Guidewire Software, Inc. Q4 FY2025 earnings call

• Acknowledged and congratulated the Guidewire team on an outstanding year and the success of building a cloud platform for the P&C industry. • Demand for the Guidewire Cloud Platform is strong, with Q4 being a record quarter driven by deal volume, size, and the Liberty Mutual milestone win. • Pipeline entering fiscal 2026 remains healthy, driven by the success and referenceability of cloud customers. • Cloud margins are improving, with subscription and support gross margins finishing the year at 70%. • Focus on delivering value and innovation through data-driven analytics, AI-focused applications, and acquisitions like Quanti. • Strong deal activity in Q4, including 19 core cloud deals, 9 with Tier 1 brands, and growth in geographic regions. • Healthy technology partner ecosystem with over 300 third-party applications on the marketplace.

ARR ended the year at $1.032 billion, up 19% year-over-year on a constant currency basis. Cloud ARR grew 36% year-over-year and comprised 74% of total ARR. Subscription revenue finished at $667 million, up 40% year-over-year. Subscription and support revenue was $731 million, up 33% year-over-year. Services revenue finished at $219 million, up 21% year-over-year. Subscription and support gross margin was 70%, up 4 percentage points year-over-year. Services gross margin was 13% compared with 7% a year ago.

• For fiscal 2026, expect ARR between $1.21 and $1.22 billion (17% constant currency growth at midpoint). • Total revenue expected to be between $1.385 and $1.405 billion. • Subscription revenue expected to be approximately $888 million (34% growth). • Subscription and support revenue expected around $945 million, with support revenue declining due to cloud migrations. • License revenue expected to decline over $30 million. • Services revenue expected to be approximately $232 million. • Subscription and support gross margins expected between 71% and 72%, total gross margins approximately 66%. • Non-GAAP operating income expected between $259 million and $279 million, GAAP operating income between $68 million and $88 million. • Cash flow from operations expected between $350 million and $370 million. • Q1 2026 outlook: ARR between $1.048 billion and $1.054 billion, subscription and support revenue ~$218 million, services revenue ~$60 million, subscription and support margin 71%-72%, services margins ~15%, total gross margins ~64%.

• Customer attrition risk, though ARR attrition rate was at record lows, but any significant changes in customer success or market conditions could impact this. • Market competition, as other companies may pose challenges in the P&C insurance software space. • Impact of macro events on the insurance industry, such as economic conditions or geopolitical factors, which could affect customer spending on modernization.

Q: What are the drivers of record low ARR attrition?

A: The company's focus on customer success, quality implementations with partner programs, and the durable customer base and use case.

Q: How should we think about act three related to AI?

A: There's potential in pricing, underwriting, claims, etc., with generative AI, and the company is excited to focus resources on these use cases.

Q: How does premium growth impact the model?

A: Premium growth generally benefits Guidewire, but contract structures can complicate direct flow, and the industry's focus on efficient pricing and underwriting validates the need for modern systems.

Q: Thoughts on competition?

A: Customer hesitation to modernize is due to risk of failure, and Guidewire's focus on minimizing failure risk drives growth.

Q: AI and service organization?

A: Infusing AI into service organization to streamline deployments and minimize modernization risk, with early promising results.

Q: Liberty Mutual deal context?

A: The deal is a meaningful one, but fully ramped ARR is capped at five years, and details of the deal's terms are not disclosed.

Q: AI and new product lineup?

A: Generative AI has potential to accelerate throughput and product development, but frequency of releases depends on customer readiness.

Q: Expansion of products with customers?

A: Customers are having more conversations about full suite solutions, with a healthy mix of full suite deals in Q4, and the company focuses on regular cadence with customers regardless of renewal cycles.

Q: Data and analytics attach rates?

A: Attach rates are healthy, with data and analytics solutions growing faster than the core business, and excitement around products like Guidewire Industry Intelligence.

Q: Operating margin levers for fiscal 2026?

A: Continuation of current model and investments, with increased confidence in long-term targets.

Q: Tier one deals and AI adoption?

A: AI adoption varies by tier, with tier ones having different agendas, but AI has potential across the customer base.

Q: Q1 pipeline and linearity?

A: Strong demand environment leads to healthy pipeline in Q1, with ARR from backlog contributing to Q1 performance.