Guidewire Software (GWRE) Q2 2025 Earnings Call March 07, 2025 12:55 AM ET Company Participants Alex Hughes - VP - IRMike Rosenbaum - CEOJeff Cooper - CFOAlexei Gogolev - Executive DirectorRishi Jaluria - Managing DirectorAlexander Sklar - Vice PresidentAdam Hotchkiss - VP - Emerging Software Equity ResearchParker Lane - Managing Director - Equity ResearchAaron Kimson - Vice President Conference Call Participants Dylan Becker - Research AnalystKen Wong - Managing Director & Senior AnalystJoe Vruwink - Senio ...

For the quarter ended January 2025, Guidewire Software (GWRE) reported revenue of $289.48 million, up 20.2% over the same period last year. EPS came in at $0.51, compared to $0.46 in the year-ago quarter.The reported revenue compares to the Zacks Consensus Estimate of $285.69 million, representing a surprise of +1.33%. The company delivered an EPS surprise of -1.92%, with the consensus EPS estimate being $0.52.While investors scrutinize revenue and earnings changes year-over-year and how they compare with W ...

Core Viewpoint - Guidewire Software reported quarterly earnings of $0.51 per share, slightly missing the Zacks Consensus Estimate of $0.52 per share, but showing an increase from $0.46 per share a year ago [1][2] Financial Performance - The company posted revenues of $289.48 million for the quarter ended January 2025, exceeding the Zacks Consensus Estimate by 1.33% and up from $240.9 million year-over-year [3] - Over the last four quarters, Guidewire Software has surpassed consensus EPS estimates three times and topped consensus revenue estimates four times [2][3] Stock Performance - Guidewire Software shares have increased approximately 17.1% since the beginning of the year, contrasting with a decline of -0.7% in the S&P 500 [4] - The stock currently holds a Zacks Rank 1 (Strong Buy), indicating expectations for it to outperform the market in the near future [7] Future Outlook - The current consensus EPS estimate for the upcoming quarter is $0.42 on revenues of $278.33 million, and for the current fiscal year, it is $2.06 on revenues of $1.16 billion [8] - The estimate revisions trend for Guidewire Software is favorable, which may influence stock movements in the near term [6][7] Industry Context - The Internet - Software industry, to which Guidewire Software belongs, is currently ranked in the bottom 46% of over 250 Zacks industries, suggesting potential challenges ahead [9]

Financial Performance - Total revenue for the three months ended January 31, 2025, was $289,480,000, representing a 20.1% increase from $240,897,000 in the same period of 2024[18]. - Subscription and support revenue increased to $177,838,000, up 35.1% from $131,642,000 year-over-year[18]. - Net loss for the three months ended January 31, 2025, was $(37,277,000), compared to a net income of $9,687,000 in the same period of 2024[20]. - The company reported a gross profit of $179,152,000 for the three months ended January 31, 2025, compared to $142,406,000 in the same period of 2024, an increase of 25.8%[18]. - Total revenue for the six months ended January 31, 2025, was $552,381,000, a 23.2% increase from $448,304,000 in the same period of 2024[45]. - The company reported free cash flow of $14.9 million for the six months ended January 31, 2025, compared to a negative free cash flow of $12.9 million for the same period in 2024[138]. Assets and Liabilities - Total current assets rose to $1,478,126,000 as of January 31, 2025, compared to $1,295,534,000 as of July 31, 2024, marking a 14.1% increase[16]. - Total liabilities increased to $1,274,053,000 as of January 31, 2025, compared to $883,562,000 as of July 31, 2024, reflecting a significant rise of 44.3%[16]. - Cash and cash equivalents increased to $697,488,000 as of January 31, 2025, from $547,992,000 as of July 31, 2024, a growth of 27.2%[16]. - The company’s total stockholders' equity decreased to $1,268,736,000 as of January 31, 2025, down from $1,342,732,000 as of July 31, 2024, a decline of 5.5%[16]. - Cash, cash equivalents, and investments increased to $1,412,434,000 as of January 31, 2025, from $1,129,453,000 as of July 31, 2024[213]. - Working capital improved to $919,445,000 as of January 31, 2025, compared to $457,899,000 as of July 31, 2024[213]. Expenses - Operating expenses for the three months ended January 31, 2025, were $167,429,000, up from $154,816,000 in the same period of 2024, indicating an 8.1% increase[18]. - Research and development expenses were $70,268,000 for the three months ended January 31, 2025, compared to $65,458,000 in the same period of 2024, a rise of 12.5%[18]. - The company recognized a total interest expense of $4.1 million for the three months ended January 31, 2025, compared to $1.7 million for the same period in 2024, representing a 143% increase[5]. - General and administrative expenses increased by $1.5 million during the three months ended January 31, 2025, driven by professional services costs of $1.0 million[191]. - Sales and marketing expenses increased by $6.3 million during the three months ended January 31, 2025, mainly due to personnel costs of $5.8 million[187]. Revenue Recognition - Subscription revenue for the six months ended January 31, 2025, reached $314,517,000, up 41.2% from $222,722,000 in the prior year[45]. - The company recognized revenue of approximately $62.1 million related to gross deferred revenue during the three months ended January 31, 2025[55]. - License revenue decreased by $7.3 million (10%) for the three months ended January 31, 2025, primarily due to customer migration from term licenses to subscription services[159]. - Services revenue increased by $9.8 million (26%) for the three months ended January 31, 2025, attributed to higher utilization of services employees and more new subscription implementation projects[160]. - The recurring license and support or subscription contract value recognized as services revenue was $4.6 million during the six months ended January 31, 2025[135]. Strategic Focus and Market Position - The company is focused on enhancing its technology platform, which integrates core operations, digital engagement, and AI applications, aimed at improving business decision-making for insurance carriers[30]. - The Company’s core products include InsuranceSuite Cloud, InsuranceNow, and InsuranceSuite for self-managed installations, which support the entire insurance lifecycle[115]. - The Company has localized its suite of products to meet various international regulatory, language, and currency requirements, enhancing its global reach[115]. - The partnership with third-party system integrators (SI) is crucial for facilitating new sales and implementations, allowing for increased efficiency and reduced costs[126]. - The company continues to invest in product development and cloud operations to enhance current products and introduce new ones, which is critical for maintaining competitive advantage and revenue growth[124]. Risks and Challenges - The company faces risks related to expanding into new markets and managing lengthy sales cycles, which could impact revenue and ARR growth rates[127]. - Global economic disruptions, including inflation and geopolitical instability, may adversely affect the company's financial results and customer payment capabilities[130]. - Seasonal variations in license revenue are observed, particularly with increased customer orders in the fourth fiscal quarter, impacting revenue recognition dynamics[128]. Stock and Shareholder Information - The Company has not repurchased any shares during the three and six months ended January 31, 2025, with $138.2 million remaining available for future share repurchases[112]. - The weighted average shares used in computing diluted net income (loss) per share were 83,705,700 for the three months ended January 31, 2025[72]. - The Company recognized a gain of $3.7 million from the sale of equity interest in an investee during the three months ended January 31, 2025[68].

Financial Data and Key Metrics Changes - The company reported an ARR of $918 million, reflecting a net new ARR addition of $45 million, consistent with the previous year's Q4 performance [16][17] - Total revenue reached $289 million, up 20% year-over-year, exceeding the high end of the outlook [17] - Subscription and support revenue was $178 million, showing a 35% year-over-year growth [17] - Operating profit for Q2 was $54 million, surpassing expectations due to higher gross profit and lower operating expenses [19] Business Line Data and Key Metrics Changes - The company closed 12 cloud deals, including four full InsuranceSuite deals and one InsuranceNow deal, indicating strong cloud adoption [10] - Six cloud migrations were completed in the quarter, with two involving expansions into new business lines or core modules [11] - Services revenue was $48 million, aligning with expectations, while services gross margin improved to 6% from negative 11% a year ago [18] Market Data and Key Metrics Changes - North America and Europe led the geographical distribution of deals, with about a third of the deals occurring in Europe [11] - The company welcomed five new customers in Q2, including one in Brazil and one in Belgium, highlighting international expansion [10] Company Strategy and Development Direction - The company aims to transition 100% of its on-premise customer base to its cloud platform, emphasizing the importance of cloud capabilities [11] - The management highlighted the critical role of a well-functioning property and casualty (P&C) insurance market in providing financial support during catastrophic events [8] - The company is focusing on enhancing its cloud ecosystem and increasing the number of cloud applications available through its marketplace [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of the P&C insurance industry, stating it is designed to absorb catastrophes like the recent California wildfires [12] - The company raised its ARR outlook for fiscal year 2025 to between $1 billion and $1.01 billion, reflecting a growth of 16% to 17% year-over-year [21] - Management noted that the visibility into the second half of the year is strong, driven by ramping deals and a healthy pipeline [22] Other Important Information - The company retired an additional $100 million of its 2025 convertible notes, reducing potential share dilution [20] - The cash flow from operations for the quarter was $86 million, ahead of expectations due to strong collections [19] Q&A Session Summary Question: How does adaptability and interoperability come into play for carriers? - Management noted that modern platforms provide agility, enabling insurers to manage indemnity and expense ratios more effectively [28] Question: How do you balance margin outperformance with reinvestment opportunities? - Management emphasized a focus on growth while maintaining margin expansion, with plans for increased hiring in R&D [36] Question: Is the return of large insurers to California a tailwind for Guidewire? - Management indicated that the repricing of insurance policies in California could be beneficial, as it highlights the importance of effective risk management [40] Question: How is the company leveraging data for customer value? - Management expressed optimism about the potential of generative AI to enhance productivity and efficiency in various insurance processes [46][49] Question: What is the outlook for services gross margins? - Management expects gradual improvement in services gross margins, with a focus on ensuring successful software implementations [62] Question: How is the cloud migration conversation evolving geographically? - Management reported strong momentum in cloud deals across various regions, indicating a shift from a North America-centric approach to a more global presence [75] Question: What is the status of non-core insurance suite opportunities? - Management confirmed that the non-core business remains healthy, with analytics products performing well [80]

Financial Performance - Total revenue for Q2 FY 2025 was $289.5 million, a 20% increase from Q2 FY 2024[6] - Subscription and support revenue reached $177.8 million, up 35% year-over-year[6] - Annual recurring revenue (ARR) as of January 31, 2025, was $918.1 million, compared to $864.0 million as of July 31, 2024[6] - GAAP income from operations was $11.7 million, a turnaround from a loss of $12.4 million in Q2 FY 2024[6] - Non-GAAP net income for Q2 FY 2025 was $43.9 million, compared to $39.1 million in Q2 FY 2024[6] - The company reported a GAAP net loss of $37.3 million for Q2 FY 2025, compared to a net income of $9.7 million in Q2 FY 2024[6] - Total revenue for the three months ended January 31, 2025, was $289,480,000, representing a 20.1% increase from $240,897,000 in the same period of 2024[22] - Subscription and support revenue increased to $177,838,000 for the three months ended January 31, 2025, up 35.1% from $131,642,000 year-over-year[22] - Net loss for the three months ended January 31, 2025, was $(37,277,000), compared to a net income of $9,687,000 in the same period of 2024[22] - Gross profit for the three months ended January 31, 2025, was $179,152,000, a 25.8% increase from $142,406,000 in the same period of 2024[22] - Non-GAAP net income for the three months ended January 31, 2025, was $43,929 thousand, compared to $39,127 thousand in the same period of 2024, reflecting a 7.1% increase[26] Cash and Assets - The company had $1,412.4 million in cash, cash equivalents, and investments as of January 31, 2025, up from $1,129.5 million at July 31, 2024[6] - Total current assets rose to $1,478,126,000 as of January 31, 2025, an increase of 14.1% from $1,295,534,000 as of July 31, 2024[20] - Total cash, cash equivalents, and restricted cash at the end of the period was $698,680 thousand, down from $351,181 thousand at the end of January 31, 2024[25] - Cash provided by operating activities for the three months ended January 31, 2025, was $85,991 thousand, compared to $69,251 thousand in 2024, indicating a 24.4% increase[25] - Net cash provided by operating activities for the six months ended January 31, 2025, was $23.7 million, compared to a cash outflow of $(2.8) million in the same period of 2024[27] Expenses and Liabilities - Research and development expenses for the three months ended January 31, 2025, were $70,268,000, up from $65,458,000 in the same period of 2024, indicating a focus on innovation[22] - Total liabilities increased to $1,274,053,000 as of January 31, 2025, compared to $883,562,000 as of July 31, 2024, reflecting a significant rise in convertible senior notes[20] - Stock-based compensation expense totaled $40,948,000 for the three months ended January 31, 2025, compared to $36,427,000 in the same period of 2024[23] - Stock-based compensation for the three months ended January 31, 2025, was $40,948 thousand, compared to $36,427 thousand in the same period of 2024, a 13.8% increase[26] Future Outlook - Guidewire raised its full-year 2025 outlook due to strong performance and a healthy pipeline[2] - Guidewire expects ending ARR for FY 2025 to be between $1,000 million and $1,010 million[9] - Total revenue guidance for FY 2025 is between $1,164 million and $1,174 million[9] - The company expects a GAAP income from operations outlook of $(4) million to $2 million for the third quarter of fiscal year 2025[29] - Non-GAAP income from operations is projected to be between $36 million and $42 million for the third quarter of fiscal year 2025[29] - Non-GAAP income from operations for fiscal year 2025 is expected to range from $175 million to $185 million[29] Losses and Cash Flow - The company recorded a $53.6 million loss on retirement of debt during the six months ended January 31, 2025, which included a $53.3 million loss on extinguishment[27] - Cash used in investing activities for the three months ended January 31, 2025, was $(52,920) thousand, compared to $(23,427) thousand in 2024[25] - The company experienced a net cash decrease of $(126,074) thousand for the three months ended January 31, 2025, compared to an increase of $48,570 thousand in the same period of 2024[25] - Free cash flow for the three months ended January 31, 2025, was $82.3 million, compared to $63.9 million in the same period of 2024[27]

Core Viewpoint - Guidewire Software, Inc (GWRE) is expected to report second-quarter fiscal 2025 results, with management projecting revenues between $282 million and $288 million, reflecting an 18.6% increase year-over-year [2][5]. Financial Performance - The Zacks Consensus Estimate for revenues is $285.7 million, while the bottom line estimate is 52 cents per share, unchanged over the past 60 days. In the same quarter last year, GWRE reported earnings of 46 cents per share [2]. - GWRE has delivered a trailing four-quarter earnings surprise of 70.4% on average, and its shares have gained 69.5% over the past year, outperforming the Internet-Software industry's growth of 19.4% [4]. Business Drivers - The company's performance is likely bolstered by strong momentum in cloud-based solutions, solid deal volume across all tiers, particularly with Tier 1 insurers, and increasing international momentum, especially in Asia Pacific and Europe [5]. - Guidewire Cloud is expected to have gained momentum with nine deal wins, including seven for InsuranceSuite Cloud, with five deals involving Tier 1 insurers. Management anticipates subscription and support revenues of $175 million and services revenues of $48 million [6]. Annual Recurring Revenue (ARR) and Operating Income - For the second quarter of fiscal 2025, ARR is projected to be between $909 million and $914 million, with an expected ARR of $912 million. Non-GAAP operating income is anticipated to be in the range of $39 million to $45 million, with an estimate of $42.2 million, representing a 64.1% year-over-year increase [7]. Challenges - Increased investments in the ecosystem of implementation partners may have impacted service revenues, and license revenues could be affected due to the migration of on-premise customers to the cloud [8]. - Ongoing investments in product enhancements, along with global macroeconomic challenges and inflation, remain concerning factors for the company [9]. Earnings Prediction - The current model does not predict an earnings beat for GWRE, as it has an Earnings ESP of 0.00% and a Zacks Rank of 2 (Buy) [10].

Core Viewpoint - Analysts forecast that Guidewire Software (GWRE) will report quarterly earnings of $0.52 per share, reflecting a year-over-year increase of 13% and revenues of $285.69 million, which is an 18.6% increase compared to the previous year [1]. Earnings Estimates - Over the last 30 days, there has been no revision in the consensus EPS estimate for the quarter, indicating stability in analysts' forecasts [2]. - Changes in earnings estimates are crucial for predicting investor reactions, as empirical research shows a strong correlation between earnings estimate revisions and short-term stock performance [3]. Revenue Projections - Analysts project 'Revenues- Services' to be $47.94 million, indicating a year-over-year change of +25.6% [4]. - The estimated 'Revenues- License' is $64.28 million, reflecting a decrease of -9.6% from the prior-year quarter [5]. - 'Revenue- Subscription and support' is expected to reach $173.68 million, showing a year-over-year increase of +31.9% [5]. - 'Subscription Revenue' is forecasted at $155.60 million, suggesting a change of +37.5% year over year [5]. - 'Term License Revenue' is estimated at $64.77 million, indicating a decrease of -8.8% from the previous year [6]. - 'Support Revenue' is projected to be $17.56 million, reflecting a decline of -5.2% from the year-ago quarter [6]. - The consensus estimate for 'Annual recurring revenue' stands at $912.32 million, up from $800 million a year ago [6]. Profit Estimates - Analysts estimate 'Gross profit- Subscription and support' to reach $117.12 million, compared to $81.71 million in the same quarter last year [7]. - 'Gross profit- License' is projected at $61.87 million, down from $69.60 million in the prior year [7]. Stock Performance - Over the past month, shares of Guidewire Software have returned -4.7%, while the Zacks S&P 500 composite has changed by -1.3% [8]. - GWRE currently holds a Zacks Rank 2 (Buy), suggesting potential outperformance in the near future [8].

Group 1: Stock Performance - Guidewire Software (GWRE) shares increased by 11.5% to $204.60 in the last trading session, with a higher-than-average trading volume [1] - The stock has gained 5.1% over the past four weeks, reflecting strong financial performance [1] Group 2: Business Growth - Guidewire is experiencing growth from increased deal volume, particularly in Tier 1 markets, and strong momentum in international regions such as Asia Pacific and Europe [2] - The Guidewire Cloud segment reported nine deal wins in the last quarter, indicating steady growth [2] Group 3: Financial Metrics - The subscription and support segment's gross margin improved to 70.3% from 65.4% year-over-year, driven by higher revenues and improved cloud infrastructure efficiency [3] - For fiscal 2025, total revenue is projected to be between $1.155 billion and $1.167 billion, an increase from previous guidance of $1.135-$1.149 billion [4] - Subscription revenues are expected to reach $648 million, with subscription and support revenues anticipated at $713 million, and services revenues around $205 million [4] Group 4: Earnings Expectations - The upcoming quarterly earnings are expected to be $0.52 per share, reflecting a year-over-year increase of 13%, with revenues projected at $285.69 million, up 18.6% from the previous year [5] - The consensus EPS estimate for the quarter has remained unchanged over the last 30 days, indicating stability in earnings expectations [6]

Index Changes - Guidewire Software Inc (GWRE) will be added to the S&P MidCap 400, replacing Arrowhead Pharmaceuticals Inc (ARWR) [1][2] - Arrowhead Pharmaceuticals Inc (ARWR) will be added to the S&P SmallCap 600, replacing Barnes Group Inc (B) [1][2] - The changes will take effect prior to the opening of trading on January 27, 2025 [2] Company Information - Guidewire Software Inc (GWRE) operates in the Information Technology sector [2] - Arrowhead Pharmaceuticals Inc (ARWR) operates in the Health Care sector [2] - Barnes Group Inc (B) operates in the Industrials sector [2] - Apollo Global Management Inc (APO) is acquiring Barnes Group Inc (B) in a deal expected to be completed soon [1] S&P Dow Jones Indices Overview - S&P Dow Jones Indices is the largest global resource for essential index-based concepts, data, and research [3] - It is home to iconic financial market indicators such as the S&P 500 and the Dow Jones Industrial Average [3] - More assets are invested in products based on S&P Dow Jones Indices than any other provider globally [3] - S&P Dow Jones Indices is a division of S&P Global (NYSE: SPGI) [4]