A month has gone by since the last earnings report for Guidewire Software (GWRE Quick QuoteGWRE - Free Report) . Shares have added about 8.2% 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 catalysts.

Guidewire Q2 Loss Wider Than Expected

Guidewire reported non-GAAP loss of 21 cents per share in second-quarter fiscal 2023 (ended Jan 31), wider than the Zacks Consensus Estimate of a loss of 4 cents and year-ago quarter’s non-GAAP loss of 6 cents.

The company reported revenues of $232.6 million, rising 14% year over year and beating the Zacks Consensus Estimate by 4.7%.

Guidewire Cloud continued to gain momentum in the reported quarter among new and existing clients

Quarter in Detail

Subscription and support segments’ revenues (45.5% of total revenues) soared 25% from the year-ago quarter’s levels to $105.8 million, owing to higher subscription revenues. Subscription’s revenues surged 36.8% year over year to $86 million. Support’s revenues declined 7.9% year over year to $19.7 million.

License’s revenues (31.4% of total revenues) were up 5% year over year to $73.1 million.

Services’ revenues (23.1% of total revenues) climbed 6% year over year to $53.7 million, driven by increased cloud implementation programs.

Annual recurring revenues (ARR) were $707 million as of Jan 31, up 14% (up 17% on constant-currency basis) year over year.

Non-GAAP gross margin expanded 140 basis points (bps) on a year-over-year basis to 56.7%.

Subscription and support segments’ gross margin expanded 850 bps on a year-over-year basis to 57.5%, due to increased cloud infrastructure efficiency. Services’ non-GAAP gross margin was negative 0.4% compared with a gross margin of 8.3% in the year-ago reported quarter.

Total operating expenses increased 3.6% year over year to $146.7 million. Non-GAAP operating loss was $23.2 million compared with $39.5 million reported in the year-ago quarter.

Financial Details

As of Jan 31, cash and cash equivalents and short-term investments came in at $714.7 million compared with $0.9 billion as of Oct 31, 2022.

Guidewire generated $1.2 million in cash from operations during the fiscal second quarter, with a free cash outflow of nearly $2.5 million.

Guidance

For third-quarter fiscal 2023, revenues are expected in the range of $211-$216 million. ARR is expected to be between $715 million and $720 million. GAAP operating loss is expected to be between $59 million and $64 million. Non-GAAP operating loss is expected to be between $16 million and $20 million. 

For fiscal 2023, the company expects total revenues to be between $894 million and $904 million. ARR is expected in the range of $745-$760 million.

Non-GAAP operating loss for fiscal 2023 is projected in the range of $7-$17 million. Cash flow from operations is anticipated to be between $50 million and $80 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

The consensus estimate has shifted -11% due to these changes.

VGM Scores

Currently, Guidewire Software has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Guidewire Software has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.