About a month has gone by since the last earnings report for Guidewire Software, Inc. GWRE. Shares have added about 6.1% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Guidewire reported fiscal fourth-quarter 2017 non-GAAP earnings of 59 cents per share, which beat the Zacks Consensus Estimate of 39 cents and increased 51.3% year over year.
The company reported revenues of $181.1 million, which increased 28% from the year-ago quarter. The figure also surpassed the Zacks Consensus Estimate of $168 million.
Guidewire reported fiscal 2017 revenues of $514.3 million, an increase of 21% from fiscal 2016. Non-GAAP earnings came in at $1.05 per share, up from earnings of 84 cents in the prior fiscal year.
Notably, the company’s quarterly and full-year results were better than guided. The company ended fiscal 2017 with 328 customers compared with 260 customers at the end of fiscal 2016.
The company has three main segments, namely License and Other, Maintenance and Services.
In the fourth quarter of 2017, revenues from License and other surged 24% from the year-ago quarter to $109.7 million. Maintenance revenues amounted to $18.7 million, up 10% year over year. Service revenues surged 28% from fourth-quarter fiscal 2016 to $181.1 million.
Per management, the massive growth was driven by higher service activities, an additional $16.2 million of hosting revenues from ISCS, which the company acquired in February 2017 and certain early payments from term licenses.
Nine new customers were added during the quarter including five new customers for the company’s core product, InsuranceSuite and one for InsuranceNow, formerly known as ISCS.
Prominent additions to the client base include Agricorp based out of Canada, American Independent Companies and Vermont Mutual Group in USA. In Europe, Guidewire’s relationship with MAPFRE, a Tier-1 multinational based in Madrid, was expanded by licensing of the insurance suite of its subsidiary, Verti Versicherung.
Apart from this, management also noted that 27 existing customers expanded their association with Guidewire by adopting different products, including its data and digital engagement application.
Management noted that the cross-selling of the product suites of the company’s acquired entities has been one of the key growth drivers. The company’s buyouts of ISCS, (now known as GuidewireNow), FirstBest, now called Guidewire Underwriting Management, and EagleEye Analytics, now Guidewire Predictive Analytics, have enriched its product portfolio with cloud-based machine learning driven multi-use facilities.
Moreover, management believes that increasing adoption of Amazon’s cloud platform, Amazon Web Services, Guidewire’s partner in cloud deployment, will drive its cloud-based product offerings. So far, 21 of its customers have opted for cloud-based services, with Metlife being the first one.
The company is slowly shifting to a subscription-based model from the regular term license model, which is expected to impact the top line going forward.
Term license revenues include advance payments whereas subscription-based revenues are a bit delayed. The shift in product mix will impact revenues. Management stated that a $6.1 million early payment recognized in this quarter will affect fiscal 2018 license revenue growth. It expects subscription sales to rise to 20% to 30% in fiscal 2018 from 6% in fiscal 2017.
Guidewire expects new risk products and embedded analytics to be in demand in the long run. Additionally cloud transition is also anticipated to expand its market presence, eventually driving revenues northward.
In fourth-quarter 2017, non-GAAP operating margin was 73.4%, down 30 basis points (bps) from the year-ago quarter. The decline was slight as the negative impact of higher mix of low-margin services revenues was offset by higher margin license revenues including advance payments.
Non-GAAP operating margin increased 510 bps year over year to 35.3%, primarily due to better-than-expected revenues and improved services margins, lower hiring and moderately low third-party professional services costs.
Management stated that increased investments from private equity and venture capital firms in other industry players have increased competition. Guidewire is also investing more for an impressive product suite and a larger total addressable market, which will help it to gain an edge. This along with investments in cloud infrastructure based services is expected to adversely impact margins.
Balance Sheet and Cash Flow
The company had cash and cash equivalents of $263.18 million for the three months ending Jul 31, 2017.
Cash from operations amounted to $85.62 million for the quarter.
For fiscal first-quarter 2018, revenues are expected to be in the range of $98 to $102 million.
Non-GAAP loss from operations is expected to be between $16 and $20 million, while non-GAAP net loss is anticipated to be within $10.2 million to $12.9 million. Margins are expected to be hurt by additional costs whose related revenues have already been recognized in the reported quarter.
Non-GAAP net loss is expected to be between 14 cents and 17 cents per share.
For fiscal 2018, total revenue is expected to be within $611.5 to $623.5 million.
Non-GAAP income from operations is expected to be between $6.2 million and $18.2 million, while non-GAAP net income is anticipated to be within $74.8 million to $83 million.
Non-GAAP net income is expected to be between 97 cents and $1.08 per share.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last month as none of them issued any earnings estimate revisions.
Guidewire Software, Inc. Price and Consensus
Guidewire Software, Inc. Price and Consensus | Guidewire Software, Inc. Quote
At this time, Guidewire Software's stock has a strong Growth Score of A, though it is lagging a lot on the momentum front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% 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.
Our style scores indicate that the stock is suitable for growth investors.
Notably, the stock has a Zacks Rank #1 (Strong Buy). We are looking for an above average return from the stock in the next few months
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