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Guidewire Software (GWRE) Up 10.2% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Guidewire Software (GWRE - Free Report) . Shares have added about 10.2% 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 the most recent earnings report in order to get a better handle on the important drivers.

Guidewire Tops Q2 Earnings & Revenues Estimates

Guidewire Software delivered second-quarter fiscal 2019 non-GAAP earnings of 34 cents per share, outpacing the Zacks Consensus Estimate of 19 cents. Notably, earnings also went up by 1 cent from the year-ago quarter. The figure also came ahead of management’s guided range of 17-21 cents per share.

The company reported revenues of $169.3 million, surging 3% from the year-ago quarter. The figure comfortably surpassed the Zacks Consensus Estimate of $162 million and also came above the higher end of management’s guided range of $157-$161 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 had adopted a new revenue recognition standard — ASC 606 — which came into effect from first-quarter fiscal 2019.

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 increased 3% from the year-ago quarter to $87.1 million. Transition to cloud-based subscription under ASC 606 positively impacted revenues.

Maintenance revenues amounted to $21.3 million, up 11% year over year. Further, Services revenues increased approximately 1% from the year-ago quarter to nearly $60.9 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 registered two new customer wins during the reported quarter.

Operating Details

In second-quarter 2019, non-GAAP gross profit came in at $101.9 million. Non-GAAP gross margin was 60% compared with 66% in the year-ago quarter. The decrease was primarily owing to lower license and subscription margin.

Total non-GAAP operating expenses came in at $75.8 million during the reported quarter, almost flat year over year.

Non-GAAP operating income came in at $26.1 million, down 18.5% year over year. Non-GAAP operating margin during the quarter came in at 15.4% as compared with 19.6% reported in the year-ago period.

Balance Sheet& Cash Flow

The company had cash and cash equivalents and short-term investments of $1.07 billion as on Jan 31, 2019 as compared with $1.08 billion at the end of the previous quarter.

Cash used in operating activities in the second quarter was $14.2 million.

Guidance

For third-quarter 2019, revenues are expected to be in the range of $152.5-$156.5 million.

License and subscription are expected to be in the range of $68-$72 million. Maintenance revenue is anticipated to be in the range of $19.5-$20.5 million. Services revenues are projected to be in the range of $63-$66 million.

Non-GAAP operating income is expected to be between $0 million and $4 million, while non-GAAP net income is anticipated to be within $4.1-$7.5 million. Non-GAAP net income per share is projected to be between 5-9 cents.

Guidewire updated fiscal 2019 outlook. The company expects total revenues to be in the range of $725-$732 million (previously $722-$732 million).

License and subscription are now expected to be in the range of $381-$389 million (previously $379-$389 million). Maintenance revenue is now anticipated to be in the range of $82-$84 million (previously $81-$83 million). Services revenues is continued to be projected in the range of $257-$265 million.

Non-GAAP operating income is now expected to be between $112 million and $118 million (previously $106.5 million and $116.5 million).

Non-GAAP net income is projected to be between $1.35 cents and $1.41 per share (previously $1.24 cents and $1.34 per share).

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted 33.91% due to these changes.

VGM Scores

At this time, Guidewire Software has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% 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.

Outlook

Guidewire Software has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.




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