Guidewire's Q4 2025: Contradictions Emerge on AI Opportunities, Customer Engagement, Cloud Transition, and Cloud Migration Confidence

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 4, 2025

Financials Results

• Revenue: $1.2B, ahead of expectations
• Gross Margin: 66%, compared to 63% a year ago

Guidance:

• FY26 ARR expected at $1.21-$1.22B (17% cc growth at midpoint)
• FY26 revenue expected at $1.385-$1.405B
• FY26 subscription revenue ≈$888M (+34%); sub+support ≈$945M (support -$7M)
• FY26 license revenue to decline >$30M; services ≈$232M
• FY26 sub+support GM 71%-72%; services GM ≈13%; total GM ≈66%
• FY26 non-GAAP op income $259-$279M; GAAP $68-$88M
• FY26 SBC ≈$185M (incl. $10M ESPP)
• FY26 CFO $350-$370M; CapEx $25-$30M (~$16M capitalized SW)
• Q1 ARR $1.048-$1.054B
• Q1 sub+support revenue ≈$218M; services ≈$60M
• Q1 sub+support GM 71%-72%; services GM ~15%; total GM ~64%
• Q1 CFO seasonally lower due to bonus/commission payouts

Business Commentary:

• Record Financial Performance and ARR Growth:
• Guidewire reported ARR of $1.032 billion for fiscal 2025, with a 19% growth year-over-year on a constant currency basis.

• The growth is attributed to strong sales activity, the lowest ARR attrition rate, and a strategic partnership with Liberty Mutual.

• Strong Cloud Platform Adoption and Migration:

• Total Cloud ARR grew by 36% year-over-year, comprising 74% of total ARR.

• The increase reflects the demand for Guidewire Cloud Platform and successful migrations from on-premises to the cloud, driven by improved scalability and competitive pricing strategies.

• Success in Large Strategic Partnerships:

• Guidewire secured a 10-year commitment from Liberty Mutual, involving the migration of ClaimCenter and PolicyCenter to the cloud.

• This strategic partnership underscores the maturity and referenceability of the Guidewire Cloud Platform, setting a precedent for future Tier 1 insurer engagements.

• Improved Operational Efficiency and Margins:

• Guidewire reported a gross margin of 66%, with subscription and support gross margin at 70%.
• The improvements were driven by increased billable utilization rates, successful cloud program outcomes, and platform maturity, enhancing predictability and efficiency.

Sentiment Analysis:

• Record year: ARR grew 19% to $1.041B and surpassed $1B milestone; fully ramped ARR up 22%. Subscription revenue up 40% YoY; subscription & support GM 70% (+4pp). Operating income up 109% YoY; operating cash flow margin 25%. Cloud ARR up 36% and now 74% of total ARR. FY26 guide: ARR +17% cc at midpoint, revenue $1.385-$1.405B, improving margins and higher cash flow. Management cites healthy pipeline and Tier 1 win (Liberty Mutual) as a milestone.

Q&A:

• Question from Rishi Jaluria (RBC Capital Markets): What drove record low ARR attrition—product maturity, customer success, or macro factors?
  Response: Durable customer base plus intense focus on implementation success and proactive CSM minimized churn; absence of large M&A events also helped.

• Question from Rishi Jaluria (RBC Capital Markets): How to think about the next act beyond cloud—platform expansion and underwriting focus?
  Response: Act 3 centers on data/analytics and AI-powered apps across pricing, underwriting, and claims; strong execution lets GWRE invest here now.

• Question from Dylan Becker (William Blair): Clarify how premium growth impacts your model and modernization demand.
  Response: Premium growth generally helps but contracts temper direct pass-through; modernization demand remains strong; modeled slight conservatism on license true-ups.

• Question from Dylan Becker (William Blair): Has structural growth for the business stepped up?
  Response: ARR growth lifted to 19% in FY25 and 17% guided for FY26; signs suggest a durable step-up off mid-teens, with measured outlook.

• Question from Alexei Gogolev (JPMorgan): Competitor ARR growing slower—company-specific or market? What drives your outperformance?
  Response: Success comes from de-risking projects via proven implementations and relentless customer success, unlocking pent-up modernization demand.

• Question from Alexei Gogolev (JPMorgan): Could gen-AI tools increase release cadence from 3 to 4 per year?
  Response: AI tooling shows promise but it’s early; release frequency will depend on customer readiness rather than tooling alone.

• Question from Aaron Kimson (Citizens JMP Securities): Is Liberty’s 10-year term a new pattern for Tier 1 cloud deals?
  Response: Not a new standard; terms depend on rollout cadence and business value realization, with flexibility by line and timing.

• Question from Aaron Kimson (Citizens JMP Securities): Lessons building the App Marketplace vs. Salesforce; vertical vs. horizontal differences?
  Response: Opening the platform to partners accelerates innovation and customer value; GWRE prioritized ecosystem optionality alongside cloud focus and AI.

• Question from Hoi-Fung Wong (Oppenheimer & Co.): Can AI in services reduce deployment risk and streamline programs?
  Response: Yes; priority initiative with SIs to boost pace and predictability, with strong early results in data/technical migration and templated configs.

• Question from Hoi-Fung Wong (Oppenheimer & Co.): Context on Liberty deal’s fully ramped ARR profile?
  Response: Details undisclosed; very meaningful shift from perpetual to cloud; note FR ARR metric capped at 5 years.

• Question from Joseph Vruwink (RW Baird): Will GWRE offer its own AI agents, and what differentiates GWCP for agentic AI?
  Response: Modern core enables agentic automation; GWRE will support third-party and embed agentic capabilities over time; still early in deployment.

• Question from Joseph Vruwink (RW Baird): Mix of new cloud sales and ramp terms affecting visibility?
  Response: Balanced mix across new, expansions, and migrations; slightly higher year-3 step-ups enhance multi-year ARR visibility.

• Question from Adam Hotchkiss (Goldman Sachs): Are customers expanding across core products/lines more frequently?
  Response: Full-suite discussions are more common; customers increasingly open to bundling; ongoing success engagement not tied to renewals.

• Question from Adam Hotchkiss (Goldman Sachs): Any update on on-prem end-of-support messaging?
  Response: Unchanged; timelines are clear; continued investment to de-risk migrations; goal is every on-prem customer successfully on cloud.

• Question from Matthew Kikkert (Stifel): Status and trajectory of data/analytics attach rates?
  Response: Healthy and growing; Industry Intelligence models gaining traction; Quantee adds pricing analytics muscle; growing faster than core.

• Question from Matthew Kikkert (Stifel): FY26 operating margin levers—anything unique?
  Response: No unique items; continued scale and leverage of past investments; confidence in long-term targets.

• Question from Michael Turrin (Wells Fargo): Is Tier 1 strength year-end driven, and how does AI adoption vary by tier?
  Response: Tier 1 timing reflects lengthy evaluations, not fiscal year; AI productization aids smaller tiers, while Tier 1s may build alongside GWRE.

• Question from Alexander Sklar (Raymond James): FY26 ARR mix (ramp vs. net new), pricing, and churn assumptions?
  Response: Slightly more ramp-weighted; more conservative true-up; improved discounting; attrition modeled near historical averages.

• Question from Tyler Radke (Citigroup): Is Liberty your largest cloud ARR deal, and impact on referenceability?
  Response: It’s the most strategic deal; success expected to bolster momentum and Tier 1 confidence after rigorous evaluation.

• Question from Tyler Radke (Citigroup): Q1 implied net new ARR stronger than typical—drivers?
  Response: Robust demand plus sizable backlog-driven ARR step-ups lift Q1; strong Q4 did not exhaust pipeline.