year-to-date basis, outperforming the industry’s rally of 11.9%.

Quarter in Detail

Per the new accounting standard, the company will now have three main segments — License and subscription, Maintenance, and Services.

License and subscription revenues decreased 11% from the year-ago quarter to $127.7 million.

Maintenance revenues amounted to $21.8 million, up 6% year over year. However, Services revenues decreased approximately 23% from the year-ago quarter to nearly $58.3 million, primarily owing to higher investment in cloud implementations.

During the reported quarter, new and existing customers selected multiple components of Guidewire InsurancePlatform which included InsuranceSuite, digital, data and analytics.

Non-GAAP operating income came in at $51.1 million during the quarter compared with $76.6 million reported in the year-ago quarter. Non-GAAP operating margin during the quarter came in at 24.6% compared with 31.9% reported in the year-ago period.

Balance Sheet & Cash Flow

The company had cash and cash equivalents and short-term investments of $1.12 billion as on Jul 31, 2019 as compared with $1.2 billion at the end of the previous quarter.

Cash from operating activities in the fourth quarter was $102.9 million.

Fiscal 2019 Highlights

The company reported revenues of $719.5 million, increasing 10% year over year. License and subscription revenues increased 25% from the year-ago quarter to $385.3 million.  Maintenance revenues amounted to $85.4 million, up 10% year over year. However, Services revenues decreased approximately 7% from the year-ago quarter to nearly $248.8 million.

Non-GAAP earnings of $1.45 per share in fiscal 2019, increased from earnings $1.07 per share reported in fiscal 2018.

In fiscal 2019, non-GAAP gross margin was 62% compared with 61% in the year-ago quarter.

Total non-GAAP operating expenses came in at $320.5 million in fiscal 2019, up 7.3% year over year.

Outlook Tepid

For first-quarter 2020, revenues are expected to be in the range of $149-$153 million. The Zacks Consensus Estimate for revenues is pegged at $183.9 million.

License and subscription are expected to be in the range of $78-$80 million. Maintenance revenue is anticipated to be in the range of $19-$20 million. Services revenues are projected to be in the range of $51-$54 million.

Non-GAAP operating income is expected to lie between $1 million and ($3) million. Non-GAAP net income per share is projected to be between 1-5 cents. The Zacks Consensus Estimate for earnings is pegged at 27 cents.

Guidewire provided fiscal 2020 outlook. The company expects total revenues to be in the range of $759-$771 million. The Zacks Consensus Estimate for revenues is pegged at $801.2 million.

License and subscription are expected to be in the range of $443-$455 million. Maintenance revenues are anticipated to be in the range of $85-$87 million. Services revenues are projected in the range of $224-$236 million.

The company expects non-GAAP operating income in the range of $96 million and $108 million.

Non-GAAP net income is projected to be between $1.1 cents and $1.22 per share. The Zacks Consensus Estimate for earnings is pegged at $1.29 per share.

Zacks Rank & Stocks to Consider

Guidewire carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Alibaba Group Holding Limited BABA, Keysight Technologies Inc. KEYS and Anixter International AXE. All the stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Alibaba, Keysight and Anixter is currently pegged at 28%, 10% and 8%, respectively.

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