It has been about a month since the last earnings report for Guidewire Software (GWRE). Shares have lost about 8.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Guidewire Software due for a breakout? 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 catalysts.
Guidewire Posts Q3 Loss, Beats Revenue Estimates
Guidewire Software reported a non-GAAP loss of 26 cents per share in third-quarter fiscal 2022 (ended Apr 30, 2022), narrower than the Zacks Consensus Estimate of a loss of 30 cents. However, this compares unfavorably with the year-ago quarter’s non-GAAP loss of 16 cents per share.
The company reported revenues of $197.4 million, rising 20.4% year over year and beating the Zacks Consensus Estimate by 5.7%.
Guidewire Cloud continued to gain momentum with eight cloud deals in the reported quarter, taking the year-to-date count to 24.
Quarter in Detail
Subscription and support revenues (44% of total revenues) soared 34% from the year-ago quarter’s levels to $86.9 million due to higher subscription revenues, which jumped 49% year over year to $66.4 million. The reported figure surpassed the consensus mark of $85 million.
License revenues (27.3% of total revenues) increased 6% year over year to $53.9 million. Nonetheless, the reported figure came in line with the consensus mark of $54 million.
Services revenues (28.7% of total revenues) climbed 18% year over year to $56.7 million, driven by increases in cloud implementation programs. The reported figure topped the consensus mark of $51 million.
Annual recurring revenues (ARR) were $637 million as of Apr 30, 2022, up 18% year-over-year and 17% on a constant currency basis driven by new sales and deal ramps.
Non-GAAP gross margin contracted 470 basis points (bps) on a year-over-year basis to 45.1%. This year-over-year decline was due to the revenue mix shift toward subscription and support revenues and away from higher-margin term license revenues.
Subscription and support gross margin came in at 43.8%, up 140 bps from reported in the year-ago quarter, primarily due to benefits of the cloud infrastructure cost controls put in place. Services gross margin was negative 2.1% compared with a gross margin of 9.6% in the year-ago quarter.
Total operating expenses increased 17.4% year over year to $139.3 million. Non-GAAP operating loss was $24.9 million compared with the operating loss of $16.3 million reported in the year-ago quarter.
Financial Details
As of Apr 30, 2022, cash and cash equivalents and short-term investments came in at $1.1 billion compared with $1.1 billion as of Jan 31, 2022.
Guidewire used $121.5 million in cash from operations during the first nine months of the fiscal year 2022, with a free cash outflow of $138.7 million.
Guidance
For fourth-quarter fiscal 2022, revenues are expected in the range of $226-$232 million. ARR is expected to be between $668 million and $674 million. Non-GAAP operating income (loss) is expected to be between $(2) million and $4 million.
The company also updated its outlook for the fiscal year 2022 based on current expectations. For fiscal 2022, the company now expects total revenues between $794 million and $800 million, higher than the previous outlook of $784 million and $792 million. ARR is expected to be between $668 million and $674 million, above the previous forecast of $664 million to $670 million.
Non-GAAP operating loss for fiscal 2022 is now projected in the range of $47-$53 million, compared with the earlier guidance of $42-$50 million forecasted earlier. For fiscal 2022, cash flow from operations is projected in the range of $10-$20 million, in line with the previous guidance.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -46.94% due to these changes.
VGM Scores
At this time, 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 lowest 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. It’s no surprise Guidewire Software has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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