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Guidewire's (NYSE:GWRE) Q1 Sales Top Estimates But Quarterly Guidance Underwhelms

StockStory - Thu Dec 7, 2023

GWRE Cover Image

Insurance industry-focused software maker Guidewire (NYSE:GWRE) reported Q1 FY2024 results beating Wall Street analysts' expectations, with revenue up 6.2% year on year to $207.4 million. On the other hand, next quarter's revenue guidance of $240 million was less impressive, coming in 4.6% below analysts' estimates. It made a GAAP loss of $0.33 per share, improving from its loss of $0.83 per share in the same quarter last year.

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Guidewire (GWRE) Q1 FY2024 Highlights:

  • Revenue: $207.4 million vs analyst estimates of $201.8 million (2.8% beat)
  • ARR: $770 million vs analyst estimates of $768 million (slight beat)
  • EPS (non-GAAP): $0 vs analyst estimates of -$0.18 ($0.18 beat)
  • Revenue Guidance for Q2 2024 is $240 million at the midpoint, below analyst estimates of $251.5 million
  • The company reconfirmed its revenue guidance for the full year of $981 million at the midpoint (but raised profit and cash flow outlook)
  • Free Cash Flow was -$76.77 million, down from $167.3 million in the previous quarter
  • Gross Margin (GAAP): 54.1%, up from 36.9% in the same quarter last year

“We are thrilled with our first quarter financial results and the continued momentum in Guidewire Cloud Platform with another seven cloud deals closed,” said Mike Rosenbaum, chief executive officer, Guidewire.

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

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Sales Growth

As you can see below, Guidewire's revenue growth has been unremarkable over the last two years, growing from $165.9 million in Q1 FY2022 to $207.4 million this quarter.

Guidewire Total Revenue

Guidewire's quarterly revenue was only up 6.2% year on year, which might disappoint some shareholders. On top of that, the company's revenue actually decreased by $62.55 million in Q1 compared to the $62.47 million increase in Q4 2023. Regardless, we aren't too concerned because Guidewire's sales seem to follow a seasonal pattern and management is guiding for revenue to rebound in the coming quarter.

Next quarter, Guidewire is guiding for a 3.1% year-on-year revenue decline to $240 million, a further deceleration from the 13.7% year-on-year decrease it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 10.8% over the next 12 months before the earnings results announcement.

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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 burned through $76.77 million of cash in Q1 , increasing its cash burn by 16.3% year on year.

Guidewire Free Cash Flow

Guidewire has burned through $35.93 million of cash over the last 12 months, resulting in a negative 0.3% 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 Q1 Results

With a market capitalization of $8.04 billion, Guidewire is among smaller companies, but its more than $301.4 million in cash on hand and near break-even free cash flow margins puts it in a stable financial position.

It was good to see Guidewire beat analysts' revenue expectations this quarter. ARR was also ahead but by a much smaller magnitude. On the other hand, its revenue guidance for next quarter underwhelmed and its gross margin shrunk. Full year guidance was mixed. Revenue and ARR guidance was maintained but non-GAAP operating profit and cash from operations were raised. Overall, the results were mixed. The stock is flat after reporting and currently trades at $98.2 per share.

Guidewire may not have had the best quarter, but does that 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.

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