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Guidewire (GWRE) Q1 Earnings & Revenues Beat, Down Y/Y

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Guidewire Software, Inc. (GWRE - Free Report) reported first-quarter fiscal 2020 non-GAAP earnings of 13 cents per share, outpacing the Zacks Consensus Estimate of 3 cents. The figure also came ahead of management’s guided range of 1-5 cents per share. However, the bottom line declined 65.8% from the year-ago quarter’s figure.

The company reported revenues of $157 million, surpassing the Zacks Consensus Estimate by 3.8%. Further, the bottom line came slightly above the higher end of management’s guided range of $149-$153 million. However, the top line decreased 13% from the year-ago quarter. The decrease can primarily be attributed to lower License and Services revenues.

Nonetheless, management remains optimistic on growing clout of its several cloud-based products and InsuranceSuite Cloud deal wins.

Shares of Guidewire have returned 48.8% year to date, outperforming the industry’s rally of 19.3%.

Quarter in Detail

License and subscription revenues (52.5% of total revenues) decreased 12.9% from the year-ago quarter to $82.4 million, on decline in term license revenues, partially offset by growth in subscription revenues.

Term license revenues declined 31.7% year ago quarter to $54.2 million. Management attributes the decline to two term license deals worth $23.6 million in first-quarter fiscal 2019.

Subscription revenues soared 83.8% year over year to $28.2 million on solid adoption of InsuranceSuite cloud. In the fiscal first quarter, 43% of new software sales were subscription-based, compared with 26% in the year-ago quarter.

Perpetual license revenues came in at $49 million.

Maintenance revenues (13.4%) amounted to approximately $21 million, almost flat year over year.

Services revenues (34.1%) decreased almost 17% from the year-ago quarter to $53.6 million, primarily owing to the closure and timing of customer projects.

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

Management is banking on adoption of InsuranceNow to increase with the roll out of latest InsuranceNow GO offering that accelerates implementation of the solution in a cost-effective manner.

Annual recurring revenue (or ARR) was $463 million as of Oct 31, 2019, compared with $460 million as of Jul 31, 2019.

Guidewire Software, Inc. Price, Consensus and EPS Surprise


Guidewire Software, Inc. Price, Consensus and EPS Surprise

Guidewire Software, Inc. price-consensus-eps-surprise-chart | Guidewire Software, Inc. Quote

Margin Details

Non-GAAP gross margin contracted 510 bps on a year-over-year basis to 56.2%, on lower term license revenue base and ongoing shift to subscription-based solutions, and increasing investments to enhance Guidewire cloud capabilities.

Non-GAAP gross margin for Maintenance and Service expanded 40 bps and 90 bps, to 84.5% and 10.4%, respectively. Meanwhile, non-GAAP gross margin for License came in at 78.8%, compared with 91.5% reported in the year-ago quarter.

Total operating expenses climbed 4.8% year over year to $100.8 million.

Non-GAAP operating income came in at $7.1 million during the quarter, down 78.5% year over year. Non-GAAP operating margin during the quarter came in at 4.5% compared with 18.4% reported in the year-ago period.

Balance Sheet & Cash Flow

As on Oct 31, 2019 cash and cash equivalents and short-term investments came in at $1.011 billion, compared with $1.124 billion at the end of the previous quarter.

The company utilized cash from operating activities worth $18.1 million in the fiscal first quarter, compared with $102.9 million generated in the prior quarter.

During fiscal first quarter, the company reported negative free cash flow of $29.1 million.

Guidance Bleak

For fiscal second-quarter 2020, revenues are expected to be in the range of $162-$166 million. The Zacks Consensus Estimate for revenues is pegged at $181.1 million.

License and subscription are expected to be in the range of $92-$96 million. Maintenance revenue is anticipated to be in the range of $20-$20.5 million. Services revenues are projected between $48 million and $51 million.

Non-GAAP operating income is expected to lie between $5 million and $9 million.

Management noted that Guidewire’s latest digital experience framework, Jutro, which facilitates design and development of digital apps, is slated to be available in Guidewire Cloud in fiscal third quarter and to self-managed customers in the fiscal fourth quarter.

The company is focused on enhancing Guidewire Cloud platform with new capabilities including digital frameworks, automation, tooling, and other cloud services and leverage Guidewire data platform.

Guidewire maintained fiscal 2020 outlook. The company continues to expect total revenues to be in the range of $759-$771 million. The mid-point of $765 million is below the current Zacks Consensus Estimate of $765.6 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.

Management continues to expect 55%-75% of new sales to be subscription-based.

The company anticipates non-GAAP operating income in the range of $96 million and $108 million.

The company did not divulge guidance on non-GAAP net income per share as it is assessing the impact of base erosion and anti-abuse tax ("BEAT") regulations, issued recently.

Zacks Rank & Stocks to Consider

Guidewire carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Marchex, Inc. (MCHX - Free Report) , Fortinet, Inc. (FTNT - Free Report) and Keysight Technologies Inc. (KEYS - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Marchex, Fortinet and Keysight is currently pegged at 15%, 14% and 9.1%, respectively.

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