Guidewire's (NYSE:GWRE) Q1 Sales Beat Estimates, Stock Soars

Radek Strnad /
2024/06/04 4:24 pm EDT

Insurance industry-focused software maker Guidewire (NYSE:GWRE) reported Q1 CY2024 results exceeding Wall Street analysts' expectations, with revenue up 16% year on year to $240.7 million. On the other hand, the company expects next quarter's revenue to be around $283 million, slightly below analysts' estimates. It made a non-GAAP profit of $0.26 per share, improving from its loss of $0.08 per share in the same quarter last year.

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Guidewire (GWRE) Q1 CY2024 Highlights:

  • Revenue: $240.7 million vs analyst estimates of $231.4 million (4% beat)
  • EPS (non-GAAP): $0.26 vs analyst estimates of $0.13 ($0.13 beat)
  • Revenue Guidance for Q2 CY2024 is $283 million at the midpoint, below analyst estimates of $285.6 million
  • Gross Margin (GAAP): 59.1%, up from 47.7% in the same quarter last year
  • Free Cash Flow of $754,000, down 98.8% from the previous quarter
  • Annual Recurring Revenue: $828 million at quarter end, up 14.7% year on year
  • Billings: $226.4 million at quarter end, up 10.8% year on year
  • Market Capitalization: $9.14 billion

“Our outstanding third quarter results were driven by strong Tier-1 deal volume and an acceleration in migration activity, particularly in Asia Pacific,” 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.

Vertical Software

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, some have very specific needs. As a result, vertical software, which addresses industry-specific workflows, is growing and fueled by the pressures to improve productivity, whether it be for a life sciences, education, or banking company.

Sales Growth

As you can see below, Guidewire's revenue growth has been unremarkable over the last three years, growing from $164 million in Q3 2021 to $240.7 million this quarter.

Guidewire Total Revenue

This quarter, Guidewire's quarterly revenue was up 16% year on year, above the company's historical trend. However, the company's revenue actually decreased by $219,000 in Q1 compared to the $33.49 million increase in Q4 CY2023. 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's guidance suggests that Guidewire is expecting revenue to grow 4.8% year on year to $283 million, slowing down from the 10.4% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 9.8% 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's free cash flow came in at $754,000 in Q1, turning positive over the last year.

Guidewire Free Cash Flow

Guidewire has generated $155.2 million in free cash flow over the last 12 months, a solid 16.2% of revenue. This strong FCF margin stems from its asset-lite business model, giving it optionality and plenty of cash to reinvest in its business.

Key Takeaways from Guidewire's Q1 Results

It was good to see Guidewire beat analysts' revenue, billings, and ARR (annual recurring revenue) expectations this quarter. We were also glad its full-year ARR guidance beat Wall Street's estimates. One negative was that its gross margin decreased, but it didn't matter much in the face of a "beat-and-raise" quarter. Zooming out, we think this was a solid quarter, showing the company is staying on track. The stock is up 8.7% after reporting and currently trades at $117.50 per share.

So should you invest in Guidewire 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.