Guidewire Software, Inc. (GWRE - Free Report) reported fourth-quarter fiscal 2020 non-GAAP earnings of 83 cents per share, outpacing the Zacks Consensus Estimate by 84.4%. Moreover, the bottom line improved 48.2% from the year-ago quarter’s figure.
The company reported revenues of $243.7 million, which beat the Zacks Consensus Estimate by 16.9%. The figure also came above the higher end of management’s guidance of $204.9-$212.9 million. Moreover, the top line increased 17% from the year-ago quarter.
The growth can primarily be attributed to higher license and subscription revenues.
Further, management is optimistic regarding growing clout of its several cloud-based products and InsuranceSuite Cloud deal wins.
Quarter in Detail
The company has now realigned reporting segments, into Subscription and support, License and Services, beginning fourth-quarter fiscal 2020.
Subscription and support revenues (22.2% of total revenues) improved 29% from the year-ago quarter’s level to $54.1 million, driven by solid adoption of InsuranceSuite cloud.
License revenues (56.4%) grew 28% year over year to $137.5 million on increase in higher term license bookings.
Services revenues (21.4%) fell 10.8% from the year-ago quarter’s figure to $52 million.
Annual recurring revenues (or ARR) were $514 million as of Jul 31, 2020, compared with $483 million as of Apr 30, 2020.
Non-GAAP gross margin expanded 300 basis points (bps) on a year-over-year basis to 68.9%, on higher revenue base and ongoing shift to subscription-based solutions.
Non-GAAP gross margin for Subscription and support contracted from 60.5% reported in the prior-year quarter to 49.5%. Non-GAAP gross margin for License contracted 10 bps to 97.9%. Meanwhile, non-GAAP gross margin for Services expanded 180 bps to 12.3%.
Total operating expenses climbed 7.2% year over year to $111.5 million.
Non-GAAP operating income came in at $76.4 million during the reported quarter, up 49.6% year over year.
As of Jul 31, 2020, cash and cash equivalents and short-term investments came in at $1.133 billion, compared with $1.034 billion as of Apr 30, 2020.
Fiscal 2020 at a Glance
In fiscal 2020, revenues were $742.3 million, up 3% year over year. Subscription and support revenues of $203.5 million, improved 35%; while license revenues of $331.5 million, grew 4%. However, services revenues declined 17% year over year to $207.3 million.
Non-GAAP gross margin contracted 50 basis points (bps) on a year-over-year basis to 61%, on increasing investments to enhance cloud capabilities.
Non-GAAP gross margin for License contracted 90 bps to 97.2%. Meanwhile, non-GAAP gross margin for Services contracted 240 bps to 9.1%. Non-GAAP gross margin for Subscription and support contracted from 54.8% reported in the prior-year quarter to 66.3%.
For 12 months ended Jul 31, 2020, the company generated cash from operating activities of $113.1 million compared with $116.1 million for 12 months ended Jul 31, 2019.
For 12 months ended Jul 31, 2020, free cash flow came in at $87.4 million compared with $67.3 million for 12 months ended Jul 31, 2019.
For first-quarter fiscal 2021, revenues are expected in the range of $162-$166 million. The Zacks Consensus Estimate for revenues is currently pegged at $168.1 million.
Subscription revenues are expected to be approximately $35 million. ARR is projected between $509 million and $512 million.
For fiscal 2021, the company expects total revenues between $723 million and $733 million. The Zacks Consensus Estimate for revenues is currently pegged at $783.51 million. Services revenues are anticipated to be approximately $190 million. Subscription revenues are expected to be approximately $165 million. ARR is projected between $560 million and $571 million.
Guidewire is well poised to benefit from increasing cloud implementations and higher allegiance of customers to adopt subscription-based services. The company is focused on enhancing InsuranceSuite Cloud platform with new capabilities including digital frameworks, automation, tooling and other cloud services.
Zacks Rank & Stocks to Consider
Guidewire currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the broader sector are Qorvo (QRVO - Free Report) , Blackbaud (BLKB - Free Report) and Analog Devices (ADI - Free Report) . While Qorvo and Blackbaud flaunt a Zacks Rank #1 (Strong Buy), Analog Devices carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Blackbaud, Qorvo and Analog Devices is currently pegged at 7.6%, 11.4%, and 13.3%, respectively.
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