Guidewire's Q1 2026: Contradictions Emerge on AI Integration, Cloud Migration Drivers, ARR Growth, Premium Impact, and Geographical Demand

Date of Call: December 3, 2025

Financials Results

• Revenue: $333 million, up 27% YOY
• Gross Margin: 66% (gross profit $219M, up 32% YOY); subscription & support gross margin 73%; professional services margin 23%
• Operating Margin: Approximately 19% (Operating income $63M, up 83% YOY)

Guidance:

• FY26 ARR $1.220B–$1.230B; revenue $1.403B–$1.419B; subscription revenue ~$891M; subscription & support ~$948M; services ~$245M; ProNavigator +$4M ARR/+ $2M revenue.
• FY26 margins: subscription & support 72%–73%; services 13%–14%; overall gross margin ~66%.
• FY26 operating income GAAP $72M–$88M; non‑GAAP $266M–$282M; stock‑based comp ~$185M; operating cash flow $355M–$375M; CapEx $30M–$35M.
• Q2: ARR $1.107B–$1.113B; revenue $339M–$345M; subscription & support ~$229M; services ~$58M; total gross margin ~66%; Q2 non‑GAAP operating income $68M–$74M.

Business Commentary:

• Strong Financial Performance in Q1:
• Guidewire Software reported record sales activity for Q1 fiscal 2026, with ARR growing 22% year-over-year and 21% on a constant currency basis.

• The growth was driven by continued strong demand for cloud products, successful migrations to Guidewire Cloud, and a resilient P&C insurance market.

• Cloud Migrations and Expansion:

• The company saw 8 cloud deals in Q1, including 5 in North America and 3 internationally.
• This momentum was driven by the successful maturity of the Guidewire Cloud Platform, customer trust in its capabilities, and the global trend towards cloud adoption in the insurance industry.

• Focus on New Products and AI Integration:
• Guidewire is expanding its product suite with new applications such as PricingCenter and UnderwritingCenter, shown in strong reception at their annual conference.
• The adoption of AI in insurance, particularly with the acquisition of ProNavigator, is expected to enhance underwriting and pricing capabilities, leading to greater efficiency across the insurance industry.

• Services Revenue and Utilization:
• Professional services revenue was $68 million in Q1, surpassing expectations.

• This increase reflects higher utilization, investment in subcontractor capacity, and strategic alignment with systems integrators to meet strong demand for cloud implementations.

• Pipeline and Geographical Demand:

• Guidewire's pipeline remains strong and balanced across North America, Europe, and Asia Pacific regions.
• The company continues to see healthy demand in various geographical areas, supported by strong customer interest in cloud migrations and new product offerings.

  Sentiment Analysis:

  Overall Tone: Positive

  • CEO: "We're off to a great start...delivering results ahead of expectations across all key financial metrics." CFO: "Total revenue was $333 million, up 27% year‑over‑year; ARR ended at $1.063 billion, up 21% YOY." Company raised FY26 ARR and revenue guidance after Q1.

Q&A:

• Question from Dylan Becker (William Blair): Can you detail opportunities for PricingCenter and UnderwritingCenter and how they attach to the core suite (PolicyCenter)?
  Response: Built on the unified cloud platform to integrate with core apps; PricingCenter will shorten model‑to‑market time and UnderwritingCenter will materially speed underwriting and risk selection (with AI), enabling attach to existing PolicyCenter deployments.

• Question from Dylan Becker (William Blair): The services line showed outsized momentum—is that a signal for sustainable subscription momentum?
  Response: Q1 services strength was driven by a few large programs and strong SI partnerships; the company is investing in generative AI and capacity to scale services and to pull through subscription demand.

• Question from Alexei Gogolev (JPMorgan): Are customers consuming multiple core products simultaneously vs line‑by‑line and what's driving that shift?
  Response: Large customers increasingly migrate multiple modules together as trust in Guidewire Cloud scale has been earned; many migrations package the full landscape though these multi‑module deals remain limited in frequency.

• Question from Alexei Gogolev (JPMorgan): What drove the decision to raise ARR guidance after Q1 and were any components treated conservatively?
  Response: Raise driven by unusually strong Q1 deal size/scope, a confident pipeline review, the ProNavigator acquisition (+~$4M ARR) and encouraging early feedback on new products.

• Question from Hoi‑Fung Wong (Oppenheimer): What is the expected adoption timeline for Underwriting/PricingCenter—more like PolicyCenter or faster like Claims?
  Response: Management expects adoption to be slightly faster and more incremental than big core replacements; these can be positioned greenfield or module‑by‑module rather than full all‑or‑nothing swaps.

• Question from Hoi‑Fung Wong (Oppenheimer): The subscription & support gross margin uptick—was that driven by one‑offs (AWS credits) or efficiency gains?
  Response: Mostly efficiency gains across finance, engineering and customer success, with a very small one‑time contribution that is not material.

• Question from Michael Turrin (Wells Fargo): Can you stack‑rank growth drivers and note any seasonal considerations rolling forward?
  Response: Primary drivers are migration pace and strong win rates for core systems, with new‑product momentum adding incremental growth; seasonality includes a previously disclosed ARR headwind from backlog in Q3.

• Question from Adam Hotchkiss (Goldman Sachs): What is Guidewire's philosophy on competing vs partnering with AI/insurtech vendors?
  Response: Open platform approach: Guidewire will build first‑party GenAI features but invite and partner with insurtechs to foster ecosystem innovation rather than treat them as pure competitors.

• Question from Adam Hotchkiss (Goldman Sachs): Are customers moving more quickly wall‑to‑wall across policy types post‑large deals?
  Response: Expansion timing is business‑priority driven; successful implementations increase the likelihood and speed of customers moving additional lines to Guidewire.

• Question from J. Lane (Stifel): How often is generative AI cited as the primary catalyst to move to cloud and does it compress timelines?
  Response: Generative AI is a meaningful accelerator of migration conversations and velocity but is generally an additive factor rather than the sole primary driver.

• Question from J. Lane (Stifel): Any regional skew in the pipeline after Q1 (North America vs international)?
  Response: Pipeline is broad‑based and global—healthy demand in North America, Europe and Asia‑Pac with no material regional concentration to highlight.

• Question from Maximillian Persico (RBC): How will agentic/GenAI features be monetized and could scaling usage pressure gross margins?
  Response: Pricing will follow Guidewire's DWP‑based model for new products, with embedded GenAI features generally not separately priced but with constraints to protect margins; management expects AI costs to decline over time.

• Question from Aaron Kimson (Citizens JMP): Can you ballpark contributions to the 17%–18% ARR CAGR from migrations, expansions, new products, marketplace and M&A?
  Response: Growth is expected to be broad‑based across migrations, expansions, new customers and new products; management declined to provide exact percentage breakdowns but emphasized multiple levers and long migration runway.

• Question from Aaron Kimson (Citizens JMP): Is UnderwritingCenter separate modules for personal vs commercial or one platform?
  Response: One unified underwriting platform built on a shared framework with line‑specific configurations; personal and commercial use‑cases reuse common components while tailoring models, prompts and data per line.

Contradiction Point 1

AI Integration and Development Impact

It involves differing perspectives on how AI integration affects software development and product release frequencies, which impacts the company's ability to innovate and adapt to industry needs.

How is Guidewire integrating AI into its insurance software solutions? - Adam Hotchkiss (Goldman Sachs Group, Inc.)

2026Q1: Guidewire aims to be an open platform that integrates AI capabilities from various sources while also developing its own AI features. This open approach is to enhance the overall industry innovation and efficiency. - Mike Rosenbaum(CEO)

How does AI tool usage in internal software development affect release frequency? - Alexei Gogolev (JPMorgan Chase & Co)

2025Q4: Early results show potential for AI to increase development throughput. However, customer readiness for more frequent updates is a consideration. - Mike Rosenbaum(CEO)

Contradiction Point 2

Cloud Migration Drivers and AI Adoption

It highlights differing perspectives on the primary drivers for cloud migration and the role of AI in this process, which could impact strategic decisions and market positioning.

How often is generative AI a primary driver for cloud migration? - J. Lane (Stifel, Nicolaus & Company, Incorporated)

2026Q1: Generative AI is a positive influence on cloud migration, though not the primary driver. It enhances the long-term perspective of Guidewire Cloud's benefits for insurance companies. - Mike Rosenbaum(CEO)

How do rising interest rates and inflation impact the opportunity for insurance system modernization? - Dylan Tyler Becker (William Blair & Company L.L.C.)

2025Q3: You're seeing the first wave of insurance companies begin to leverage AI in their core systems, which is forcing more companies to consider modernization of their systems. - John Mullen(CRO)

Contradiction Point 3

ARR Growth Expectations

It involves differing expectations for ARR growth rates, which are crucial for investor expectations and strategic planning.

What's driving the more optimistic ARR growth expectations this year? - Alexei Gogolev (JPMorgan Chase & Co)

2026Q1: We feel confident in maintaining upper teens level of fully ramped ARR growth, similar to recent fiscal years, around 17% to 19%. - Jeffrey Cooper(CFO)

What is your fully ramped ARR outlook for Q3? - Alexei Gogolev (JPMorgan Chase & Co)

2025Q3: The outlook adjustment is driven by strong Q1 deal activity, early market feedback on new products, and the acquisition of ProNavigator, which adds $4 million in ARR. - Jeffrey Cooper(CFO)

Contradiction Point 4

Premium Growth Impact on Modernization

It highlights differing views on the relationship between premium growth and modernization efforts, which are critical for the company's service offerings and market positioning.

Why did subscription and support gross margins increase this quarter? - Hoi-Fung Wong (Oppenheimer & Co. Inc.)

2026Q1: Premium growth benefits Guidewire, although the effect on revenue growth is slightly misunderstood due to complex contract structures. The industry benefits from modernizing systems to manage pricing risks and increasing efficiencies, validating Guidewire's role. - Mike Rosenbaum(CEO)

How does the premium growth environment impact modernization efforts, and is there additional validation for using Guidewire for modernization? - Dylan Becker (William Blair & Company L.L.C.)

2025Q4: Premium growth benefits Guidewire, although the effect on revenue growth is slightly misunderstood due to complex contract structures. The industry benefits from modernizing systems to manage pricing risks and increasing efficiencies, validating Guidewire's role. - Mike Rosenbaum(CEO)

Contradiction Point 5

Cloud Migration Demand and Geographical Split

It addresses the demand for cloud migration and the geographical distribution of the pipeline, which are crucial for understanding the company's growth potential and market position.

How is the pipeline split between North America and international markets? - J. Lane (Stifel, Nicolaus & Company, Incorporated)

2026Q1: The pipeline is broad-based with healthy demand in Europe, Asia Pacific, and North America. There's no specific skewing, and the demand is diversified geographically. - Jeffrey Cooper(CFO)

How does the cloud conversation evolve across regions, and are there notable differences? - Adam Hotchkiss (Goldman Sachs)

2025Q2: The cloud conversation is evolving positively across all regions. Guidewire's platform and architecture are well-accepted globally, though local requirements and integrations are being addressed. - Mike Rosenbaum(CEO)