For Q3, it is forecasting EPS of $0.05-$0.09 compared to the $0.05 expectation with revenue coming in at $152.5-$156.5 mln versus the $148.6 mln consensus. The company lifted its FY19 outlook to EPS of $1.35-$1.41 from $1.24-$1.34, and revenue to $725-$732 mln from $722-$732 mln.
GWRE provides software products for the property and casualty insurance industry. Its primary products include InsuranceSuite and InsurnaceNow, which help streamline back-office tasks such as claims processing, billing, underwriting, and policy administration.
From a broader perspective, a major tailwind for GWRE is that many insurance companies are still using out-of-date systems and software, that aren't designed for the P&C industry. Not only does this create more arduous work for insurance agents than necessary, it also adds risk. For instance, one common error is "claims leakage", where the amount paid on a claim exceeds the amount to which a claimant is entitled. GWRE's software helps insure that the correct amount entitled to the claimant is being paid.
The market opportunity for GWRE is extensive. When the company first went public in 2012, most of its revenue was derived from licenses that generated annual fees recurring during multi-year contracts. However, the company is in the midst of a transition to a subscription-based model as it focuses on growing its InsuranceSuite Cloud offering.
Prior to its Q1 report, the company hosted its annual user conference in which it announced a new major release, InsuranceSuite Cloud version 10. It also elaborated on its investments in Guidewire Cloud to drive cloud-based delivery of its entire platform while providing existing customers the flexibility to transition to the Cloud when they are ready.
These investments in its cloud-based products are beginning to pay off. In Q1, 26% of its new sales came via subscription agreements. For this quarter, that percentage jumped to 53%, putting it on track for 40-60% of this year's bookings to be subscription-based. A key benefit to shifting towards a subscription-based model as opposed to a licensing model is that it gives GWRE more pricing flexibility as it upgrades and updates its platform throughout the year, and as more users at each client access the platform.
Originally, GWRE was anticipating landing 4-5 new cloud deals for the full year. However, with the company winning a couple significant deals this past quarter, GWRE now expects to close 5-8 deals. One of those new deals included TD Insurance, one of Canada's largest banks and a top three home and auto insurer, which will be upgrading and migrating their existing implementation of InsuranceSuite to Guidewire Cloud.
Another key initiative for GWRE is to expand its partnership with Salesforce (CRM), the leader in CRM software, which helps companies transition to digital and cloud-based commerce. In Q2, it closed two new deals with existing clients through its CRM partnership.