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Guidewire (GWRE) Q2 Earnings and Revenues Beat Estimates

·5 min read

Guidewire Software, Inc. GWRE reported second-quarter fiscal 2021 non-GAAP earnings of 11 cents per share against the Zacks Consensus Estimate of a loss per share of 1 cent. However, earnings deteriorated 47.6% on a year-over-year basis.

The company reported revenues of $180.1 million, which beat the Zacks Consensus Estimate by 5.7% and increased 3.8% on a year-over-year basis. The top line also came above the higher end of management’s guidance of $168-$172 million.

The upside was driven by higher license and subscription revenues. Further, management is optimistic regarding robust adoption of several cloud-based products and InsuranceSuite Cloud deal wins.

Guidewire Software, Inc. Price, Consensus and EPS Surprise

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

In the quarter under review, the company clinched six cloud deals including five deals for InsuranceSuite offering and one deal for its InsuranceNow solution. The company also bagged five standalone deals for its data and analytics solutions.

Guidewire is well positioned to gain from transition to subscription-based services model. The company is enhancing Guidewire Cloud platform with additional capabilities including automation, digital frameworks, tooling and other cloud services.

In the past one year, Guidewire shares have returned 17.2% compared with industry’s gain of 41.4%.

Quarter in Detail

The company realigned reporting segments into Subscription and support, and License and Services, beginning fourth-quarter fiscal 2020.

For the fiscal second quarter, Subscription and support revenues (33% of total revenues) increased 20% from the year-ago quarter’s level to $59.6 million, driven by higher subscription revenues (up 34.6% year over year to $38.3 million).

License revenues (43.3%) increased 2% year over year to $77.9 million on higher-term license bookings.

Services revenues (23.7%) fell 10% from the year-ago quarter’s figure to $42.6 million. The downside was mainly due to lower billable travel expenses.

Annual recurring revenues (or ARR) were $520 million as of Jan 31, 2021 compared with $513 million as of Oct 31, 2020.

Operating Details

Non-GAAP gross margin contracted 320 basis points (bps) on a year-over-year basis to 55.8%, mainly due to decline in gross margin from the Subscription and support and the Services segments.

Non-GAAP gross margin for Subscription and support contracted from 56% reported in the prior-year quarter to 43.2%. Gross margin for Subscription and support segment declined mainly due to increased headcount for managing cloud operations. Non-GAAP gross margin for License expanded 10 bps to 97.1%.

Total operating expenses increased 6.8% year over year to $115.2 million.

Non-GAAP operating income came in at $7.46 million during the reported quarter, down 51.7% year over year.

Balance Sheet

As of January 31, 2021, cash and cash equivalents and short-term investments came in at $1.15 billion, almost unchanged as of Oct 31, 2020.

The company generated cash from operating activities of $13.3 million compared with cash utilized from operations of $15.7 million reported in first-quarter fiscal 2021. During fiscal second quarter, adjusted free cash flow came in at $7.4 million against adjusted free cash outflow of $20.2 million in the previous quarter.

In the quarter under review, Guidewire repurchased shares worth $39 million.

Guidance

For third-quarter fiscal 2021, revenues are expected in the range of $155-$159 million. The Zacks Consensus Estimate for revenues is currently pegged at $169.6 million.

Subscription revenues are expected to be approximately $40 million, while Services revenues are projected to be $48 million. Support revenues are expected to be $20 million for the fiscal third quarter. ARR is projected between $533 million and $536 million.

Operating loss is expected between $58 million and $62 million for fiscal third quarter, while non-GAAP operating loss is projected in the range of $25-$29 million.

For fiscal 2021, the company expects total revenues between $725 million and $733 million. The Zacks Consensus Estimate for revenues is currently pegged at $731.6 million.

Non-GAAP operating income for fiscal 2021 is projected to be in the range of $2-$10 million.

Subscription revenues are expected to be approximately $162 million compared with revenues of $165 million projected earlier. ARR is projected between $560 million and $571 million.

However, Services segment’s revenues are now anticipated to be approximately $183 million compared with revenues of $185 million projected earlier.

For fiscal 2021, cash flow from operations is projected in the range of $60-$70 million.

Zacks Rank & Stocks to Consider

Guidewire currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Shopify SHOP, Skyworks SWKS and MaxLinear MXL. All the 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 Shopify, Skyworks and MaxLinear is currently pegged at 32.5%, 19%, and 20%, respectively.

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