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Guidewire Software, Inc. (GWRE)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY25 delivered a broad-based beat: revenue $293.5M (+22% YoY) and non-GAAP EPS $0.88; both exceeded Wall Street consensus (revenue $286.4M*, EPS $0.468*) and the high end of the company’s outlook .
  • ARR reached $960M, a key milestone on the path to >$1B; sales activity was the third-best quarter in Guidewire’s history, with 17 cloud deals and strength at Tier 1/2 carriers .
  • FY25 guidance raised across the board: revenue to $1.178–$1.186B, ending ARR to $1.012–$1.022B, GAAP operating income to $20–$28M, non-GAAP operating income to $187–$195M, and operating cash flow to $255–$275M .
  • Margin trajectory remains positive; subscription/support GM reached 71% in Q3 aided by ~$4M cloud credits, though management guided Q4 S&S GM to ~68% given the absence of similar credits, a watch item for near-term profitability .

What Went Well and What Went Wrong

What Went Well

  • Record Q3 sales execution with 17 cloud deals (14 InsuranceSuite, 3 InsuranceNow) and wins at Tier 1/2 insurers; “record Q3 sales activity” and “third-best quarter in our history” .
  • Strong profitability progression: non-GAAP operating income of $46.1M vs $20.8M YoY; subscription/support gross margin 71% vs 66% YoY; services GM improved to 13% vs 10% YoY .
  • Strategic momentum and pipeline confidence: ARR $960M, raised FY targets, and continued go-lives (10 in Q3) underpinning referenceability; “we are raising our full-year fiscal 2025 targets” .

What Went Wrong

  • Q3 margin benefited from one-off ~$4M cloud provider credits; management explicitly does not expect similar credits in Q4 (S&S GM guide ~68%), creating a near-term margin headwind .
  • Stock-based compensation path stepped up with FY25 outlook to ~$162M (due to acquisitions and lower attrition), which dilutes non-GAAP leverage vs prior expectations .
  • Working capital dynamics showed continued build in unbilled accounts receivable (Q3 change of $(50.4)M), a common characteristic of long implementation cycles and ramps but a cash flow timing watch item .

Financial Results

Quarterly performance vs prior periods and consensus

MetricQ1 2025Q2 2025Q3 2025
Total Revenue ($USD Millions)$262.901 $289.480 $293.508
YoY Revenue Growth (%)27% 20% 22%
GAAP EPS ($)$0.11 $(0.45) $0.54
Non-GAAP EPS ($)$0.43 $0.51 $0.88
ARR ($USD Millions)$874.0 $918.1 $960.0
Non-GAAP Operating Income ($USD Millions)$34.707 $53.949 $46.059

Segment revenue breakdown

Revenue Component ($USD Millions)Q1 2025Q2 2025Q3 2025
Subscription & Support$169.742 $177.838 $181.823
License$37.370 $63.694 $57.233
Services$55.789 $47.948 $54.452

Key margin metrics

Margin (%)Q2 2025Q3 2025
Subscription & Support Gross Margin69% 71%
Services Gross Margin6% 13%
Total Gross Margin65% 65%

Results vs Wall Street consensus (S&P Global)

MetricQ1 2025Q2 2025Q3 2025
Revenue Consensus Mean ($USD Millions)$253.960*$285.738*$286.386*
Revenue Actual ($USD Millions)$262.901 $289.480 $293.508
Primary EPS Consensus Mean ($)$0.2968*$0.5148*$0.4679*
Non-GAAP EPS Actual ($)$0.43 $0.51 $0.88
Primary EPS – # of Estimates14*15*16*

Values marked with * retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Ending ARR ($USD Millions)FY25$1,000–$1,010B $1,012–$1,022B Raised
Total Revenue ($USD Millions)FY25$1,164–$1,174B $1,178–$1,186B Raised
GAAP Operating Income ($USD Millions)FY25$10–$20 $20–$28 Raised
Non-GAAP Operating Income ($USD Millions)FY25$175–$185 $187–$195 Raised
Operating Cash Flow ($USD Millions)FY25$230–$260 $255–$275 Raised
Subscription & Support GM (%)FY25~69% 69–70% Raised (slightly)
Total Gross Margin (%)FY25~65% ~65% (unchanged) Maintained
Services GM (%)FY25~12% ~12% (unchanged) Maintained
Ending ARR ($USD Millions)Q4 FY25N/A$1,012–$1,022B New
Total Revenue ($USD Millions)Q4 FY25N/A$332–$340 New
GAAP Operating Income ($USD Millions)Q4 FY25N/A$7–$15 New
Non-GAAP Operating Income ($USD Millions)Q4 FY25N/A$52–$60 New
Subscription & Support GM (%)Q4 FY25N/A~68% New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3)Trend
AI/technology initiativesQ2: GenAI use cases across claims, underwriting, developer productivity; ML opportunities via shared data Developer Summit showcased AI code-gen, upgrade-safe dev; first sale of Guidewire Industry Intelligence predictive model embedded in ClaimCenter Accelerating adoption and commercialization
International/Japan focusQ2: Strength in Europe (London market), balanced global momentum $60M five-year investment in Japan; local content roadmap; growing wins and commitment to long-term presence Increasing focus and investment
Cloud migrations/full-suiteQ1: 9 cloud deals ; Q2: 12 cloud deals (6 migrations, 5 new logos) Record Q3 with 17 cloud deals; 9 migrations, 5 net new, 3 expansions; traction at Tier 1/2 Strengthening breadth and depth
Services execution/marginsQ2 services GM 6%; holiday impact typical Services GM improved to 13%; continued focus on utilization and delivery Improving profitability
Pricing/rating domain expansionN/AAcquired Quanti; planning integration to actuary pricing/rating workbench aligned with Cloud production New strategic initiative
ARR ramp seasonalityQ2: Expect ~3x more ARR from backlog in Q4 vs Q3; strong visibility Record-low attrition and record-high ramping activity; reiterated confidence into Q4 Strong backlog-driven ramps

Management Commentary

  • “We closed 17 cloud deals… We saw particular strength at the high end of the market, closing seven core system deals with Tier 1 insurers and three with Tier 2 insurers” .
  • “ARR finished at $960 million… We are raising our ARR outlook to $1.012 billion–$1.022 billion” .
  • “Subscription and support gross margin was 71%… we benefited from approximately $4 million in credits from our cloud service provider” .
  • On Japan: “We’re committed to this market for the long haul… I want to be the P&C platform for Japan for the next 20, 30 years” ; supported by the $60M investment announcement .

Q&A Highlights

  • Execution cadence: Deals did not “pull forward”; high close rates kept Q3 strong while Q4 pipeline remains robust .
  • Japan market strategy: Emphasis on long-term commitment, local investment, and deep partner/customer support to win transformational programs .
  • Industry Intelligence pricing/applicability: First embedded predictive model targets broad use; strong value for smaller carriers lacking data and for large carriers entering new lines/territories .
  • Contract structure/ramp shape: Longer-duration (>5-year) deals increasingly common; ramps extend beyond year 5 and are excluded from “fully ramped” until the next five-year window .
  • InsuranceNow traction: Modernized product on Guidewire Cloud; strategy supports dual-platform use cases across segments/lines with positive referenceability .

Estimates Context

  • Q3 FY25 results significantly beat consensus: revenue $293.5M vs $286.4M*; non-GAAP EPS $0.88 vs $0.468* .
  • Beats also occurred in Q1 and Q2 on revenue, with Q2 EPS essentially in line (consensus $0.5148* vs actual $0.51) .
  • Given raised FY25 guide and stronger margins, sell-side models likely need higher subscription/support revenue, ARR trajectory, and FY non-GAAP operating income assumptions; note Q4 S&S GM guide (~68%) moderates margin extrapolation .

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Strong beat and raised FY guide signal accelerating cloud adoption at Tier 1/2 carriers and durable ARR growth heading into Q4 .
  • Margin progression remains intact, but Q4 subscription/support GM (~68%) reflects normalization absent Q3 cloud credits; near-term EPS sensitivity to S&S margin and services mix .
  • Backlog-driven ARR ramps are set to be materially larger in Q4 vs Q3, providing high visibility to ending ARR targets and FY revenue ranges .
  • Strategic initiatives (Industry Intelligence, Quanti integration) deepen pricing/analytics capabilities and expand attach opportunities beyond core, enhancing long-term monetization .
  • International expansion, notably Japan, is a multi-year growth vector supported by $60M investment and increasing local content—positioning Guidewire to win transformational programs .
  • Watch working capital dynamics (unbilled AR) and stock-based comp trajectory; both are consistent with scaling SaaS programs but influence cash flow timing and non-GAAP leverage .
  • Near-term trading catalysts: evidence of Q4 close rates and ARR ramps; margin delivery vs Q4 guide; additional Tier 1 wins and Industry Intelligence commercialization updates .