It has been about a month since the last earnings report for Guidewire Software (GWRE - Free Report) . Shares have added about 7.8% 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 Earnings & Revenues Surpasses Estimates in Q
Guidewire Software delivered third-quarter fiscal 2019 non-GAAP earnings of 18 cents per share, outpacing the Zacks Consensus Estimate of 8 cents. Notably, the bottom line also increased from the year-ago quarter’s figure of 5 cents per share. The figure also came ahead of management’s guided range of 5-9 cents per share.
The company reported revenues of $162.9 million, surging 15% from the year-ago quarter. The figure comfortably surpassed the Zacks Consensus Estimate of $155 million and also came above the higher end of management’s guided range of $152.5-$156.5 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.
Deployment of the ClaimCenter offering by a Japanese customer also aided the reported quarter’s performance. Moreover, the company added two additional InsuranceSuite Cloud customers which positively aided the results.
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 — License and subscription, Maintenance, and Services.
License and subscription revenues increased 45% from the year-ago quarter to $76.2 million. Transition to cloud-based subscription under ASC 606 positively impacted revenues.
Maintenance revenues amounted to $21.3 million, up 14% year over year. However, Services revenues decreased approximately 8% from the year-ago quarter to nearly $65.3 million, primarily owing to higher investment in cloud implementations.
During the reported quarter, new and existing customers selected multiple components of Guidewire InsurancePlatform which included InsuranceSuite, digital, data and analytics.
In third-quarter 2019, non-GAAP gross profit came in at $94.1 million. Non-GAAP gross margin was 58% compared with 55% in the year-ago quarter. The increase was primarily due to higher license and favorable subscription mix.
Total non-GAAP operating expenses came in at $81.6 million during the reported quarter, up 8.5% year over year.
Non-GAAP operating income came in at $12.6 million during the quarter as compared with $2.6 million reported in the year-ago quarter. Non-GAAP operating margin during the quarter came in at 7.7% as compared with 1.9% reported in the year-ago period.
Balance Sheet& Cash Flow
The company had cash and cash equivalents and short-term investments of $1.2 billion as on Apr 30, 2019 as compared with $1.07 billion at the end of the previous quarter.
Cash from operating activities in the third quarter was $26.2 million.
For fourth-quarter 2019, revenues are expected to be in the range of $199-$207 million.
License and subscription are expected to be in the range of $121.4-$129.4 million. Maintenance revenue is anticipated to be in the range of $20.4-$21.4 million. Services revenues are projected to be in the range of $53.6-$59.6 million.
Non-GAAP operating income is expected to be between $41 million and $47 million. Non-GAAP net income per share is projected to be between 47-53 cents.
Guidewire trims fiscal 2019 outlook. The company now expects total revenues to be in the range of $711-$719 million (previously $725-$732 million).
License and subscription are now expected to be in the range of $379-$387 million (previously $381-$389 million). Maintenance revenues are now anticipated to be in the range of $84-$85 million (previously $82-$84). Services revenues are now projected in the range of $244-$250 million (previously $257-$265 million).
The company continues to expect non-GAAP operating income in the range of $112 million and $118 million.
Non-GAAP net income is now projected to be between $1.36 cents and $1.42 per share (previously $1.35 cents and $1.41 per share). The Zacks Consensus Estimate for earnings is pegged at $1.38 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -23.45% due to these changes.
Currently, Guidewire Software has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Guidewire Software has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.