Insurance industry-focused software maker Guidewire (NYSE:GWRE) reported Q4 FY2023 results topping analysts' expectations, with revenue up 10.4% year on year to $270 million. However, next quarter's revenue guidance of $199.5 million was less impressive, coming in 6.09% below analysts' estimates. Turning to EPS, Guidewire made a GAAP profit of $0.15 per share, improving from its loss of $0.37 per share in the same quarter last year.

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“This was an exceptional fourth quarter with record demand for Guidewire Cloud Platform, completing an outstanding year for the Guidewire team and the broader community,” said Mike Rosenbaum, chief executive officer, Guidewire.

Founded by two individuals involved in the development of leading procurement software Ariba, Guidewire (NYSE:GWRE) offers a software-as-a-service platform for insurance companies to manage, analyze and sell their products. to manage their workflows.

Software is eating the world, and while a large number of solutions such as project management or video conferencing software can be useful to a wide array of industries, there are industries that have very specific needs. Whether it is life-sciences, education or banking, the demand for so called vertical software, addressing industry specific workflows, is growing, fueled by the pressures on improving productivity and quality of offerings.

Sales Growth

As you can see below, Guidewire's revenue growth has been unremarkable over the last two years, growing from $229.4 million in Q4 FY2021 to $270 million this quarter.

This quarter, Guidewire's quarterly revenue was once again up 10.4% year on year. On top of that, its revenue increased $62.5 million quarter on quarter, a strong improvement from the $25.1 million decrease in Q3 2023. This is a sign of acceleration of growth and very nice to see indeed.

Next quarter's guidance suggests that Guidewire is expecting revenue to grow 2.16% year on year to $199.5 million, slowing down from the 17.7% year-on-year increase it recorded in the same quarter last year. For the upcoming financial year, management expects revenue to be $981 million at the midpoint, growing 8.36% year on year compared to the 11.4% increase in FY2023.

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Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Guidewire's free cash flow came in at $167.3 million in Q4, up 112% year on year.

Guidewire has burned through $21 million of cash over the last 12 months, resulting in a negative 2.8% free cash flow margin. This below-average FCF margin stems from Guidewire's poor unit economics or a continuous need to reinvest in its business to penetrate the market.

Key Takeaways from Guidewire's Q4 Results

With a market capitalization of $6.98 billion, Guidewire is among smaller companies, but its more than $401.8 million in cash on hand and near break-even free cash flow margins puts it in a stable financial position.

We were impressed by Guidewire's strong gross margin improvement this quarter. We were also glad that its revenue outperformed Wall Street's estimates. On the other hand, next quarter's revenue and non-GAAP operating loss guidance were both below expectations. Furthermore, full-year revenue guidance was below expectations, although non-GAAP operating profit guidance was above Wall Street analysts' estimates. Overall, this was a mixed quarter for Guidewire. The company is down 3.47% on the results and currently trades at $81.88 per share.

Guidewire may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned in this report.