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Guidewire (GWRE) Earnings & Revenues Beat Estimates in Q1

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Guidewire Software, Inc. (GWRE - Free Report) delivered first-quarter fiscal 2019 non-GAAP earnings of 36 cents per share, outpacing the Zacks Consensus Estimate by 20 cents. Notably, the company reported a loss of 6 cents in the year-ago quarter. The figure also came ahead of the management’s guided range of 18-22 cents per share.

The company reported revenues of $179.7 million, which surged 66% from the year-ago quarter. The figure comfortably surpassed the Zacks Consensus Estimate of $163 million and was above the higher end of management’s guided range of $159-$163 million. The increase can primarily be attributed to growth in Services revenues and License revenues. Further, strong adoption of several cloud-based products remained a key catalyst.

The company has adopted a new revenue recognition standard — ASC 606 — which came into effect from first-quarter fiscal 2019.

Guidewire stock has gained 20.8% year to date, substantially outperforming industry’s rally of 9.6%.

Quarter in Detail

Per the new accounting standard, the company will now have three main segments namely License and subscription, Maintenance, and Services.

License and subscription revenues soared 213% from the year-ago quarter to $94.3 million. Transition to cloud-based subscription under ASC 606 positively impacted the revenues.

Maintenance revenues amounted to $21 million, up 11% year over year. Further, Services revenues increased approximately 9% from the year-ago quarter to nearly $64.4 million.

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

Additionally, management remains optimistic about Cyence buyout on account of its strength in cyber risk capabilities. Notably, Cyence determines the economic impact of a cybercrime via a software platform, which is built on cyber-security related data science. Cyence scored five new customer wins, exceeding management’s expectation.

Operating Details

In first-quarter 2019, non-GAAP gross profit came in at $109 million, up 987% from a year-ago quarter, primarily on the back of higher revenue base. Non-GAAP gross margin was 61% compared with 51% in the year-ago quarter.

Total non-GAAP operating expenses came in at $77.3 million during the reported quarter, up 22% year over year. The increase can primarily be attributed to higher research and development expenses. Costs pertaining to Cyence buyout and new internal projects led to the surge in expenses.

Non-GAAP operating income came in at $31.7 million, against the year-ago quarter’s operating loss of $8.3 million. Non-GAAP operating margin during the quarter came in at 17.6%.

Balance Sheet& Cash Flow

The company had cash and cash equivalents and short-term investments of $1.08 billion as on Oct 31, 2018 as compared with $1.07 billion at the end of the previous quarter.

Cash used in operating activities in the first quarter was $27.2 million. Free cash flow in the first quarter was ($30.7) million.

Guidance

For second-quarter 2019, revenues are expected to be in the range of $157-$161 million. The Zacks Consensus estimate is pegged at $172.2 million.

License and subscription are expected to be in the range of $75-$79 million. Maintenance revenue is anticipated to be in the range of $20-$21 million. Services revenues are projected to be in the range of $60-$63 million.

Non-GAAP operating income is expected to be between $12.5 million and $16.5 million, while non-GAAP net income is anticipated to be within $14-$17.3 million.

Non-GAAP net income per share is expected to be between 17-21 cents. The Zacks Consensus estimate is pegged at 27 cents per share.

Guidewire updated fiscal 2019 outlook. The company expects total revenues to be in the range of $722-$732 million (previously $740.5-$752.5 million). The Zacks Consensus estimate is pegged at $750 million.

License and subscription are expected to be in the range of $379-$389 million. Maintenance revenue is anticipated to be in the range of $81-$83 million. Services revenues are projected to be in the range of $257-$265 million.

Non-GAAP operating income is now expected to be between $106.5 million and $116.5 million ($104.5 million and $116.5 million).

Non-GAAP net income is projected to be between $1.24 cents and $1.34 per share ($1.15 cents and $1.26 per share). The Zacks Consensus estimate is pegged at $1.23 per share.

Zacks Rank & Key Picks

Guidewire carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Upland Software (UPLD - Free Report) , Tesla, Inc. (TSLA - Free Report) and Twitter, Inc. (TWTR - Free Report) , each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Upland Software, Tesla and Twitter is currently pegged at 20%, 35% and 22.1%, respectively.

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