It has been about a month since the last earnings report for Guidewire Software (
GWRE Quick Quote GWRE - Free Report) . Shares have lost about 9.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Guidewire Software due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Guidewire Q4 Earnings & Revenues Top Estimates
Guidewire Software, Inc. 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. Operating Details
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. Balance Sheet
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.
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. Guidance
For first-quarter fiscal 2021, revenues are expected in the range of $162-$166 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. 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. How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -172.92% due to these changes.
At this time, Guidewire Software has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Guidewire Software has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.