Guidewire's Q4 2025 Earnings Call: Contradictions Emerge on AI Strategy, Marketplace Expansion, and Cloud Migration Timelines

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

Date of Call: None provided

Financials Results

• Revenue: $1.2B, ahead of expectations (no YOY total revenue growth disclosed)
• Gross Margin: 66%, compared to 63% a year ago

Guidance:

• FY26 ARR expected at $1.21–$1.22B (~17% CC growth midpoint).
• FY26 revenue $1.385–$1.405B.
• Subscription revenue ≈$888M (+34% YOY).
• Subscription & support revenue ≈$945M; support down ≈$7M.
• License revenue to decline >$30M.
• Services revenue ≈$232M.
• S&S gross margin 71–72%; services GM ≈13%; total GM ≈66%.
• Non-GAAP operating income $259–$279M; GAAP $68–$88M.
• SBC ≈$185M.
• Cash flow from operations $350–$370M; capex $25–$30M (incl. ≈$16M capitalized software).
• Q1 ARR $1.048–$1.054B.
• Q1 S&S revenue ≈$218M; services ≈$60M; S&S GM 71–72%; services GM ≈15%; total GM ≈64%.

Business Commentary:

• Record Financial Performance:
• Guidewire Software achieved ARR of $1.032 billion for fiscal 2025, surpassing the $1 billion milestone.

• The growth was driven by strong sales activity, low ARR attrition rates, and increasing cloud adoption, with cloud ARR comprising 74% of total ARR.

• Cloud Platform Demand and Maturity:

• The company reported 19 core cloud deals in Q4, resulting in a total of 57 for the year, demonstrating healthy annual growth in deal count.

• This growth is attributed to the maturity and referenceability of the Guidewire Cloud Platform, leading to larger deal sizes and strategic partnerships.

• Liberty Mutual Strategic Partnership:

• Guidewire secured a major deal with Liberty Mutual, marking a 10-year commitment to adopt PolicyCenter on the Guidewire Cloud Platform.

• The partnership, driven by the strategy of modernizing core systems and cloud migration, signifies a strategic alignment with a major Tier 1 insurer.

• Investment in Data and Analytics:

• Guidewire saw increasing traction with its industry intelligence and data analytics offerings, closing two deals in Q4 and including these in 16 core deals.
• This trend is fueled by the success of professional services and strategic partnerships, enhancing customer offerings and operational efficiency.

Sentiment Analysis:

• Record quarter/year with ARR at $1.032B, up 19% YOY, and fully ramped ARR up 22%. Total revenue $1.2B exceeded expectations. Subscription revenue +40% YOY; subscription & support gross margin 70%, up 4 pts. Record-low ARR attrition. Pipeline entering FY26 described as very healthy. Landmark Liberty Mutual 10-year commitment to GC PolicyCenter and ClaimCenter migration. FY26 guide implies 17% ARR growth, continued margin expansion (S&S 71–72%).

Q&A:

• Question from Rishi Jaluria (RBC): What drove record-low ARR attrition this year?
  Response: Intense focus on project success and customer outcomes, proactive CS engagement, and no major M&A-related churn produced exceptionally low attrition.

• Question from Rishi Jaluria (RBC): What is the 'act three' after the cloud transition?
  Response: Expanding into data/analytics and AI use cases across pricing, underwriting, and claims, enabled by platform maturity and strong core execution.

• Question from Dylan Becker (William Blair): How does premium growth affect your model and modernization demand?
  Response: Premium growth generally helps, though contract mechanics delay resets; modernization demand remains robust, with only minimal impact from slower DWP/CPI on license.

• Question from Dylan Becker (William Blair): Should structural growth expectations rise after 22% fully ramped ARR growth?
  Response: Yes; management expects elevated, durable ARR growth, guiding 17% for FY26, supported by large commitments and healthy ramps.

• Question from Alexei Gogoley (JPMorgan): Competitor ARR growth lags—what’s driving your outperformance?
  Response: Reducing implementation risk and leveraging strong references; focus is on de-risking customer outcomes rather than competitor comparisons.

• Question from Alexei Gogoley (JPMorgan): Will gen AI increase release cadence from three to four per year?
  Response: Too early to commit; tools show promise boosting productivity, but release frequency will depend on customer readiness.

• Question from Aaron Kimson (Citizens Bank): Is Liberty Mutual’s 10-year term a template for Tier 1 deals?
  Response: Not uniformly; terms align to each Tier 1’s rollout cadence and business value realization, with Guidewire staying flexible.

• Question from Aaron Kimson (Citizens Bank): What enables Marketplace success in a vertical platform?
  Response: An open platform (SDKs/APIs) that invites partner innovation increases customer value and confidence; vertical context narrows scope but works well.

• Question from Ken Wong (Oppenheimer): Can AI de-risk and speed deployments?
  Response: Yes; focusing on data/technical migration and templated configurations with SIs to improve pace and predictability.

• Question from Ken Wong (Oppenheimer): How should we view Liberty in fully ramped ARR metrics?
  Response: Fully ramped ARR is capped at 5 years; terms not disclosed. It’s a meaningful shift from Liberty’s legacy perpetual model to subscription.

• Question from Joe Brunick (Baird): Will you sell your own AI agents and how do you differentiate?
  Response: Modern core systems enable agentic automation; Guidewire will support third-party agents and may offer its own; still early.

• Question from Joe Brunick (Baird): Composition of new cloud sales and ramps behind fully ramped ARR?
  Response: Balanced mix of migrations, expansions, and new logos; slightly larger year-3 step-ups improve multi-year visibility.

• Question from Adam Hotchkiss (Goldman Sachs): Are customers adopting more full-suite deals, and how do you engage outside renewals?
  Response: Openness to full-suite commitments is rising, reflected in larger FRARR; Guidewire engages continuously, independent of renewal cycles.

• Question from Adam Hotchkiss (Goldman Sachs): Any change to on‑prem end‑of‑support stance?
  Response: Unchanged; timelines are clear and Guidewire keeps investing to de-risk and accelerate migrations.

• Question from Matthew Kikkert (Stifel): How are data/analytics attach rates trending into FY26?
  Response: Healthy and growing faster than core; momentum in Industry Intelligence (claims models) and Quanti pricing analytics.

• Question from Matthew Kikkert (Stifel): What are FY26 operating margin levers?
  Response: No unique levers; continued scale and efficiency gains support progress toward long-term margin targets.

• Question from Michael Turin (Wells Fargo): Was Tier-1 strength year-end driven, and how will AI adoption vary by tier?
  Response: Tier-1 timing aligns to customer budget cycles, not fiscal year; AI use cases vary—productized capabilities aid smaller carriers, while Tier-1s may build more in-house.

• Question from Alex Hughes (Raymond James): FY26 ARR build—mix of ramps vs new, and pricing/churn assumptions?
  Response: More ARR from backlog ramps; conservative on true-ups; improved discount discipline; attrition modeled back to historical levels.