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Guidewire Grows Stronger Through Acquisitions

Posted on Tuesday, Jun 26th 2018

Insurance-focused platform Guidewire Software (NYSE: GWRE) recently announced its third quarter results that outpaced market expectations. The company provides web-based tools to insurance companies to help them handle claims, manage receivables, and underwrite and administer policies.

Guidewire’s Financials

Revenues for the third quarter grew 14% over the year to $140.5 million, ahead of the market’s forecast of $137 million. Non-GAAP EPS of $0.05 was also significantly ahead of the $0.01 loss per share forecast by the market.

By segment, license and other revenues fell 15% to $50.4 million. Services revenues grew 50% to $71.4 million and maintenance revenues grew 11% to $18.7 million.

For the current quarter, Guidewire expects revenues of $234-$240 million, in line with the market’s forecast of $239.6 million. It expects to end the quarter with an adjusted EPS of $0.72-$0.77, compared with the market’s estimate of $0.74. The significant sequential increase in the revenues is attributed to seasonality.

The company improved the guidance for fiscal 2018 to revenues of $647-$653 million. Earlier, it had forecast revenues of $644-$650 million. The market was looking for revenues of $648.9 million. It also improved its earnings forecast, raising it to $1.05-$1.11 per share compared with the earlier guidance of $0.98-$1.04. The market was looking for an adjusted net income of $1.01 per share for the year.

Guidewire’s Acquisitions

Guidewire has been expanding its presence in the analytics space through several acquisitions. This year, it completed the acquisition of Cyence, a software company that uses advanced analytics to enable Property & Casualty (P&C) insurers to grow by underwriting the emerging risks that may have been overlooked otherwise. Cyence’s data listening and risk analytics solution integrates Internet-scale collection and curates external data with sophisticated machine learning and risk modeling to support insurers’ product management, actuarial, underwriting, and enterprise risk management functions. The deal is estimated to have cost Guidewire $265 million. Prior to the acquisition, Cyence had raised $40 million from investors including Dowling Capital Partners, New Enterprise Associates (NEA), and IVP.

Earlier last year, Guidewire had also completed the acquisition of ISCS, a cloud computing technology company that focuses on policy administration, underwriting, claims, billing, business intelligence, reinsurance and mobile products. Prior to the acquisition, it was trending at annual revenue run rates of more than $40 million and was growing 20% annually, The deal was estimated to be valued at $160 million.

Meanwhile, Guidewire continues to improve its product offering. Earlier this year, it announced the latest release of its flagship platform. The latest release includes several enhancements to its core data and digital and all-in-one product families. It will also feature more than 80 ready-for-Guidewire validated accelerators. It also announced the availability of its first P&C insurance CRM applications for Salesforce Financial Services Cloud. The integration will allow P&C insurers to unify their core digital and CRM strategies in a simpler and faster way.

Guidewire is not the only player in its field. There are several other private players in the industry as well including Carpe Data, Black Swan Data, and Data Science. But the company is doing well, given the awards it keeps winning. Last quarter, it won two awards for policy administration by industry analyst Celent.

The market is pleased with Guidewire’s performance. Its stock is trading at $91.34 with a market capitalization of $7.3 billion. It had climbed a 52-week high of $96.19 earlier last month. It has been steadily climbing from its 52-week low of $67.82 in June last year. The stock has grown significantly since its 2012 listing price of $13 when it raised $115 million. Prior to listing, Guidewire had raised an undisclosed amount from investors including US Ventures, Bay Partners, and Battery Partners.

Questions for the Board

Guidewire has clearly identified the opportunity for growth through acquisitions. I would like to know what other segments is it focusing on through these acquisitions. By adding analytics to its capabilities, it is widening its reach within its existing clientele. What other such opportunities does Guidewire want to leverage?


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