Guidewire Software (NYSE:GWRE) Misses Q3 Sales Targets

Petr Huřťák /
2023/06/01 4:20 pm EDT

Insurance industry-focused software maker Guidewire (NYSE:GWRE) missed analyst expectations in Q3 FY2023 quarter, with revenue up 5.09% year on year to $207.5 million. Guidance for the next quarter also missed analyst expectations with revenues guided to $260 million at the midpoint, or 0.53% below analyst estimates. Guidewire Software made a GAAP loss of $45.6 million, improving on its loss of $57.4 million, in the same quarter last year.

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Guidewire Software (GWRE) Q3 FY2023 Highlights:

  • Revenue: $207.5 million vs analyst estimates of $214 million (3.05% miss)
  • EPS (non-GAAP): -$0.08 vs analyst estimates of -$0.14
  • Revenue guidance for Q4 2023 is $260 million at the midpoint, above analyst estimates of $258.6 million
  • Free cash flow was negative $52.1 million, compared to negative free cash flow of $2.53 million in previous quarter
  • Gross Margin (GAAP): 47.7%, up from 39% same quarter last year

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.

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Sales Growth

As you can see below, Guidewire Software's revenue growth has been unimpressive over the last two years, growing from quarterly revenue of $164 million in Q3 FY2021, to $207.5 million.

Guidewire Software Total Revenue

Guidewire Software's quarterly revenue was only up 5.09% year on year, which might disappoint some shareholders. But the revenue actually decreased by $25.1 million in Q3, compared to $37.3 million increase in Q2 2023. However, Guidewire Software's sales do seem to have a seasonal pattern to them, and considering management is guiding for revenue to rebound in the coming quarter we wouldn't be too concerned.

Guidance for the next quarter indicates Guidewire Software is expecting revenue to grow 6.3% year on year to $260 million, in line with the 6.61% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 9.98% over the next twelve months.

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Cash Is King

If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Guidewire Software burned through $52.1 million in Q3, increasing the cash burn by 237% year on year.

Guidewire Software Free Cash Flow

Guidewire Software has burned through $67.4 million in cash over the last twelve months, resulting in a negative 7.65% free cash flow margin. This below average FCF margin is a result of Guidewire Software's need to invest in the business to continue penetrating its market.

Key Takeaways from Guidewire Software's Q3 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Guidewire Software’s balance sheet, but we note that with a market capitalization of $6.79 billion and more than $687.8 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We struggled to find many strong positives in these results. It was unfortunate to see that Guidewire Software missed analysts' revenue expectations and gross margin deteriorated. Additionally, while next quarter's revenue guidance was roughly in line, full year revenue guidance was below expectations. While non-GAAP operating profit guidance was better, the mediocre revenue guidance is dominating the narrative. Overall, it seems to us that this was a complicated quarter for Guidewire Software. The company is down 4.33% on the results and currently trades at $79.25 per share.

Guidewire Software may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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