It has been about a month since the last earnings report for Guidewire Software (
GWRE Quick Quote GWRE - Free Report) . Shares have added about 11.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Guidewire Software due for a pullback? 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 Q3 Earnings & Revenues Top Estimates Guidewire Software reported third-quarter fiscal 2021 non-GAAP loss of 16 cents per share against the Zacks Consensus Estimate of a loss per share of 24 cents. However, the company had reported earnings per share of 9 cents in the prior-year quarter. The company reported revenues of $164 million, which beat the Zacks Consensus Estimate by 3.8%. The top line also came above the higher end of management’s guidance of $155-$159 million. However, revenues declined 2.5% on a year over year basis mainly due to fall in the License and Services segments’ top line. In the quarter under review, the company clinched eight cloud deals including five deals for InsuranceSuite Cloud offering and three deal for its InsuranceNow solution. Year to date, the company has bagged 11 deals for its InsuranceSuite Cloud solution. The company also clinched six standalone deals for its data and analytics solutions. Guidewire is well positioned to gain from transition to subscription-based services model. The company is enhancing Guidewire Cloud platform with additional capabilities including automation, digital frameworks, tooling and other cloud services. Quarter in Detail
The company realigned reporting segments into Subscription and support as well as License and Services, beginning fourth-quarter fiscal 2020.
For fiscal third quarter, Subscription and support revenues (39.5% of total revenues) increased 28% from the year-ago quarter’s level to $64.8 million, due to higher subscription revenue. Subscription revenues in fiscal third quarter increased 48.1% year over year to $44.6 million, driven primarily by higher variable revenues from Cyence and InsuranceNow clients. Support revenues were down 2% to $20.8 million in the quarter under review. License revenues (31.1%) declined 19% year over year to $50.9 million while Services revenues (29.4%) fell 11% from the year-ago quarter’s figure to $48.2 million. Annual recurring revenues (or ARR) were $538 million as of Apr 30, 2021, compared with $520 million as of Jan 31, 2021. Operating Details
Non-GAAP gross margin contracted 620 basis points (bps) on a year-over-year basis to 49.8%, mainly due to decline in gross margin from the Subscription and support as well as the Services segments.
Non-GAAP gross margin for Subscription and support contracted from 42.4% reported in the prior-year quarter to 52.5%. Non-GAAP gross margin for Services contracted 230 bps to 9.6%. However, non-GAAP gross margin for License expanded 40 bps to 97.2%. Total operating expenses increased 9.9% year over year to $118.7 million. Non-GAAP operating loss came in at $16.3 million during the reported quarter against non-GAAP operating income of $5.78 million. Balance Sheet
As of Apr 30, 2021, cash and cash equivalents and short-term investments came in at $1.3 billion compared with $1.15 billion as of Jan 31, 2021.
The company generated cash from operating activities of $5.6 million compared with cash generated from operations of $13.3 million reported in second-quarter fiscal 2021. During fiscal third quarter, adjusted free cash outflow came in at $4.02 million against adjusted free cash flow of $7.4 million in the previous quarter. In the quarter under review, Guidewire repurchased 0.8 million shares worth $79.9 million. Guidance
For fourth-quarter fiscal 2021, revenues are expected in the range of $218-$224 million.
Operating loss is expected between $5 million and $11 million for fiscal fourth quarter, while non-GAAP operating income is projected in the range of $20-$26 million. For fiscal 2021, the company expects total revenues between $732 million and $738 million. Non-GAAP operating income for fiscal 2021 is projected in the range of $14-$20 million. Subscription revenues are expected to be approximately $167 million compared with revenues of $162 million projected earlier. ARR is projected between $562 million and $569 million. However, Services segment’s revenues are now anticipated to be approximately $185 million compared with revenues of $183 million projected earlier. For fiscal 2021, cash flow from operations is projected in the range of $60-$70 million. For fiscal 2022, the company expects subscription revenue growth in the range of 42-48% over fiscal 2021 expectations. Total revenue growth is projected in the range of 3-5% over fiscal 2021 expectations. How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, Guidewire Software has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Guidewire Software has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.