It has been about a month since the last earnings report for Guidewire Software (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 the most recent earnings report in order to get a better handle on the important drivers.
Guidewire Earnings & Revenues Surpasses Estimates in Q4
Guidewire Software reported fourth-quarter fiscal 2019 non-GAAP earnings of 56 cents per share, outpacing the Zacks Consensus Estimate of 50 cents. The figure also came ahead of management’s guided range of 47-53 cents per share. However, the bottom line also decreased from the year-ago quarter’s figure of 81 cents per share.
The company reported revenues of $207.8 million, declining 13% from the year-ago quarter. However, the figure surpassed the Zacks Consensus Estimate of $205 million. Further, the bottom line came slightly above the higher end of management’s guided range of $199-$207 million. The decrease can primarily be attributed to lower Services and License revenues.
Nonetheless, management remains confident regarding strong adoption of its several cloud-based products. Deployment of the Guidewire’s ClaimCenter solution remains a key catalyst. Moreover, the company added six additional InsuranceSuite Cloud customers, which is a positive.
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 decreased 11% from the year-ago quarter to $127.7 million. Maintenance revenues amounted to $21.8 million, up 6% year over year. However, Services revenues decreased approximately 23% from the year-ago quarter to nearly $58.3 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.
Non-GAAP operating income came in at $51.1 million during the quarter compared with $76.6 million reported in the year-ago quarter. Non-GAAP operating margin during the quarter came in at 24.6% compared with 31.9% reported in the year-ago period.
Balance Sheet & Cash Flow
The company had cash and cash equivalents and short-term investments of $1.12 billion as on Jul 31, 2019 as compared with $1.2 billion at the end of the previous quarter.
Cash from operating activities in the fourth quarter was $102.9 million.
Fiscal 2019 Highlights
The company reported revenues of $719.5 million, increasing 10% year over year. License and subscription revenues increased 25% from the year-ago quarter to $385.3 million. Maintenance revenues amounted to $85.4 million, up 10% year over year. However, Services revenues decreased approximately 7% from the year-ago quarter to nearly $248.8 million. Non-GAAP earnings of $1.45 per share in fiscal 2019, increased from earnings $1.07 per share reported in fiscal 2018.
In fiscal 2019, non-GAAP gross margin was 62% compared with 61% in the year-ago quarter. Total non-GAAP operating expenses came in at $320.5 million in fiscal 2019, up 7.3% year over year.
For first-quarter 2020, revenues are expected to be in the range of $149-$153 million.
License and subscription are expected to be in the range of $78-$80 million. Maintenance revenue is anticipated to be in the range of $19-$20 million. Services revenues are projected to be in the range of $51-$54 million.
Non-GAAP operating income is expected to lie between $1 million and ($3) million. Non-GAAP net income per share is projected to be between 1-5 cents.
Guidewire provided fiscal 2020 outlook. The company expects total revenues to be in the range of $759-$771 million.
License and subscription are expected to be in the range of $443-$455 million. Maintenance revenues are anticipated to be in the range of $85-$87 million. Services revenues are projected in the range of $224-$236 million.
The company expects non-GAAP operating income in the range of $96 million and $108 million. Non-GAAP net income is projected to be between $1.1 cents and $1.22 per share.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -715.39% due to these changes.
Currently, Guidewire Software has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, 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 F. 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 this revision 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.