Executive Summary

Strong start to FY25: Q1 revenue rose 27% YoY to $262.9M and GAAP EPS reached $0.11 (non-GAAP $0.43), with subscription and support revenue up 33% YoY; ARR ended at $874M, at the high end of guidance .
Broad-based execution and Tier‑1 momentum: nine Q1 cloud deals including five Tier‑1s; Zurich signed a global framework agreement, accelerating multi-entity cloud adoption .
Profitability/margin upside: subscription & support gross margin reached 70% and overall gross margin 63% on platform efficiency and mix; services margin hit 20% on high utilization .
Guidance raised: FY25 total revenue increased to $1.155–$1.167B and non‑GAAP operating income to $164–$176M; Q2 revenue guided to $282–$288M with non‑GAAP op income $39–$45M; operating cash flow unchanged at $220–$250M .
Stock reaction catalysts: beat vs company Q1 guidance on revenue and profitability, visible Tier‑1 wins (Zurich framework), and FY25 guidance raise; S&S margin at 70% underscores cloud scale benefits .

What Went Well and What Went Wrong

What Went Well

Tier‑1/International momentum: 9 cloud deals (5 Tier‑1s), including Zurich’s global framework plus adoptions at Zurich entities (commercial suite and ClaimCenter Australia); additional Tier‑1 wins in Europe and ANZ .
Margin expansion: subscription & support gross margin reached 70% (vs 65% a year ago) on platform efficiency; services margin improved to 20% on utilization and lower subcontracting .
Cloud maturity and AI narrative: CEO highlighted easier updates, stronger referenceability, and generative AI plans to enhance developer productivity and underwriting/claims, resonating with customers; Gartner MQ named InsuranceSuite a clear leader .

Selected quotes:

“Cloud demand remained strong with 9 deals in Q1… five were with Tier 1 insurers… [Zurich] global framework agreement…” .
“Subscription and support gross margin was 70%… ahead of expectations due to… platform efficiency.” .
“We shared our vision to infuse generative AI in our platform… feedback was incredibly positive.” .

What Went Wrong

Cash outflows seasonality: Q1 operating cash flow was -$62.3M and free cash flow -$67.4M, impacted by annual bonus and commissions timing (seasonally weakest cash quarter) .
Services mix still below ideal steady-state: management does not expect services margins to sustain 20% through the year; utilization expected to tick down from Q1 strength .
ARR nuance and churn: one large deal signed in Q1 starts ARR in Q2; churn was “a little bit higher” in Q1 than expected for the rest of the year .

Financial Results

Headline metrics vs prior quarters (chronological order)

Metric	Q3 FY2024	Q4 FY2024	Q1 FY2025
Total Revenue ($M)	$240.7	$291.5	$262.9
GAAP EPS	$(0.07)	$0.20	$0.11
Non-GAAP EPS (Diluted)	$0.26	$0.62	$0.43
ARR ($M, period-end)	$828	$864 (revalued at FY-end FX)	$874

Revenue mix

Revenue ($M)	Q3 FY2024	Q4 FY2024	Q1 FY2025
Subscription & Support	$138.0	$151.8	$169.7
License	$56.2	$88.9	$37.4
Services	$46.5	$50.8	$55.8
Total Revenue	$240.7	$291.5	$262.9

Profitability and margins (Q1 FY2025 focus; non-GAAP where noted)

KPI	Q1 FY2025
Overall Gross Margin (%)	63%
S&S Gross Margin (%)	70%
Services Gross Margin (%)	20%
GAAP Operating Income (Loss) ($M)	$(4.7)
Non-GAAP Operating Income ($M)	$34.7
GAAP Net Income ($M)	$9.1
Non-GAAP Net Income ($M)	$36.8
Operating Cash Flow ($M)	$(62.3)
Free Cash Flow ($M)	$(67.4)

YoY comps (Q1 FY2025 vs Q1 FY2024): total revenue +27%; S&S +33%; license +10%; services +22%; GAAP net income swung to $9.1M from $(27.1)M; non‑GAAP net income to $36.8M from $(0.3)M .

Non-GAAP adjustments include stock-based comp, amortization of intangibles, amortization of debt issuance costs, changes in fair value of strategic investments, retirement of debt, and tax effects .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Ending ARR ($M)	FY2025	$995–$1,005	$995–$1,005	Maintained
Total Revenue ($M)	FY2025	$1,135–$1,149	$1,155–$1,167	Raised
GAAP Operating Income ($M)	FY2025	$(4)–$10	$0–$12	Raised
Non‑GAAP Operating Income ($M)	FY2025	$157–$171	$164–$176	Raised
Operating Cash Flow ($M)	FY2025	$220–$250	$220–$250	Maintained
Total Revenue ($M)	Q2 FY2025	N/A	$282–$288	New
Non‑GAAP Operating Income ($M)	Q2 FY2025	N/A	$39–$45	New

Additional color from call: FY25 S&S gross margin raised to ~69% (from ~68% prior), services ~12%, overall ~65% .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 FY2024, Q4 FY2024)	Current Period (Q1 FY2025)	Trend
Tier‑1 cloud momentum	Q3: strong Tier‑1 deal volume; APAC migration acceleration	9 cloud deals; 5 Tier‑1; Zurich global framework; EU/APAC Tier‑1 wins	Improving
ARR trajectory	Q3 ARR $828M; FY24 ARR $864M revalued	ARR $874M; one large deal ARR starts in Q2; slightly higher Q1 churn than rest of year	Stable to improving
Margins & efficiency	FY24 model durability; cash from ops 20% of rev in FY24	S&S GM 70%; services GM 20%; reallocation of engineers to COGS will temper GM later	Improving with mix; moderating later
AI/technology	Continuous innovation; product releases maturing platform (Q3)	GenAI plans across platform, underwriting/claims; high customer engagement on AI	Increasing focus
Partner ecosystem	SI leadership critical; ecosystem momentum (prior)	33 SIs at Connections; new integrations (Hi Marley, Box)	Strengthening
Regional trends	Q3: APAC acceleration	Europe and ANZ Tier‑1 deal wins; Japan engagement rising	Strengthening
Services execution	Q3 services rev -6% YoY	Q1 services margin 20% on utilization; not expected to persist at 20%	Near-term strong, normalizing

Management Commentary

Strategic positioning: “We continue to see strong demand… particularly at the high end of the market… maturity of our cloud platform… and partner ecosystem… driving our company right now.”
Zurich framework: “A mechanism… to create a more fluid conversation with each… entity… it could only speed up our sales momentum with Zurich.”
AI vision: “We shared our vision to infuse generative AI… improve developer productivity and accelerate underwriting and claims processes… feedback… incredibly positive.”
Margin drivers: “S&S gross margin was 70%… ahead of expectations due to higher‑than‑expected revenue and continued progress on platform efficiency… services gross margin was 20%… strong utilization and lower subcontractor costs.”
Cloud migration pacing: “We are going to get 100% of our customer base to our cloud… it’s going to take a long time, but we’re going to do it.”

Q&A Highlights

Zurich GFA impact: Framework simplifies and accelerates multi-entity deals; two Zurich entities closed alongside the framework .
S&S margin step-up explanation: Expected increase in platform usage through the year and reclassification of certain engineers from R&D to COGS (~1pt FY impact) imply margins won’t stay at 70% every quarter .
Services durability: Q1 utilization strong; partners still lead most programs; margins expected to normalize below 20% later in the year .
ARR timing and churn: One deal signed Q1 starts ARR in Q2; Q1 churn slightly higher than expected for rest of year .
AI pricing: Too early to specify; AI will be embedded across solutions with nuanced packaging/pricing .
Workers’ comp opportunity: 122 customers; potential for product and analytics enhancements and network effects across carriers .

Estimates Context

S&P Global consensus estimates were unavailable at the time of analysis due to data request limits. As a proxy, we compared actuals to company guidance:
- Q1 revenue $262.9M vs prior guide $251–$257M (beat) .
- Q1 non‑GAAP operating income $34.7M vs prior guide $18–$24M (beat) .
- ARR $874M vs prior guide $869–$874M (at high end) .
Where estimates are needed for trading models, we recommend refreshing consensus once S&P Global access is restored.

Key Takeaways for Investors

Cloud transition flywheel turning at the high end: visible Tier‑1 wins and the Zurich framework should compress sales cycles and increase multi-entity opportunity density .
Profitability inflection intact: 70% S&S GM and raised FY25 revenue/non‑GAAP OI guidance suggest durable operating leverage as cloud scale builds .
Near-term model watchpoints: Q2 implied S&S GM moderation due to usage ramp and cost reclassifications; services margins expected to normalize below Q1’s 20% .
ARR cadence steady with timing nuances: strong bookings backdrop, but some ARR start dates lag signings and Q1 churn slightly elevated vs rest-of-year plan .
AI narrative as a demand catalyst: customer engagement is broad-based; Guidewire’s platform integration focus positions it to monetize through solution-level packaging .
Cash seasonality understood: Q1 cash outflow is typical; FY25 operating cash flow guide maintained at $220–$250M .
Setup: Continued Tier‑1 execution, margin discipline, and an expanding partner ecosystem remain the core drivers into Q2, with guidance implying sequential revenue growth .

Appendix: Additional Data

Q1 FY2025 GAAP P&L line items (selected)

Subscription & support revenue: $169.742M; License: $37.370M; Services: $55.789M .
Total cost of revenue: $104.509M; R&D: $68.880M; S&M: $51.478M; G&A: $42.754M .
GAAP net income: $9.139M; diluted shares: 85.961M; GAAP diluted EPS: $0.11 .
Free cash flow: $(67.381)M .
Cash, cash equivalents, and investments: $1,480.4M; established $300M revolver on Dec 2, 2024 .
Credit agreement effective Dec 2, 2024 ($300M revolver; various terms) .

Company guidance bridge (Q1 FY25 actual vs prior Q1 guide)

Metric	Prior Q1 FY25 Guidance	Actual Q1 FY25
ARR ($M)	$869–$874	$874
Total Revenue ($M)	$251–$257	$262.9
GAAP Operating Income (Loss) ($M)	$(18)–$(12)	$(4.7)
Non‑GAAP Operating Income ($M)	$18–$24	$34.7

Guidewire Software, Inc. (GWRE)·Q1 2025 Earnings Summary