A month has gone by since the last earnings report for Guidewire Software (GWRE). Shares have added about 5.1% 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 Q1 Loss Narrower Than Expected
Guidewire reported non-GAAP loss of 12 cents per share in first-quarter fiscal 2023 (ended Oct 31), narrower than the Zacks Consensus Estimate of a loss of 39 cents per share. This compared favorably with the year-ago quarter’s non-GAAP loss of 21 cents per share.
The company reported revenues of $195.3 million, rising 18% year over year and beating the Zacks Consensus Estimate by 2.5%.
Guidewire Cloud continued to gain momentum in the reported quarter among new and existing clients.
Quarter in Detail
Subscription and support
segments’ revenues (50.7% of total revenues) soared 25% from the year-ago quarter’s levels to $99.1 million, owing to higher subscription revenues. Subscription’s revenues surged 38.2% year over year to $79 million. Support’s revenues declined 8% year over year to $21 million.
License’s
revenues (21% of total revenues) were down 2% year over year to $41 million.
Services’
revenues (28.3% of total revenues) climbed 18.1% year over year to $55.3 million, driven by increased cloud implementation programs.
Annual recurring revenues (ARR) were $673 million as of Oct 31, up 13.3% year over year.
Non-GAAP gross margin contracted 500 basis points (bps) on a year-over-year basis to 42.5%.
Subscription and support segments’ gross margin expanded 390 bps on a year-over-year basis to 49.2%. This year-over-year improvement was due to increased cloud infrastructure efficiency and slower hiring. Services’ non-GAAP gross margin was negative 9% compared with a gross margin of 10.3% in the year-ago reported quarter.
Total operating expenses increased 9.7% year over year to $146.7 million. Non-GAAP operating income was $35.9 million compared with the operating income of $28.7 million reported in the year-ago quarter.
Financial Details
As of Oct 31, cash and cash equivalents and short-term investments came in at $0.9 billion compared with $1.2 billion as of Jul 31.
Guidewire used $87.4 million in cash from operations during the fiscal first quarter, with a free cash outflow of nearly $91.7 million.
Guidance
For second-quarter fiscal 2023, revenues are expected in the range of $221-$226 million. ARR is expected to be between $695 million and $700 million. Non-GAAP operating income (loss) is expected between $(4) million and $0 million. GAAP operating income (loss) is expected to be between $(41) million and $(37) million.
For fiscal 2023, the company expects total revenues between $886 million and $896 million. ARR is expected to be between $745 million and $760 million.
Non-GAAP operating loss for fiscal 2023 is projected in the range of $18-$28 million. Cash flow from operations is projected in the range of $50-$80 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
The consensus estimate has shifted -7.22% due to these changes.
VGM Scores
Currently, Guidewire Software has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. However, the stock was allocated a grade of F on the value side, putting it in the fifth 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.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Guidewire Software has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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