Guidewire (GWRE) Q3 Earnings & Revenues Top Estimates, Stock Up

Guidewire Software, Inc. GWRE reported third-quarter fiscal 2020 non-GAAP earnings of 9 cents per share, against the Zacks Consensus Estimate pegged at loss of 6 cents. However, the bottom line declined 50% from the year-ago quarter’s figure.

The company reported revenues of $168.2 million, which surpassed the Zacks Consensus Estimate by 10.3%. Further, the top line surpassed the higher end of management’s guidance of $153-$157 million. Moreover, the top line increased 3% from the year-ago quarter’s figure.

The growth can primarily be attributed to higher License and subscription revenues.

Further, management is optimistic on growing clout of its several cloud-based products and InsuranceSuite Cloud deal wins.

Shares Up on Updated Fiscal 2020 View

Following better-than-expected results and revised outlook for fiscal 2020, Guidewire stock is up more than 6% in the pre-market trading, on Jun 4.

Guidewire updated fiscal 2020 outlook on increasing cloud implementations and higher allegiance of customers to adopt subscription-based services. The company now expects total revenues between $703.5 million and $711.5 million compared with prior guidance of $702-$714 million. The Zacks Consensus Estimate for revenues is currently pegged at $ 696.59 million.

The company anticipates non-GAAP earnings of 84-92 cents per share in fiscal 2020 compared with prior range of 82-94 cents. The Zacks Consensus Estimate for earnings is currently pegged at 82 cents per share.

Notably, shares of Guidewire have returned 0.4% year to date compared with the industry’s rise of 6.1%.

Quarter in Detail

License and subscription revenues (55.4% of total revenues) improved 22% from the year-ago quarter’s level to $93.2 million, driven by growth in subscription revenues.

Subscription revenues soared 105% year over year to $30.1 million on solid adoption of InsuranceSuite cloud. In the fiscal third quarter, 61% of new software sales were subscription-based compared with 63% in the last reported quarter.

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

Management is banking on adoption of InsuranceNow to increase with the implementation of latest InsuranceSuite 10 and InsuranceSuite Cloud offerings.

Maintenance revenues (12.3%) amounted to $20.7 million, down 3% year over year.

Services revenues (32.3%) fell 17% from the year-ago quarter’s figure to $54.3 million.

Annual recurring revenues (or ARR) were $483 million as of Apr 30, 2020, compared with $474 million as of Jan 31, 2020.

Margin Details

Non-GAAP gross margin contracted 200 basis points (bps) on a year-over-year basis to 56%, on increasing investments to enhance cloud capabilities that more than offset growth in license and subscription revenues and ongoing shift to subscription-based solutions.

Non-GAAP gross margin for Licensing and subscription contracted from 87% reported in the prior-year quarter to 76%. Meanwhile, non-GAAP gross margin for Services contracted 400 bps to 12%.

Total operating expenses on a non-GAAP basis, climbed 8% year over year to $88.5 million.

Non-GAAP operating income came in at $5.8 million during the reported quarter, down 54% year over year. Non-GAAP operating margin (as a percentage of total revenues) during the quarter contracted 430 bps from the year-ago quarter’s tally to 3.4%.

Guidewire Software, Inc. Price, Consensus and EPS Surprise

 

Guidewire Software, Inc. Price, Consensus and EPS Surprise

Guidewire Software, Inc. price-consensus-eps-surprise-chart | Guidewire Software, Inc. Quote

 

Balance Sheet & Cash Flow

As of Apr 30, 2020, cash and cash equivalents and short-term investments came in at $1.034 billion, compared with 1.055 billion as of Jan 31, 2020.

The company generated cash from operating activities of $4.6 million compared with $19.5 million reported in the fiscal second quarter. During fiscal third quarter, free cash flow came in at $1 million compared with $16.7 million reported in the fiscal second quarter.

Guidance

For the fiscal fourth quarter, revenues are expected in the range of $204.9-$212.9 million. The Zacks Consensus Estimate for revenues is currently pegged at $213.6 million.

License and subscription are expected in the range of $138.4-$146.4 million. Maintenance revenue is anticipated in the range of $20.2-$21.2 million. Services revenues are projected between $42.7 million and $48.7 million.

Non-GAAP operating income is anticipated between $36.7 million and $44.7 million.

The company projects non-GAAP earnings of 41-49 cents per share in fourth quarter of fiscal 2020. The Zacks Consensus Estimate for earnings is currently pegged at 52 cents per share.

For fiscal 2020, License and subscription are now in the range of $419-$427 million compared with prior guided range of $415-$425 million. Services revenues are now anticipated between $198 million and $204 million compared with the prior range of $202-$208 million. Nevertheless, management continues to project Maintenance revenues in the band of $83-$84 million.

Management now expects new subscription-based sales to be at the lower end of the previous range of 70-80%.

The company is focused on enhancing Guidewire Cloud platform with new capabilities including digital frameworks, automation, tooling and other cloud services.

The company now anticipates non-GAAP operating income in the band of $65-$73 million compared with prior range of $61-$73 million.

Zacks Rank & Stocks to Consider

Guidewire currently carries a Zacks Rank #3 (Hold).

Coupa Software COUP, MongoDB, Inc. MDB and Domo, Inc. DOMO are some better-ranked stocks worth considering in the broader computer and technology sector. All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

MongoDB and Domo are set to report quarterly results on Jun 4, while Coupa Software is scheduled to report on Jun 8.

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