Executive Summary

Strong “beat-and-raise” quarter on operations: total revenue $289.5M (+20% y/y) finished above the high end of guidance; non-GAAP operating income $53.9M; ARR ended at $918.1M, also above outlook, and full-year FY25 outlook was raised across ARR, revenue, GAAP and non-GAAP operating income, and operating cash flow .
Mix skew continues toward cloud: subscription & support revenue grew 35% y/y to $177.8M; 12 cloud deals closed (4 full InsuranceSuite, 1 InsuranceNow; remainder 1–2 core xCenter apps); 5 new customers and 6 cloud migrations; momentum concentrated at larger Tier 1/2 insurers and in North America/Europe .
Profitability improved despite GAAP noise: non-GAAP op income doubled y/y; GAAP net loss (-$37.3M) driven by a $53.3M debt retirement charge linked to early converts retirement; operating cash flow $86.0M in Q2 beat expectations on strong collections .
Guidance raised and H2 visibility strong: management expects higher back-half ARR ramps (nearly 3x more ARR from backlog in Q4 vs Q3) and maintained S&S gross margin trajectory (~69% for FY25), underpinning higher FY25 non-GAAP operating income ($175–$185M) and operating cash flow ($230–$260M) .

Stock reaction catalyst: external reports noted a positive aftermarket move on the beat-and-raise narrative .

What Went Well and What Went Wrong

What Went Well
- Cloud adoption and deal quality: 12 cloud deals, with concentration at larger insurers (Tier 1/2) and 5 net new customers; “the industry’s transition to the cloud is steadily accelerating” .
- Margin expansion and cash generation: non-GAAP operating income $53.9M vs $25.7M y/y; Q2 operating cash flow $86.0M on strong collections; S&S gross margin at 69% (ahead of plan) .
- Improved visibility fuels raised outlook: FY25 guidance raised across ARR, revenue, operating income and OCF; “outperformance… and visibility into ARR from ramps… gives us the confidence to raise our full-year 2025 outlook” .
What Went Wrong
- GAAP net loss from debt retirement: GAAP EPS (-$0.45) as the company recognized ~$53.3M retirement-of-debt expense tied to early retirement of 2025 converts; management emphasized limiting dilution risk .
- Services margin modest in Q2: services GM 6% (seasonally lower Q2 services utilization around holidays); still within plan and improved y/y from negative 11% .
- FX expected headwind to ARR at year-end: management highlighted an approximately $9M negative FX impact if ARR were updated at current exchange rates .

Financial Results

Revenue/EPS/ARR vs prior periods (oldest → newest)

Metric	Q4 FY2024	Q1 FY2025	Q2 FY2025
Total Revenue ($M)	291.5	262.9	289.5
GAAP Diluted EPS ($)	0.20	0.11	(0.45)
Non-GAAP Diluted EPS ($)	0.62	0.43	0.51
ARR, period-end ($M)	864.0	874.0	918.1

Segment revenue mix (oldest → newest)

Revenue ($M)	Q4 FY2024	Q1 FY2025	Q2 FY2025
Subscription & Support	151.8	169.7	177.8
License	88.9	37.4	63.7
Services	50.8	55.8	47.9
Total	291.5	262.9	289.5

Margins (management framework; oldest → newest)

Margin	Q4 FY2024	Q1 FY2025	Q2 FY2025
Overall Gross Margin %	63.9% (computed from $186.4M/$291.5M)	63% (mgmt)	65% (mgmt)
Subscription & Support GM %	n/a	70% (mgmt)	69% (mgmt)
Services GM %	14% (mgmt, Q4)	20% (mgmt)	6% (mgmt)

KPIs and activity (oldest → newest)

KPI	Q4 FY2024	Q1 FY2025	Q2 FY2025
Cloud deals closed	16	9	12
New customers	4 net new	not disclosed	5
Cloud migrations	7	not disclosed	6

Why results moved:

Mix shift to Subscription & Support drove y/y growth and margin expansion; license and services quarterly patterns reflect deal timing and seasonal utilization (holiday impact) .
GAAP net loss driven by one-time debt retirement expense; non-GAAP profitability reflects core operating leverage (stock-based comp, amortization and debt retirement excluded) .

Guidance Changes

Full-year and intra-year guidance comparison

Metric	Period	Previous Guidance (Q1 FY25)	Current Guidance (Q2 FY25)	Change
Ending ARR ($M)	FY2025	995–1,005	1,000–1,010	Raised
Total Revenue ($M)	FY2025	1,155–1,167	1,164–1,174	Raised
GAAP Operating Income ($M)	FY2025	0–12	10–20	Raised
Non-GAAP Operating Income ($M)	FY2025	164–176	175–185	Raised
Operating Cash Flow ($M)	FY2025	220–250	230–260	Raised
Ending ARR ($M)	Q3 FY2025	n/a	942–947	—
Total Revenue ($M)	Q3 FY2025	n/a	283–289	—
GAAP Operating Income (Loss) ($M)	Q3 FY2025	n/a	(4)–2	—
Non-GAAP Operating Income ($M)	Q3 FY2025	n/a	36–42	—

Drivers: visibility into ramping ARR in H2 (nearly 3x more ARR from backlog in Q4 vs Q3), high win rates, and subscription margin trajectory underpin the raise .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 FY2024, Q1 FY2025)	Current Period (Q2 FY2025)	Trend
Cloud migrations and deal quality	Record Q4 cloud deals; growing full-suite commitments; Tier 2 breadth; 7 migrations; strong partner capacity	12 cloud deals (4 full-suite), 6 migrations; concentrated at Tier 1/2 with large/complex requirements	Improving
ARR visibility and seasonality	Fully ramped ARR +19% y/y; linearity work ongoing though Q4 strong; FX can impact ARR	Expect ~3x more ARR from backlog in Q4 vs Q3; FX could be a ~$9M ARR headwind at year-end	Improving visibility; FX headwind
Margins (S&S and services)	FY25 S&S GM target ~68%; services GM improving (Q4 14%)	S&S GM 69%; services GM 6% (seasonal); FY25 S&S GM ~69%, services ~12%, total GM ~65%	On plan
AI/technology initiatives	Vision to infuse genAI; ecosystem prebuilt integrations; marketplace growing	GenAI focus on dev productivity, claims, underwriting; classic ML on shared data; careful, customer-first rollout	Building
Regional momentum	Strength in NA; growing EMEA/APJ wins; local content investments	NA and Europe led Q2; three Tier 1 London market wins; broader global success	Broadening
Regulatory/macro (California, catastrophes)	Durable P&C tailwinds; modernization imperative across cycles	Catastrophe context and California dynamics supportive of modernization narrative	Supportive backdrop
Partner ecosystem	25K+ SI professionals; marketplace expansion	26K practitioners across 38 SIs; >500 apps; >6,000 downloads H1; 110+ cloud-native integrations	Expanding

Management Commentary

“We closed 12 cloud deals… with the majority at larger insurers who demand a platform that can handle their complexity and scale.” — CEO Mike Rosenbaum .
“ARR, revenue and profitability finished above the high end of our outlook ranges in the second quarter… [giving] us the confidence to raise our full-year 2025 outlook.” — CFO Jeff Cooper .
“ARR finished at $918 million… we added $45 million of net new ARR… roughly what we added in Q4 last year.” — CFO Jeff Cooper .
“Subscription and support gross margin was 69%… Services gross margin was 6%… overall gross margin was 65%.” — CFO Jeff Cooper .
“We retired an additional $100 million [face] of our 2025 convertible notes… resulting in a $53 million charge… to limit share dilution risk.” — CFO Jeff Cooper .
“We expect nearly 3x more ARR from backlog to come in Q4 when compared to Q3… we thought it would be helpful to call out this dynamic.” — CFO Jeff Cooper .
On AI: “Significant opportunity for generative AI in… claims… and underwriting… and for developer productivity… and classic ML on shared data.” — CEO Mike Rosenbaum .

Q&A Highlights

Cloud migration pacing and on‑prem support: Management expects the second half of the installed base to move “some factor shorter” than the first half; Guidewire is becoming more specific on on‑prem support schedules, accelerating decisions .
Services strategy and margins: Services remains a strategic asset focused on customer success; modest long‑term margin expansion expected; expanding India delivery to lower cost; Q2 seasonal dip was anticipated .
Margins trajectory: S&S GM managed on an annual basis with quarter-to-quarter noise (usage, credits); FY25 still ~69% S&S GM, ~65% total GM .
Pricing/true-ups and ARR: Premium/CPI true-ups remain a modest tailwind; H2 ARR ramps drive seasonality with Q4 far larger than Q3 .
Regional and Tier 1 dynamics: EMEA momentum increasing; Tier 1 standardization still line-of-business by line-of-business but full-suite arguments increasingly compelling as proof points multiply .

Estimates Context

S&P Global (Capital IQ) consensus: unavailable due to request-limit constraints in our data tool; therefore not shown here. Values would normally be cited from S&P Global.
External media suggest Q2 non-GAAP EPS was approximately in line to modestly below consensus (miss by ~~$0.01) while revenue beat modestly (~~+1.3%), with positive aftermarket reaction on raised outlook .

Where estimates may need to adjust:

FY25 revenue, operating income, and OCF should lift to management’s raised ranges given H2 ARR ramps and subscription margin trajectory .
Q3 revenue/non-GAAP OI guided above/within typical seasonal patterns (lower S&S sequentially due to fewer days), implying consensus should reflect mix-driven GM stability and services uplift in Q3 vs Q2 .

Key Takeaways for Investors

Durable beat-and-raise underpinned by cloud momentum and H2 ARR ramps; expect stronger Q4 seasonality from backlog ramps (nearly 3x Q3) .
Profitability lever intact: S&S gross margin tracking ~69% for FY25; non-GAAP OI raised to $175–$185M; OCF raised to $230–$260M .
One-time GAAP noise from converts retirement masks improving operations; de‑risked dilution with minimal residual share impact expected .
Demand quality improving at larger carriers and in EMEA/London market; continued investment in local content and partner ecosystem expands TAM and speeds implementations .
GenAI/ML optionality grows atop modernized core; near-term focus remains execution on core migrations and full-suite wins, with measured AI productization .
Trading setup: narrative supported by subscription mix, raised FY guide, and visible H2 ramps; watch Q3 services utilization and any FX impacts to ARR at year-end .

Guidewire Software, Inc. (GWRE)·Q2 2025 Earnings Summary